Wandile Sihlobo: How coronavirus will affect SA's food supply
The fears about the potential disruptions the coronavirus pandemic could cause on global supply chains have let to panic buying in a number of countries, including the United Kingdom, United States and parts of South Africa. Hence, there have been questions of whether South Africa could experience food shortages in the near- to medium-term.
From a national perspective, I doubt this would be the case - at least for most food products. South Africa is an agriculturally endowed country, generally a net exporter of agricultural and food products. What’s more, there are prospects for an abundant harvest of staple grains and fruit this year, which will increase the local supplies.
What about imports?
There are, nonetheless, essential imported food products that South Africa is dependent on such as rice, wheat, and palm oil. Key palm oil suppliers are Indonesia and Malaysia.
The typical suppliers of rice are Asia and the Far East, namely Thailand, India, Pakistan, China and Vietnam, some of which are hard hit by the pandemic.
In the case of wheat, the suppliers are usually Germany, Russia, Lithuania, the US and the Czech Republic, some of which are also hard hit by the pandemic. Some of the countries which have reported cases of Covid-19 have not taken drastic measures of limiting business activity (apart from Italy and China) to reduce the spread of the virus.
This means South Africa’s importation of some of the agricultural products mentioned above could continue unabated, barring any unforeseen eventuality. Aside from the major products, South Africa also imports poultry products and sunflower oil; but these are products that can be replaced by local supplies should there be disruptions in global supply chains.
What if there are shortages?
In the unlikely event of potential shortages, it will be due to logistical bottlenecks in shipping rather than a decline in global essential grain supplies.
For example, the 2019/20 global wheat production could amount to 764 million tonnes, up by 5% y/y, according to data from the United States Department of Agriculture. Moreover, the estimated 2019/20 global rice production is 499 million tonnes, which is roughly unchanged from the previous season.
Therefore, the readiness of the domestic food supply chains will perhaps be the ones to be tested in the coming weeks and months if panic-buying arising from fears of the spread of the coronavirus were to peak to levels seen in the UK and the US.
The implications of the pandemic on food price inflation remains unclear in the near term. We continue to monitor the consumer buying behaviour for signals of rising demand. Suffice to say, South Africa has ample food supplies for 2020. Hence, we have placed our forecast for food price inflation this year at about 4% y/y compared to 3.1% y/y in 2019.
The uptick in food price inflation compared to the previous year is associated with a potential increase in meat prices, rather than the pandemic, which has had a deflationary effect in some exported fruit commodities.
Where negative pressures of the virus are likely to hit are on farmers and agribusinesses through the potential slowdown of export demand, and a likely subsequent decline in agricultural commodity prices. South Africa’s agricultural sector is export-orientated and heavily reliant on global markets. Nearly half of the value of what the country produces is exported.
Asia and Europe, which accounted for half of the US$10 billion of South Africa’s agricultural exports in 2019, are the hardest hit areas by COVID-19 thus far. Therefore, there could be disruptions in people’s routines and in supply chains in these regions as governments strive to limit the spread of the virus.
Wandile Sihlobo is chief economist of the Agricultural Business of South Africa (Agbiz) and author of a recently released book 'Finding Common Ground: Land, Equity and Agriculture'. Views expressed are his own.