DOES HIGHER FOOD INFLATION STIMULATE INVESTMENT?

under difficult economic conditions, food inflation remains a thorny issue for consumers. The reasons for food inflation, which at times rise or fall, are however more complex than simply a question of product shortages and a good demand, or vice versa. Several experts point out that one should not lose sight of the enormous impact the international agricultural sector’s commodity markets could have on local food prices.

In recent months, agriculture’s commodity prices rose steeply worldwide, says Dr Tracy Davids of the Bureau for Food and Agricultural Policy (BFAP) and her colleague, Dr Hester Vermeulen.

The worldwide impact on SA

“The food price index of the United Nations’ Food and Agricultural Organisation (FAO), which is an indication of the agricultural sector’s underlying commodity prices, rose gradually since June 2020, but in recent months this increase accelerated. In February this year, it was on average almost 17% higher than last year. Year-on-year the international prices of vegetable oils were 51% higher, followed by price increases over the same period for grains (27%), sugar (10%) and dairy products (10%).”

The combined international supply-and-demand-dynamics have unleashed the perfect storm over the past year. Davids and Vermeulen attribute this, among other things, to Covid-19-related travelling restrictions, labour shortages and lowered palm oil