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South Africans are in for a food price shock

South African food prices are expected to shoot up as the country faces the worst drought in two decades, and the rand loses strength against the dollar.

This is according to a report by Bloomberg, citing forecasts from Stanlib Asset Management and Macquarie Group.

The financial groups have predicted that food inflation in the country is set to move above 10% by the middle of 2016 – which is double the current pace.

South Africa’s food prices face pressure on three fronts: global food pressures, local currency weakness, and the domestic drought. This will ultimately be forced onto consumers, Stanlib said.

Early on 26 November, the rand was trading at R14.21 to the dollar. The last time South Africa’s food price inflation was around 10% was in 2011 and 2012, during another drought. At the time, the rand was trading at R8.08 to the dollar.

The drought in the country has put maize crops in danger, forcing South Africa to import corn. Corn is both a staple food for South African citizens, and is used for livestock feed. Corn prices have increased by more than 50% this year.

Higher food prices will have a massive negative impact on the poor, who spend a bigger portion of their total income on food products.

According to data from the South Africa Institute of Race Relations, poor households spend a third (33.5%) of their income on food, compared to wealthier households which spend over a tenth (10.8%).

Overall, South Africans spend about a quarter (25.3%) of their total income on food.

Economist Mike Shussler said that the ongoing drought, the pressures on the rand, low commodity prices, and visa restrictions could shift the country into a recession by early next year.

South Africa’s economy grew marginally by 0.7% in the third quarter of 2015, according to data from Statistics SA – narrowly avoiding a technical recession – following a 1.3% contraction in the second quarter.

Source: businesstech


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