Why did food become so expensive?

Why did food become so expensive? Why does South Africa export food when so many are hungry? Do we have enough food? These are some of the questions consumers are asking while they struggle with the impact of the high cost of living.

Agricultural economist Wandile Sihlobo has to answer these questions often.

“In short, South Africa has sufficient food supplies and mechanisms to ensure that we do not export too much food and risk creating shortages in the domestic market. Local consumers are a priority, but the exports are essential for the sustainability of the farming business,” he says.

However, he says, you have to appreciate that the food price increases are not unique to South Africa. “Zambia, Kenya, Brazil, the US and the EU had consumer food price inflation in May averaging more than 10% year-on-year. By comparison, our consumer food price inflation averaged 7.8%.”

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Various events made food expensive

Sihlobo says there are various reasons behind these price increases and although the focus has been on the Russia-Ukraine war and subsequent disruptions to Ukraine’s supply chains and grains stocks, the war started when global food prices were already on an upward trend.

“Challenges began with China importing ample supplies of grains over the past few years as the country rebuilt its inventories and expanded its pig industry after it was devastated by the African swine fever. China’s large and continuous grains and oilseeds purchases added upward pressure on global prices.”

He says the second event was the drought in South America over the past two seasons which undermined production in the key producers, Brazil (14%) and Argentina (50%) that collectively account for 64% of global maize and soybean production. Indonesia, which accounted for 54% of global palm oil exports in value over the past five years, also had weather-related challenges.

“The third and less pronounced issue was the move towards biofuels support by the Biden administration in the US, which also stimulated demand for grains and oilseeds, putting upward pressure on prices.”

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Additional challenge

The disruptions in supply chains and increase in shipping costs due to Covid-19 were an additional challenge, but not the primary reason for rising prices.

“It is mainly these events that pushed up selected agricultural commodity prices on the FAO Global Food Price Index by 21% year-on-year, although it was comforting at the time that we could still rely on the Black Sea region.”

Sihlobo says now many people recognise that Russia and Ukraine are substantial players in the global agricultural commodities market, with Russia producing about 10% of global wheat and Ukraine 4%, nearly the size of the European Union’s total wheat production. The two countries account for a quarter of global wheat exports, with Russia producing 18% while Ukraine produced 8% in 2020.

“Both countries are also notable players in maize, responsible for a combined maize production of 4%. However, Ukraine and Russia’s contribution is even more significant in exports, accounting for 14% of global maize exports in 2020. Both countries are also among the leading producers and exporters of sunflower oil, with Ukraine’s sunflower oil exports accounting for 40% of global exports, with Russia accounting for 18%.”

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Meanwhile, in South Africa

South Africa had good weather conditions, leading to a bumper harvest of key crops and fruits, with three consecutive seasons of favourable rains and large agricultural produce, starting from 2019/20 to the current season of 2021/22. As the production improved, agricultural commodity prices, specifically grains and oilseeds, did not decline as a response to improved supply, which people would ordinarily expect because South Africa is interlinked with the global agricultural market.

According to Sihlobo, exports are important for sustaining a competitive agricultural sector from a production perspective. “Farmers export or sell to the domestic market to cover their production costs to produce food again for the next season. The past few years have not been as easy for them either.”

They also experienced increased input costs during this period, with rising fuel, fertiliser and agrochemical prices. “The fertiliser price increase was triggered by the Russia-Ukraine war and China’s decision to drastically reduce fertiliser exports in 2021 contributed to increasing farming input costs.”

Sihlobo says South Africans are feeling the impact of these events as we emerge from a relatively lower food price inflation period in the country. In 2018, for example, domestic consumer food price inflation averaged 3.3%, and in 2019 at 3.1%. In 2020 consumer food price inflation averaged 4.8% and in 2021 at 6.5%.

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When South Africa had food price inflation of 10.8%

In 2016, food price inflation was averaging 10.8%, during a time of drought, but there was not much talk about rising costs of living as today, as we were observing a general price increase at the moment, he says.

South Africa has sufficient food supplies, although it imports the three main food staples of rice, wheat and palm oil. “We all worry about the impact of rising fuel prices on the costs of consumables. We have a heavy reliance on the road. For example, roughly 80% of our staple grains and oilseeds are transported by road. These are high costs that food companies might have minimal room to absorb and remain a major upside risk on food price inflation.”

Sihlobo says South Africa’s general consumer food price inflation will likely be an exception from what we see in the world in the second half of the year, with some moderation on fruits and vegetables and to a limited extent, meat.

“The grains-related and vegetable oil products will likely remain elevated. These are, unfortunately, the products in most South African food baskets and will be increasing faster than other food products.”

He says government should offer targeted support to poor households and support subsistence and small-scale farming to improve household food production. “Any thoughts of price interventions would have long-term unintended consequences for the farmers and ultimately consumers, as this is a global challenge and not unique to South Africa.”