Brace for more pain: Price increases push poor to cut back on food purchases

Recent increases in VAT and the price of petrol, and a looming electricity price increase, will take a few months to be felt, but when they do they will directly affect the health of the poor.

These price increases, says a non-governmental organisation, the Pietermaritzburg Justice and Dignity Group, throttle the ability of poor households to buy food. They find themselves with even less money to feed themselves in order to pay for expensive non-negotiable costs, like transport.

Consumers experienced a double whammy in fuel prices this year. The petrol price increased by 82c a litre in May, and by a further 26c earlier this month. Diesel and paraffin increased by 85c and 82c in May and June, respectively, and a further 26c for diesel and 22c for paraffin this month.

VAT increased for the first time under the democratic dispensation by one percentage point on April 1 to 15%.

Electricity is set to increase by 5.23% after the National Energy Regulator of SA approved Eskom’s request.

Eskom, however, wants a 30% increase to raise more revenue, and should the power utility have its way, the triple whammy effects on households budgets will be disastrous.

Everyone is now waiting on President Cyril Ramaphosa’s plan to cushion the pain.

On Friday last week he announced that a panel of experts had been assembled to “ease the burden of the price increases” brought about by a weak rand, and this would “include the finalisation of zero-rated products”. An announcement is expected late next week.

Pietermaritzburg Justice and Dignity Group researcher Julie Smith said: “These increases directly impact on health because households cut down on food. They buy less protein-rich foods, which are important for children, as they prioritise cheaper staple foods such as maize meal, sugar and flour.”

“Women,” Smith said, “because they control how food is managed, cut food for themselves so their children can eat, and the result is that the women suffer diseases such as high blood pressure and diabetes.”

She said although this scenario has been happening for years, it was going to be more stark than in the past.

The knock-on effects on food prices because of these increases were going to take a few months to be felt, said Smith, because they were still being processed.

Smith said what appeared to be service-delivery protests in various parts of the country needed to be viewed as a complaint by people that they were not able to afford food.

“These protests are not articulated that way because it is a huge shame and embarrassment that one cannot put food on the table. What underlines these protests is that they say they are protesting against high electricity and transport costs,” she said.

“The fact of the matter is that households can’t afford food because the price of electricity is going up. We must look at these protests and protracted wage negotiations differently, because when you scratch the surface, they are really about food affordability.”

Government’s intervention needed

Solutions that could help make food more affordable, said Smith, were government’s intervention in the regulation of prices (which are controlled by conglomerates) and increasing income levels.

Government has not intervened to influence household incomes, including social grants, and the costs of goods and services, she said.

Smith said zero-rated foods were also not affordable.

“Households are left on their own and have to make horrific decisions in order to survive. The determination of the national minimum wage (R3 500) was an important area for government to intervene, but it lost the opportunity.

“There have been a lot of wage negotiations and they are going to become more protracted. Government needs to increase the level of wages to a point where inflation means nothing, and it should be the same with pensions for the elderly and child support grants.”

South Africa’s food poverty line – which is the amount of money a person needs each month to buy enough food to consume around 2 100 calories a day – is R531.

Smith said old age social grants and child support grants, many of which fed families, were not enough as the actual cost of feeding a child aged between 10 and 13 years was R573 a month.

The child support grant, which is R400 a month, is 25% below the poverty line and 31% below the actual cost of a basic but nutritionally complete diet for a child aged 10 to 13 years.

The value of the basic food basket this month stands at R3 064.24, which shows how unaffordable food is for poor households.

Wandile Sihlobo, Agricultural Business Chamber head of agribusiness intelligence, said food prices were increasing at a slower pace due to lower agricultural commodity prices.

“For example, our production is estimated at 13.2 million tons, well above our annual maize consumption of 10.8 million tons. In addition, there are large supplies from the previous season. Other crops also performed relatively well this year, thanks to good rainfall,” he said.

Sihlobo said food inflation this year was forecast at 5.2%.

Small businesses also suffer

A study on the impact of rising food and fuel prices on small business, conducted by Trade and Industrial Policy Strategies, found that micro enterprises that depended on hired transport to fetch their stock from wholesalers or manufacturers still paid high transport costs even when the fuel price dropped.

“Transport service providers take advantage of general perceptions about rapidly rising fuel prices to increase their margins,” the study found.

“The result is that small business owners who are dependent on these forms of transport probably face disproportionate transport cost increases, compared with bigger businesses that control their own logistics. This reduces the competitiveness of the smaller businesses.”

The study also found that two main impacts of rising food prices on micro enterprises were the erosion of purchasing power of their clients, and the indirect impact of eroding the businesses’ own purchasing power.

“In terms of the direct impact on business through the erosion of their clients’ purchasing power, the first point to be made is that small enterprises tend to have lower income people as their main clients,” the study found.

“When food prices are rising more rapidly than the official rate of inflation (which sets wage and social grant increases), these people will have less non-food disposable income and may be forced into purchasing less food.

“Both of these are bad news for small business.”

The indirect impact of rising food prices on small business, said the study, came via the reduction in the disposable income of the business owner.

“Most of the small businesses under consideration are owned by people who do not fall into the high-income category. Therefore, they tend to spend a relatively high portion of their income on food, and higher food prices mean less income available for other items.

“The reason this is important is because most of these small businesses finance their expansion and cash flow requirements from their own savings, and are not able to source other types of finance. A reduction in disposable income means less money for investing in the business or helping to ride out adverse business periods.”