The impact of food prices on the welfare of households in South Africa

Abstract

Background and setting: The global food price surge of 2006 to 2008 has negatively impacted South African households. Rising food prices adversely affect food security in South Africa. The ever-increasing prices for food commodities and lack of access to finance make it very difficult to strengthen food security amongst households in South Africa. Aim: The aim of the study is to examine the impact of food prices on household welfare in South Africa. Additionally, the study attempts to analyse the short- and long-run relationship between food prices and household welfare in South Africa. This is done by determining how real household welfare responds and/or reacts whenever there is a shock in food prices and its fundamental determinants. Finally, the study attempts to distil recommendations toward a conceptual framework for the mitigation of the impact of high food prices on households in South Africa. Method: The Vector Error Correction Modelling (VECM) technique is utilised to estimate a regression model. Results: The results reveal that a 1% increase in food prices would reduce household welfare by 21.3%. The study, therefore, confirms a negative correlation between food prices and welfare. Conclusion: Short-run policy recommendations include: (1) subsidising staple food baskets for households in South Africa, (2) reducing prices of staple foods through the reduction of food tariffs and (3) reducing household expenditure on basic needs through subsidisation. These policy options could lessen the burden on households when there is a rise in the prices of staple food sources and therefore improve household welfare. Long-run policy recommendations include: (1) improving the unemployment rate in South Africa and (2) improving access to finance and credit for South African households. By addressing the rising unemployment rates and improving access to finance and credit in South Africa through job creation initiatives and improving micro-credit strategies, an environment can be created where households improve their disposable income.

Trends in foreign agricultural trade and its impact on households in South Africa

“…Regulations such as tariffs, quotas and subsidies are a few measures in which government authorities can promote some sort of fairness in agricultural trade. Although government sometimes benefits from changes in regulation such as increases in tariffs, the households are adversely affected by these increases (van Wyk and Dlamini, 2018). Chitiga et al (2008) propose that governments increasing revenue and securing local industries by increasing tariffs for trade in commodities.…”

“…According to FAO (2016), domestic food prices, as well as food demand and supply are immediately affected by changes in imports and exports. The limited incomes of South African households inevitably result in inadequate food baskets (van Wyk and Dlamini, 2018). Household food baskets are largely dependent on food prices, which have substantially increased over recent years due to food inflation (Osei-Asare and Eghan, 2007).…”

“…Furthermore, food price volatility and inflation erode real household income and have further adverse welfare impacts to households (Ngidi, 2016). It is the responsibility of policy-makers to protect South African households from escalating food prices (van Wyk and Dlamini, 2018). However, any successes from establishing domestic policies in reducing food price increases are dependent on the degree to which food price developments are caused by domestic influences or shocks (Rangasamy, 2010).…”

Measurement and implications of marine food security in the Western Indian Ocean: an impending crisis?

“…The price of food affects the status of food security in vulnerable countries and economies (Gustafson 2013;van Wyk and Dlamini 2018). In coastal communities fishers that have access to markets and are willing to participate in the markets sell and/or buy fish and other food types.…”

Identifying structural changes in the exchange rates of South Africa as a regime-switching process

“…Because of elevated inflationary factors, circulation of money in the economy declines. Bonga-Bonga and Kabundi (2015) report the importance of stabilizing prices, and van Wyk and Dlamini (2018) reveal that in the long-run such distortions harm households that have low incomes. Edwards and Hlatshwayo (2020) emphasize that there has been an abrupt downgrading, followed by a recuperation due to substantial unpredictability during this time as some crisis patterns were urbanized in 1997 and in 2001.…”