SA ranks 52 out of 113 countries for food availability and load shedding is largely to blame

The Global Food Security Index 2022 ranked South Africa 52^nd out of 113 countries for the availability of food but this ranking is likely to get worse this year due to the immense pressure on the country’s food supply chain, largely due to load shedding.

According to PWC’s South Africa Economic Outlook, the adverse effect of load shedding can be felt in agriculture, for example, where poultry farmers struggle to access enough electricity to run their daily operations to achieve optimal output, while retailers, at the other end of the value chain, spend billions of rands on diesel generators to keep fridges working.

PWC says in the report that this again interferes with their investment spending that could have been used for expansion, such as opening new outlets. Some components of the food value chain also find that water is not available due to power interruptions.

“The real risk is that retailers are not able to consistently source food supplies to supply communities at affordable prices. Not surprisingly, food and non-alcoholic beverage inflation surged to a 14-year high in March 2023.”

Food more expensive

The Stats SA food basket was 14.0% more expensive in March compared to March last year and 12.0% in May, with the staple ‘bread and cereals’ category 18.1% more expensive than a year ago. PWC says the cost of imported food was a notable factor, with grain mill products costing 34.9% more in April than a year ago.

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Inflation is also high for all South Africa’s key trading partners, such as the UK, where the PwC UK Inflation Trackernotes show that cost inflation on food and beverages increased to 18.3% compared to a year ago in May. Beverages, spirits and vinegar are South Africa’s third-largest import category by value from the UK after machinery and vehicles.

Threats to winter crops

In addition, the outlook for winter crops are under pressure from El Niño and disruption to irrigation, also due to power issues. The South African Reserve Bank (Sarb) noted in May that there are risks to the inflation outlook that it will stay high, while the outlook for winter crops, such as wheat, canola, barley and oats, for example, is under pressure.

PWC says about a third of South Africa’s farming income directly depends on electricity-consuming irrigation, while about half of the wheat crop is under irrigation.

“Considering that South Africa produces around 60% of its wheat needs and imports the rest, about 30% of the country’s wheat supply is vulnerable to the impacts of load shedding on irrigation.”

The looming El Niño weather pattern could also cause below-normal winter rainfall conditions in the southwest part of the country, where half of the wheat production takes place. The recent floods will probably also not help.

The Sarb estimates that load shedding added 0.5 percentage points to inflation this year, largely due to the costs incurred by businesses to keep the lights on.

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PWC expects inflation to average 6.1% this year, only 0.8 percentage points down from the average last year, while the Sarb estimates that load shedding adds 0.5 percentage points to inflation this year, largely due to the costs incurred by businesses to keep the lights on.

“This has resulted in more interest rate hikes than would have normally been expected, were electricity supply more reliable. In other words, South African consumers experienced additional financial strain in the form of more expensive credit due to the electricity situation.”

However, on a positive note, PWC believes that interest rates have peaked as inflation is slowing down and likely to drop to 5.5% compared to last year by the end of the year, enabling the Sarb to achieve the real repo rate of 2.5% that it wants.

Companies can help reduce social risks

PWC says private companies can play an important part in reducing social risks at the community level. It noted in a report published late last year that the growing gap between the ‘haves’ and the ‘have-nots’ is a key driver for the decline in social cohesion across many societies and economies, including South Africa.

“The risk South Africa faces is that, within this strained economic environment, the breakdown in social cohesion experienced in recent years continues on a negative trend over the short-to medium-term.

“When we looked at this theme last year, we actually did not spend much time on the issue of personal finances and cost-of-living, as the focus was on long-term factors that do not fluctuate as much as inflation and interest rate readings.”

Elevated inflation and interest rates are very much a social risk factor, PWC says, and the risk of social unhappiness boiling over is quite understandable. For private companies, this increases operational and security risk.

“At the same time, we also deliver a message of hope. South African companies can make a meaningful and sustainable impact on their communities by adopting the right strategy. The private sector needs to play an increasing role in helping the public sector address socio-economic challenges.

“Modern societal expectations are that companies should be purpose-led organisations, committed to contributing towards important sustainability goals through their influence in society. Organisations can only have a meaningful impact on social cohesion by deliberately taking a purpose-driven approach to their general business operations with a focus on social cohesion,” PWC says.

Companies can tackle the breakdown in social cohesion at a community level by implementing a comprehensive business sustainability approach that is embedded within an organisation’s core business strategy, PWC says.