Meat price increases were repeatedly highlighted in the  domestic food inflation statistics in 2022. In this brief, Dr. Tracy Davids explores the direct and indirect drivers of this phenomenon and the prospects for normalisation in future.

 

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Investment into seed research is vital for a sustainable and competitive agricultural sector. In this context, this overview looks at the importance of a breeding and technology levy for wheat, barley and soybeans in South Africa.  View the summary  report here

Maize is an important staple crop in southern Africa that has often been prioritised from a policy perspective, particularly in the imposition of export controls under periods of perceived uncertainty. This tendency has been particularly relevant in Zambia, which has also emerged as an important surplus producer in southern Africa in recent years. Its favourable transport differential and non-GM maize has helped Zambia grow its share in Zimbabwean maize imports at the expense of South Africa, but exports into Zimbabwe remains competitive between the two countries and particularly during periods of export control in Zambia, South Africa typically steps in to supply the deficit. This study therefore evaluates the extent of price transmission between Zambia, South Africa and Zimbabwe under two exogenous regimes defined by periods of open trade and trade controls imposed by the Zambian government. It uses secondary data of monthly white maize prices in these three markets to quantify the long and short run price relationships under different regimes. While several authors have noted that trade is not a prerequisite for price transmission between markets, this study finds evidence that the imposition of policies that inhibit trade also influences the rate and nature of price transmission between markets. Periods of open trade were characterised by efficient transmission of prices from Zambia to Zimbabwe, which is in line with typical trade patterns, but during periods of trade controls, no relationship was found between Zambian and Zimbabwean markets, with prices being transmitted from South Africa to Zimbabwe instead.

 

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Various studies interrogate the issue of food inflation from a commodity level vantage point but fail to relate how commodity prices manifest in retail prices, and ultimately, how it impacts food inflation. This study uses vertical price transmission analysis, with time series econometric techniques, to determine how underlying commodity prices manifest in final retail prices and the associated reasons for it. Implications for food inflation are also reflected on. Two value chains, namely wheat-to-bread and maize-to-maize meal are considered due to their importance as staples in low(er) income consumer diets in South Africa. Results indicate full price transmission in the wheat-to-bread chain but incomplete price transmission in the maize-to-maize meal chain. In addition, prices in the wheat-to-bread chain are determined at producer and consumer level and bi-directional transmission takes place, whereas maize prices are determined at retail level and transmitted through the chain, to commodity level. Symmetry in price adjustment was not rejected in both chains. Implications of the findings for staple food inflation is that it does not seem that the price determination and price transmission processes in these chains are contributing factors to the inflationary pressures that these chains have experienced over the past decade. Symmetric price transmission in both chains seems to suggest no opportunistic behaviour on the part of firms to exploit situations where commodity prices decrease.

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