Purpose of the study
The purpose of this report is to identify and analyse the factors that have had the greatest influence on the rate of inflation in food prices in South Africa in recent times, and to make recommendations for remedial steps to support inflation targeting. In this respect, the Terms of Reference of the investigation are to provide:
- A descriptive analysis of the food and agricultural sector. The purpose will be to familiarise readers with conditions in the South African food and agricultural sectors by focussing on the policy environment, the main trends in output, productivity, profitability and foreign trade in the sector, the degree to which the state intervenes in different parts of the many supply chains that constitute the food and agricultural sector, the factors shaping the future of the food and agribusiness sectors, and the influence of the regional (SADC) market on South African agricultural markets and prices
- An analysis of price trends in the food and agricultural sectors. The purpose will be to investigate the price-setting mechanisms in the various food supply chains in South Africa. This will include an analysis of trends in farm gate prices, as well as in prices at different levels in the value chain, and trends in the producer share of the consumer rand. Specific attention will also be paid to the causes of the recent hike in producer and retail prices of key food commodities. Technical aspects of the measurement of the food price CPI will be investigated, as well as the impact of recent food prices increases on government's inflation targets.
- An analysis of pricing behaviour in the food and agricultural sector. The information gathered will be used as a basis for the selection of the most important supply chains to be subjected to more detailed analysis of institutional aspects, as well as the role of subsidies and tariffs in these specific subsectors.
- Recommendations for future action. This section will pay specific attention to recommendations with regard to interventions that could ameliorate the effect of high food prices, and ways of addressing market failures in the market for agricultural and food products.
In this respect the report starts with a descriptive analysis of the policy environment within which the agricultural sector operates. This is followed in Section 2 by an empirical analysis of the trends in prices at the different levels of the value chain in agriculture. The current practice in measuring the food CPI in South Africa and a selected group of other countries is presented in Section 3, while the analysis of pricing behaviour is presented in Section 4, starting with an assessment of international 'best practices'. The report ends with some recommendations.
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