Covid-19 Watch

IMF: food inflation could get worse

As early as the month of May, the USDA Foreign Service Agriculture had warned South Africa of escalating food prices.  

“Food price inflation has increased from 3.4 percent in 2019, to 4.6 percent in 2020 and an estimated 5.4 percent in 2021.” 

According to the USDA report, South Africa should expect food prices to increase continuously amid concerns that it could bridge peak levels of 10.5%. 

On the global scope, the International Monetary Fund (IMF) said this situation was not only unique to developing and emerging markets but rather, the genesis of this outcome predates the covid-19 pandemic and was exacerbated further by the Chinese and US trade war. 

“At the start of the pandemic, food supply chain disruptions, a shift from food services (such as dining out) towards retail grocery, and consumer stockpiling (coupled with a sharp appreciation of the US dollar) pushed up consumer food price indices in many countries,” said the IMF. 

For South Africa’s case, food price inflation had a direct contribution and influence to the general Consumer Price Inflation (CPI). Through the South African Reserve Bank (SARB), inflation targeting was the prime aim to manage and control CPI between 3% and 6%. 

According to the SARB, the objective of using inflation targeting was to ‘protect the value of the rand’ thus making food price inflation an important economic indicator due to its potential impact to South Africa’s food security. 

Domestically, factors that pushed food prices were electricity tariff increases (15%), the introduction of minimum wage and excessive retail food price increases. 

In May 2021, the Bureau for Food and Agricultural Policy (BFAP) observed the most significant food price increases were for “oils and fats (+20.0%), sugar-rich food (+8.7%) and meat (+8.5%).”

These price increase in oils and fats were due to international price pressure from a combination of supply disruptions. Among those pressures, included the shifts in global food producer prices.

IMF observed that from April 2020, three main factors were behind the producer prices namely; a) Demand for staples for both human consumption and animal feed, b) the recent 2020-2021 La Niña episode with food exporting countries experiencing dry weather conditions and c) strong demand of biofuels. 

The three factors set international food prices to increased levels of 47.2% on May 2021 the highest since 2014. 

South Africa was a net importer of food, and based on IMF’s outlook, there was high likelihood that food price shocks will beset consumers as large proportions of their income is spent on food.  

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