The understanding of movements in food prices is imperative in terms of understanding developments a country’s socio-economic and political milieu. In South Africa, intermittent rapid food inflation has been prevalent for little over a decade. Year-on-year food price inflation reached 20 % in the last quarter of 2002, driven by a sharp increase in international commodity prices and a significant depreciation in the Rand/USD Exchange Rate. From 2005 to 2008 there was again significant inflation where factors, such as increased bio-fuel production, droughts in key grain-producing regions, and rapid growth in developing countries such as India and China, all contributed to push commodity prices to unprecedented levels. In 2011 local food inflation again approached double digits, with year-on-year inflation in July 2011 reaching 8.9 %. This increase was again driven by higher international commodity prices, but also by a steep increase in local administrative prices, such as electricity, which increased cost throughout the value chain. What was particularly unsettling about the increase, in the last half of 2011 and early 2012, was that rapid food price inflation was observed for maize meal, margarine, coffee, bread and chicken, with maize meal and bread being the two staple products consumed by the poorest households in South Africa. As a result, the rapid price increases in these products directly influenced food security in terms of food affordability.
As a result of the factors discussed above, BFAP launched an initiative called the BFAP poor persons index to measure the impact of food inflation on poor households in South Africa. This index is based on poor South African consumers’ typical portion sizes for the five most widely consumed food items in South African according to the National Food Consumption Surveys for South Arica, namely maize porridge, brown bread, sugar, tea and full cream milk and was calculated by weighing food price data and determining the cost of a ‘typical daily food plate for the poor’.
Figure above: Example of food price inflation index comparisons developed by BFAP in 2012
A link was also developed between the BFAP sector models and retail food prices in order to generate an index outlook. This link enables BFAP researchers to see how the cost of a plate of food will change in the future if macro-economic factors or commodity prices change. The link is based on a set of seasonal price indices and transmission elasticities estimated with econometric time series methods. The index linkage, as described above, provides an imperative link between the production, consumption, commodity price and trade data, as generated by the BFAP sector models, and household food affordability.