War ’dire’ for SA economy

Durban - South Africans should brace themselves for shock increases in food prices as analysts warn that the war raging in Ukraine is already having a global impact ‒ and worse is to come.

Economists have been raising the alarm over global supply chains being disrupted and a rising fuel price, which will be felt across all economies.

Ukraine is one of the world’s biggest wheat suppliers, as well as exporting maize, barley, rye and sunflower oil, among a host of other agricultural products. Russia’s main exports include wheat as well as fertiliser, petroleum, coal briquettes and medicines, among many other products.

Yesterday, the Pietermaritzburg Economic Justice & Dignity Group’s (PMBEJD) programme co-ordinator Mervyn Abrahams said the on-going conflict would have a “dire impact” on many South African households already struggling to make it through the month.

The PMBEJD releases the monthly Household Affordability Index, which tracks key food price data from 44 supermarkets and 30 butcheries, in Johannesburg (Soweto, Alexandra, Tembisa and Hillbrow), Durban (KwaMashu, uMlazi, Isipingo, Durban CBD and Mtubatuba), Cape Town (Khayelitsha, Gugulethu, Philippi, Langa, Delft and Dunoon), Pietermaritzburg and Springbok (Northern Cape).

Abrahams said: “It’s a really bad situation. We are already seeing prices, such as wheat, spiking, as well as those of soya and maize. Couple that with the increasing fuel price, and it’s going to have an impact on staple foodstuffs.

“An increasing fuel price will impact on everything else, so a wide range of food prices will be affected. It’s all going to hit the consumer hard,” said Abrahams, adding that the coming increase in electricity prices would add another ripple effect.

“All of South Africa’s staple foods need cooking, so with increases in transport (fuel) and electricity, there will be less money in households to buy food, while food prices will be increasing.

“We also have to watch the bank rate increase: a lot of people are already taking out short-term loans to stay ahead and be able to buy food. Many South Africans can only pay off debt by taking on more debt. It’s a dire situation,” he said.

Abrahams said South Africa needed to build resilience to withstand global shocks such as the Russian/Ukraine conflict, by building resilience in the economy. He said this could be done through small-scale farming, which would reduce the distance from harvest to table, and so reduce transport costs.

“South Africa also needs to move from road to rail when it comes to transporting commodities, which will also reduce fuel costs. It’s an extremely worrying situation as SA doesn’t have the means to withstand these shocks. South Africans need to shout louder,” he said.

And from the beer drinker enjoying Umqobothi, to the mom feeding her children breakfast, they are all likely to feel the effects of the war, according to Dr Lumkile Mondi, of the School of Economics and Finance at the University of the Witwatersrand in Johannesburg, saying prices would be hit “very, very, very hard”.

“You may see those many South Africans who enjoy traditional beer experience rising prices, because of the wheat in it. Those South Africans who enjoy their wheat-based breakfasts will also see price increases. This is due to the supply constraints we are facing,” said Mondi, also warning that the rising price of fuel and the knock-on effect would hit South Africans hard.

Even if Russia and the Ukraine reach a peace agreement, Mondi believes it could take as long as nine months before prices drop.

He said South Africa could have been in a better position to take advantage of sanctions being imposed on Russia, but that unions could prevent this.

"With Russia not being able to supply palladium, we'll see a huge improvement in the price of platinum, as well as gold,” he said. "This is an opportunity for mines to improve productivity and create jobs. But it is concerning that the unions are talking about striking when we should use this window of opportunity,” added Mondi.

Agricultural Business Chamber of South Africa (Agbiz) chief executive officer Theo Boshoff said that while food prices were expected to spike, there was no reason for panic buying, because the country would look to other suppliers.

He said SA produced a surplus of maize, while for other commodities, such as wheat and sunflower oil, South Africa could import from other areas, such as South America.

“Shortages are not necessarily on the cards; it will be more prices linked to the fuel price. There’s no need for panic shopping, as that only disrupts the value chain,” said Boshoff, adding that, at a rough estimate, a third of staple grain costs could be attributed to transport.

He said shipping routes were already being disrupted, which would impact on supply chains such as citrus, apples and pears, which SA exports to Russia.

The citrus sector is watching ship movements to and from Russia with interest, said Justin Chadwick, CEO of the Citrus Growers’ Association.

“Eight to 10% of our citrus exports go there,” he said.

The picking season is in May and June.

If citrus could not get to its export destinations, it could be to the benefit of domestic consumers, Chadwick added.

Economist Mike Schussler pointed out that the effects would be broad-based when it came to foodstuffs.

Ukrainian products such as wheat, corn and soya were used as stockfeed, which meant that meat and milk prices would be affected.

Schussler also warned of the impact of oil prices on transport costs.

The Independent on Saturday