Jump to ContentJump to Main Navigation
Food Price Policy in an Era of Market InstabilityA Political Economy Analysis$

Per Pinstrup-Andersen

Print publication date: 2014

Print ISBN-13: 9780198718574

Published to Oxford Scholarship Online: January 2015

DOI: 10.1093/acprof:oso/9780198718574.001.0001

Show Summary Details
Page of

PRINTED FROM OXFORD SCHOLARSHIP ONLINE (www.oxfordscholarship.com). (c) Copyright Oxford University Press, 2019. All Rights Reserved. Under the terms of the licence agreement, an individual user may print out a PDF of a single chapter of a monograph in OSO for personal use (for details see www.oxfordscholarship.com/page/privacy-policy).date: 24 May 2019

The Political Economy of Food Price Policy in South Africa

The Political Economy of Food Price Policy in South Africa

Chapter:
(p.407) 19 The Political Economy of Food Price Policy in South Africa
Source:
Food Price Policy in an Era of Market Instability
Author(s):

Johann F. Kirsten

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780198718574.003.0019

Abstract and Keywords

This chapter analyses the food price trends in South Africa during two periods of rapid food price inflation that occurred in the decade 2000–10 and unpacks the political reaction and policy responses to the food price crises. Based on a number of sources, the authors conclude that agricultural and food policy in South Africa remained largely unchanged with no controls or regulations introduced. The country has a substantive social welfare programme which has provided an important safety net during periods of high food prices. The South African government nevertheless implemented a set of ‘second class’ interventions that mostly target the poorer section of the population in an attempt to mitigate the negative effects of price changes and include elements such as food parcels, agricultural starter packs, and vegetable gardens.

Keywords:   South Africa, food price, food policy, social

19.1 Introduction

The South African agricultural and food economy is characterized by some stark realities. On the one hand, there is a large productive agricultural and agribusiness sector ensuring national food security. On the other hand, 52 per cent of households experienced hunger in South Africa in 2005 while almost fourteen million, or about 35 per cent, of the South African population are generally considered to be food insecure and categorized as poor. Given the fact that the affordability of food should be an important political issue in South Africa, it is important to understand the structure of the agricultural and food industry and to evaluate the policies and programmes the government has introduced in this sector to deal with the broader issue of food security.

For almost sixty years during the twentieth century South African agricultural and food markets were controlled and regulated by the government. Several parastatals performed a number of functions such as import control, price control, and issuing of licences, quotas, and permits on behalf of the state. This era of controlled food marketing came to an end in the mid-1990s and since then South Africa had a liberalized agricultural and food market with limited, if any, border controls and no control over the behaviour of farmers, traders, food companies, and retailers in the food value chain. The spirit of liberal capitalism was in full operation. Since the period of deregulation South Africa experienced two periods of food price crises: in 2002/3 and again 2007/8. As will be shown later the 2002/3 crisis was largely caused by a sharp depreciation of the South Africa exchange rate but was amplified by staple food shortages in neighbouring countries in the Southern African (p.408) Development Community (SADC) region. In 2007/8 global commodity price trends were dominant factors in the South African food price inflation.

The main objective of this chapter1 is to understand the food price trends during these two periods and to unpack the political reaction and policy responses to the food price crises. We will show in this chapter that agricultural and food policy in South Africa remained largely unchanged with no controls or regulations introduced. The policy of unregulated agricultural and food markets continues although the Competition Commission increased the number of investigations into uncompetitive behaviour in food supply chains resulting in heavy fines for a number of food companies.

19.2 Country Context

19.2.1 South Africa’s Political Dispensation Post-1994

South Africa’s recent political history is characterized by the advent of democracy in 1994 and the various policies and government programmes introduced to rid South Africa of its racial injustices and its deep poverty, extreme inequality, and high unemployment. The African National Congress (ANC) is the ruling party since 1994 and attracts around 66 per cent of the popular vote and thus dominates the national assembly as well as the legislative assemblies in the different provinces (except the Western Cape Province). The policies of the government over the last seventeen years have mainly focused on the delivery of basic services, reducing poverty and expanding the payment of social grants to poor communities. The ideology of ‘growth-with-redistribution’ dominated for more than a decade after 1994 but in the last five years or so more policy decisions are now framed in terms of South Africa’s political ambition to build a ‘developmental state’ (Gumede 2011). The policy framework for a ‘developmental state’ focuses on a strong role of the state to improve the socioeconomic conditions of the population and the strong believe that only the state can deliver development. As a result many government programmes are focused on the delivery of basic services, infrastructure, education, and health.

The key policy-making institution in South Africa is the policy conference of the African National Conference that takes place every five years. The policy resolutions taken at this conference shape the ‘programme of work’ for the government, as well as the legislative programme of parliament.

(p.409) Various sectors have undergone dramatic reform over the twenty-year period of democratic government in South Africa. Included here, and relevant for this chapter, are water reform (a new Water Act), land reform, and liberalization of the agricultural sector. The latter involved the abolishment of all market controls and all agricultural control boards and the liberalization of prices and import controls. A bias against the so-called privileged and protected commercial farmers, as well as believing that food can be cheaper if imported, informed the political support for the liberalization of agricultural markets. This exposed South African agriculture to all the volatilities of the international commodity markets. South African agriculture has since 1994 been fully integrated in global agricultural commodity markets with the majority of tariff lines carrying a zero tariff.

19.2.2 Agriculture in the National Economy of South Africa

Primary agriculture contributes 3 per cent of South Africa’s gross domestic product (GDP) while the broader more inclusive definition of the agricultural, food, and fibre sector contributes between 8 and 10 per cent of the national economy with around 10 per cent of workers employed in this sector (National Department of Agriculture 2009). The two most important features of the South African agricultural economy are its dualistic structure and the process of deregulation of commercial agriculture that has taken place over the past two decades. These features have to be seen against the background of the country’s resource endowment. Of the 100 million hectares (ha) of agricultural land, only some 14 per cent receive enough rainfall for arable farming, while the remainder is used for extensive grazing. Only 1.35 million ha of the arable land is irrigated, yielding at least one-third of total agricultural output (National Department of Agriculture 2009).

Some 40,000 commercial farmers (or farming units) occupy almost 87 per cent of the total agricultural land in the country, and produce more than 95 per cent of marketed output. Only 7 per cent of these farms—or 2,900 units—are considered large-scale units. In contrast, African smallholder farmers are found mostly in the former homeland areas, which make up some 13 per cent of the agricultural land (National Department of Agriculture 2009). These areas were established under the notorious Land Acts of 1913 and 1936, and are characterized by traditional forms of land tenure, which were regulated by a series of laws and regulations, mostly proclaimed in terms of the Black Administration Act of 1927.

Deregulation of the agricultural output market has increased productivity (Vink and Kirsten 2003) and the change in trade policy has expanded market access and caused a shift from field crops to horticultural and animal products (Vink and Kirsten 2003).

(p.410) Over the past fifteen years, the value of imports of agriculture products have been growing by an average rate of 13 per cent per annum, while the value of exports have grown, on average, by 12 per cent annually. Strong growth in agriculture imports can be attributed to significant increases in the value of processed agriculture imports. The top ten imported commodities account for around 70 per cent of total agricultural imports in 2010 and include wheat and rice.

Since stock levels do play an important role in inflationary trends and outlooks it is important to review the opening stocks of maize, wheat, and sunflower seed (all kept by private agribusiness firms). This is presented in the two panes in Figure 19.1 below. The low maize stock levels in 2002 and 2008 are noteworthy.

The Political Economy of Food Price Policy in South Africa

Figure 19.1 Opening stocks for maize and wheat

Source: South African Grain Information Service, available at <http://www.sagis.org.za>.

19.3 Food Price Trends and Shocks

19.3.1 Previous Food Price Crises

Before the food price changes in the 2007–9 period can be analysed it is important to have a more long-term perspective on food inflation in South Africa. South Africa experienced a number of food prices crises between January 1991 and January 2011. The periods of extreme food inflation were 1991/2; 1994/5; 2002/3; and then again in 2008/9. We now provide a brief overview of the main causes of the last two spikes in food price inflation.

South Africa experienced two periods of sharp increases in food prices during the period from 2000 to 2010 and they were not caused by a national drought as was the case in 1991/2. The first period of food price increases occurred towards the beginning of 2002, when the prices of staple food commodities skyrocketed, and kept on increasing throughout 2002. As expected, food retail prices were not long to follow, and double-digit inflation rates seemed once again to be the order of the day. As an immediate response the government appointed on 28 November 2002 a Food Pricing Monitoring Committee (FPMC) to investigate the sharp increases in food prices. While FPMC was busy implementing its mandate during 2003, food price levels improved and food inflation remained low for most of 2004, 2005, and 2006.

During its investigations the committee established that higher local commodity prices (helped by world prices and the exchange rate) were largely responsible for increases in retail food prices during 2002. The exchange rate which depreciated from around R8 to the US$1 to around R12 to the US$1 had a profound impact on local prices since international commodity prices are now fully transmitted to local markets (see Figure 19.2). (p.411) Although it was clear that the depreciation of the South African currency had the biggest effect on the local market, some suspicion remained about the role of futures market traders and speculators in driving commodity prices to these high levels. Later criminal procedures against one such trading group confirmed these suspicions. Several measures to regulate the trader behaviour on the Johannesburg Stock Exchange were subsequently introduced following the recommendations of the FPMC and following (p.412) the outcome of the court case against the specific trader. It is worth noting that this process was pursued by the financial services board (that regulates financial markets in South Africa) and the governing board of the Johannesburg stock exchange. It is not evident that there was any political pressure responsible for this.

The Political Economy of Food Price Policy in South Africa

Figure 19.2 The exchange rate of the South African Rand against US$, January 2000–December 2010

Source: own calculations based on South African Reserve Bank exchange rate database.

The investigations by the FPMC as well as an earlier report by Kirsten and Vink (2002) for the National Treasury summarized the main drivers of the food price shock in 2002 as follows:

  1. (a) increasing international prices;

  2. (b) a lack of competition in the supply chain beyond the farm gate, especially at the retail level;

  3. (c) a fast and severe depreciation in the value of the currency;

  4. (d) a shortage of maize in the SADC region; and

  5. (e) a climate of uncertainty, created specifically by the unfortunate circumstances surrounding the land reform programme and the election in Zimbabwe, and more generally by the instability in parts of central and southern Africa.

(p.413) These factors jointly caused the maize and therefore other food prices to rise substantially. It is generally believed that the depreciation of the exchange rate was dominant. Commentators generally ascribed the deprecation of the exchange rate to a number of events in the global currency market and the limited confidence in emerging economies as well as several political decisions in South Africa that reduced investor confidence.

The second period of rapid food price increases happened during the 2007–8 period with food price inflation peaking at 18.5 per cent in July 2008. Food inflation remained above 10 per cent for the rest of 2008 and first half of 2009. During 2010 food prices at retail level remained high but the rate of price increases was significantly lower than that experienced in 2009. During 2010, food and non-alcoholic beverages inflation contributed less to headline inflation in 2010 compared to its contribution in 2008 and 2009. The details of this price shock are discussed in the detailed analysis below.

19.3.2 Price Trends for Key Food Items

Although we had access to retail and commodity prices for a large number of agricultural and food products we limit our discussion on price trends to maize, wheat, and rice. It was important to include rice since it is one of South Africa’s major imports and a key component of the dietary intake of South African consumers.

The price of maize meal (processed from white maize) is the most important food price in South Africa’s food economy. Maize meal is the main food item in the diet of the poorest 40 per cent of the population and the dominant starch for most of the majority black population group.

With urbanization and increased affluence bread becomes the preferred starch. The price of bread is therefore just as politically sensitive as that of maize. Since South Africa has always been a net importer of wheat and therefore the local commodity price for wheat has since the period of deregulation been at import parity levels and therefore depending on the international price of wheat and the value of the South African currency. Ever since the spike in food prices in 2002 the retail price of bread has continued its upward trajectory. Price only stabilized for short periods of time but never got back to the levels of the year 2000.

South Africa produces no rice but imports large quantities from Thailand, Malaysia, and China. It is therefore expected that the value of the South African currency versus other currencies and the levels of international rice prices will impact directly on the retail price of rice.

During the 2002 food price crisis the analyses of the FPMC showed how the exchange rate influenced prices. In the case of rice, international commodity prices plus the exchange rate directly influenced the retail price. The specific (p.414) manufacturer (mainly doing cleaning and packaging) of the Tastic Rice brand increased the retail price in 2002 in response to the rising landed cost of rice. As the exchange rate appreciated, prices improved immediately. By late 2003 prices were back to their 2001 levels confirming that with limited processing costs within South Africa, prices will track international prices and exchange rate influences.

Without going into the detail of the analysis on food price trends we summarize the main developments in the decade long time line to illustrate the main break points in the prices time series. This is summarized in Table 19.1. The table also presents the different price levels in different time periods and thus provides a comprehensive review of the speed of change in the different price trends. The information also helps to provide important time lines for the discussions to follow on media reporting and policy responses.

Table 19.1 Time line of price changes on selected food items

Commodity

Prices began increasing in:

Price at start of increase

Months when prices rose fastest

Month-on-Month per cent increase

Prices peaked in:

Peak price

Prices came down in:

International maize price

  • July 2010

  • US$163.76

  • Sept. 2010

  • 17.26

  • Dec. 2010

  • US$250.38

July 2008

Spot price of white maize

May 2001

R755.09

Nov. 2001

20.95

Mar. 2002

R2,006.89

Apr. 2002

April 2005

R545.95

Mar. 2007

23.89

June 2008

R2,005.75

July 2008

Maize meal (1 kg)

Feb. 2002

R3.14

Apr. 2002

10.88

May/Jun. 2003

R4.36

July 2003

May 2006

R3.39

Apr. 2008

8.13

July 2008

R5.72

Aug. 2008

International wheat price

  • June 2007

  • US$223.04

  • Sep. 2007

  • 25.73

  • Mar. 2008

  • US$439.72

  • Apr. 2008

Wheat

Dec. 2006

R1,728.06

Feb 2008

18.31

Jun. 2008

R4,071.63

Jul. 2008

White bread (700 g)

Dec. 2006

R4.89

May 2008

7.60

Feb. 2009

R7.92

Mar. 2009

Brown bread (700 g)

Dec. 2006

R4.42

May 2008

9.70

Feb. 2009

R7.29

Mar. 2009

International rice price

Sep. 2007

US$330.00

Apr. 2008

50.92

Apr. 2008

US$1015.21

May 2008

Rice (1 kg)

Feb. 2008

R8.46

July 2008

21.71

Feb. 2009

R17.52

Mar.2009

Source: Own estimates from NAMC and SAFEX data.

19.4 Policy Responses and the Policy-making Process

19.4.1 Introduction

There have been very few policy responses following the food price crises of 2002/3 and 2007/9. The timeline presented in Figure 19.3 provides a useful perspective on all the policy repsonses during the specific ten-year period. Apart from the appointment of the FPMC in 2003, some partial responses in the form of immediate relief for the most needy and poorest households, and aspects related to market information and anti-competitive behaviour by food manufacturers and retail chains, no real substantive changes in government food and agricultural policy or in the social welfare programmes were announced. The same happened during 2007–9. These facts were at first verified through a review of government policy statements and key announcements but were confirmed through interviews with senior government officials in leadership positions in the National Department of Agriculture during the two crisis periods.

The Political Economy of Food Price Policy in South Africa

Figure 19.3 A timeline showing price peaks and policy responses between 2000 and 2011

Source: own interpretation based on personal recollection and media reports.

19.4.2 Policy-making Process and Policy Impact

South Africa is still, after twenty years of democracy, largely a divided society and only a few people and institutions outside the inner core of the ruling party are trusted with policy-making and drafting policy positions. Parliament therefore acts only as a rubber stamp and any large differences between politicians are usually swept away by majority vote. Sometimes new legislation that contravenes principles of the constitution is challenged by the opposition through the constitutional court. Despite the ‘right to food’ being listed (p.415) (p.416) in the bill of rights in the constitution, agriculture and food issues are never major debates in parliament and in society. It is hardly ever contentious bar the issue of land and land reform.

(p.417) Food security was nevertheless included as a priority policy objective in the Reconstruction and Development Programme (RDP)—which was the main policy framework guiding the reconstruction of post-apartheid South Africa in the years immediately after 1994. As a result, the government re-prioritized public spending to focus on improving the food security conditions of historically disadvantaged people. That policy brought about increased spending in social programmes of all spheres of government such as school feeding schemes; child support grants; free health services for children between 0–6 years, for pregnant and lactating women; pension funds for the elderly; working for water; community public works programmes; provincial community food garden initiatives; and more. The national school nutrition programme was one of the programmes implemented by the government in post-apartheid South Africa to deal with hungry and malnourished children at primary schools and was one of the presidential-led projects under the RDP. By 2005/6 the programme was feeding approximately 4.5 million primary school learners. The programme has later on been augmented by a school food gardens project, implemented with the support of the Department of Agriculture, local authorities, and non-governmental organizations.

Food Security initiatives in the various South African government departments were too fragmented without coherent strategy and in 2000 changes became necessary to improve this unsatisfactory situation. As a result, the cabinet decided to formulate a national food security strategy that would streamline, harmonize, and integrate the diverse food security programmes into the integrated food security strategy (IFSS) (FAO 2004). The cabinet finally in July 2002 endorsed the IFSS as a priority programme of the social sector cluster action plan with the specific instruction that an implementation programme be developed. The social cluster of departments has been mandated by the cabinet to ensure that the IFSS is effective. The integrated food security and nutrition programme, later on the IFSS, was developed based on five programmes forming the pillars: (1) food production and trade; (2) food safety and nutrition; (3) community asset development; (4) social safety net and food emergencies; and (5) food insecurity vulnerability information and mapping system. Despite these good intentions this strategy never got funded and was never comprehensively implemented.

Given the fact that the policy-making process in South African agriculture is rather non-transparent this section was rather tricky to deal with since most researchers and technocrats are not members of the inner core of the ruling party. Nevertheless the interviews with the directors general of agriculture (p.418) who were leading the department during the time of the two food crises confirmed our initial hypotheses, as well as the anecdotal evidence.

19.4.3 Policy Responses Following the 2002/3 Crisis

The responses of the South African government following the food price spike in 2002/3 did not really include major policy changes but as mentioned earlier the response was mainly targeting short-term measures. The FPMC report of 2003 provides a detailed overview of the immediate government responses in 2002 (FPMC 2003: 39–42) and can be summarized as follows:

The immediate government responses during the 2002/3 crisis were mainly focussed on a number of initiatives to provide relief to the most vulnerable communities. The most important were:

  • Poverty relief measures to cushion the effect of rocketing food prices on the country’s poor in the form of cheaper maize meal and welfare increments (known as the food emergency scheme).

  • Agricultural ‘starter packs’ distributed by the government among poor rural farmers. These packs include: seed; fertilizer; information packs; basic tools, such as hoes and hand tools; day-old chicks; point-of-lay chickens; pregnant cows; and bulls.

The food emergency scheme was launched to provide emergency food parcels for a period of three months by which time the agricultural starter packs would have enabled households to produce their own food. The emergency scheme was plagued by lack of coordination, long delays in issuing starter packs, and also problems relating to the identification of beneficiary households. All in all the government response seemed to be rather superficial covering only a small portion of the most needy households and with little coordination between departments within the social cluster. Capacity issues in government, availability of finance, and non-compliance with the public tender and procurement system limited the further and continuous roll out of this programme.

The appointment of the FPMC in 2003 was in itself an immediate government response to the food price crisis of those years. One can argue that the committee’s appointment in some way focussed public attention on the food price issue but at the same time reduced the possibility for opportunism during the period of rising prices. The FPMC made a number of important recommendations following its investigations of the 2002/3 food price crisis:

  1. 1. The implementation of a reliable and consistent food price monitoring network.

  2. 2. Improvement in the accuracy of crop estimates by means of better technology, expertise and dedicated funding.

  3. (p.419) 3. Increased budgetary allocation for agricultural information and statistics.

  4. 4. The government should introduce a statutory measure compelling all grain traders to report on a weekly basis on realized and planned (i.e., a finalized contract) imports and exports of whole grain and grain products.

  5. 5. An annual publication, to be known as the South African Food Cost Review, should be published by the National Department of Agriculture to disseminate information on food costs and trends in retail prices and farm-retail price spreads as widely as possible.

  6. 6. School feeding programmes should be expanded.

  7. 7. The competition commission should be requested to conduct a thorough investigation into the market structure of the food industry, as well as the agricultural input industry.

A number of the recommendations dealt with the issue of information given since it was argued that not enough information was around in the market regarding stocks, crop estimates, export trends, and the size of the harvest in other countries of southern Africa. In the grain markets of southern Africa it is often argued that one of the main drivers in formulating prices is the estimation of the local crop, as well as the regional crops. The underestimation of the maize crop by one million tons during 2002 was considered to be one of the main drivers of the spike in maize commodity prices. The improvement of the crop estimates in South Africa and the southern African development community could contribute substantially towards household food security. Intervention to improve the accuracy of crop estimates would cost the government far less than strategic stock holding and would contribute substantially towards household food security.

Certain of the FPMC recommendations were implemented:

  • National Agriculural Marketing Council (NAMC) and Statistics South Africa (STATS SA) and provincial departments of agriculture formed a food price monitoring network.

  • The NAMC issue quarterly food price monitoring statements and since 2005 an annual ‘Food Cost Review’ has been published by the NAMC.

  • Crop estimates have been improved largely through support by the private sector.

  • The Competition Commission implemented a number of investigations into anti-competitive behaviour in the food chain and has found a number of large food companies guilty of price collusion. Some of these investigations were concluded during the most recent food price spike.

(p.420) All the monitoring work and the large volume of information made available in the aftermath of the FPMC’s tenure and a much more vociferous Competition Commission have not prevented the 2007–9 price increases. It could be argued that the openness of the South African market and the strong transmission of world prices into the South African market made it rather difficult for the South African government to shield the poorest households from these price spikes. It, however, also suggests a limited understanding of the global and national food economy but also clearly illustrates a limited appreciation by top officials of the importance of analytical evidence.

19.4.4 Policy Responses Following the 2007–9 Crisis

The political statements during the 2007–9 period were not really committing any firm ‘new’ policy responses or any change in the general policy direction. In early 2008 the then Minister of Finance suggested that public policy responses to rising food prices should focus on two main areas—income support to the most vulnerable and efforts to increase production. This was also the position in 2002/3 and summarizes the South African government’s position on food price inflation. It is in this regard that the ‘social relief of distress grant’ was introduced as a temporary social grant aimed at dealing with precisely these types of emergencies. He then went on to mention other options to mitigate the effects of rising food prices such as (a) increase the coverage of school feeding schemes; (b) increase support to non-governmental organizations and community-based organizations that run soup kitchens and similar feeding schemes; and (c) broaden the social security net by raising the threshold on means tests and by extending the grant. Here again only options were presented but nothing substantial was committed.

The notions presented here by the Minister of Finance correspond to the points made by the government officials who were interviewed but also show little deviation from the responses in 2003. It furthermore illustrates the lack of urgency despite acknowledging that the poor will be negatively impacted by the increase in food prices. The treasury—which to a large extent influences the government policy because it holds the purse—rejected the possibility of introducing any form of price controls or any other form of government intervention in the market economy. The interviews also confirmed that the option of controls or any form of market intervention was never considered by any of the ministries.

It seems clear now with having the benefit of hindsight and the collective memory of government officials that the treasury was driving the government’s policy response to the food price crisis. Proposals on food reserves (more specifically a virtual food reserve) were circulated and debated in 2002/3 and again in 2008. The costs involved in such a scheme were considered to (p.421) be too high and therefore never implemented resulting in money being allocated for immediate relief programmes for the neediest.

In light of this policy context the process of dealing with the increasing rise in food prices in 2008/09 has been a major challenge for the South African government. The National Department of Agriculture introduced the Ilima/Letsema campaign to promote household food production by accelerating and improving agricultural crop production. The campaign was launched nationally in eight provinces (excluding the North West Province) in pursuit of national and household food security to mobilize communities to leverage land as a resource to fight poverty and hunger. As part of the campaign, agricultural starter packs (similar to those provided in 2003) were provided for household vegetable production and promotion of food gardens.

Additional funds were also allocated for production projects such as mass food production, investments in production-enhancing infrastructure, including irrigation schemes and soil reclamation. Obviously these programmes were not blanket interventions and were only applied in selected communities.

One of the provincial governments, Gauteng, argued that one of the best ways to deal with high food prices and the unaffordability of food was to develop community gardens. The province established a total of 29,579 homestead food gardens between 2004/5 and the 2007/8 financial years. Additionally, over R108 million was spent on establishing 2,447 community food gardens.

The perceived lukewarm approach by the South African government to the crisis can partly be explained by the comprehensive social welfare system that has been in place since 1998 and managed by the Department of Social Development. The welfare and safety net programmes are central to the ‘developmental state’ paradigm in South Africa. The numbers below report the extent of these programmes in 2007—just at the time the second period of high food price inflation was observed. Income transfers to households, mainly through social assistance grant programmes, stood at R77 billion in 2007. In April 2007, 12.1 million South Africans were receiving social assistance grants, amounting to R5.1 billion. Grants are disbursed in the following categories (April 2007 figures) (Department of Social Development 2007):

  • foster care grant: 405,813 recipients (R620 a month)

  • care dependency grant: 98,690 recipients (R870)

  • war veterans’ grant: 2,317 recipients (R890)

  • old age grants: 2,194,066 recipients (R870)

  • disability grant: 1,425,105 recipients (R870)

  • child support grant: 7,910,748 recipients (R200)

  • grant-in-aid: 32,280 recipients (R200)

(p.422) These grants amount to some R61 billion a year, about 3.3 per cent of GDP, and contribute more than half of the income of the poorest 20 per cent of households. This is obviously an important state intervention but in the context of this chapter it should be mentioned that these programmes have been in place for a number of years and no major budgetary increases related to these programmes were introduced during the crisis period of 2008–9. It can therefore with reasonable certainty be argued that South Africa’s well-developed safety net programme for all practical purposes prevented a major crisis in the wake of rapid food price inflation in 2008.

19.4.5 Summary

The government response during the two periods of rapid food price inflation can typically be classified as responses in the so-called ‘second class’ of interventions (see Watson 2011). The second-class actions target the poorer populations in an attempt to mitigate the negative effects of price changes and include elements such as welfare payments, school feeding programmes, food parcels, and related interventions. These responses did not require any regulatory or legislative changes but were possible in terms of current government mandates and only required additional funding from the treasury. This additional funding was small compared to the 3.3 per cent of GDP that has already been allocated to social welfare payments in years prior to the 2008–9 crisis. The funding for the additional small interventions was made available fairly quickly given the seriousness of the crisis in terms of political repercussions. Note should be taken that 2004 and 2009 were election years in South Africa and distributing food parcels or providing food relief thus useful instruments to show that the government was looking after its people! Nevertheless, South Africa has a well-funded social safety net programme in place which provided an important cushion during the periods of high food prices.

19.5 Political Economy Context

19.5.1 Introduction

As mentioned above, the South African government did not implement any major policy changes in the aftermath of the two periods of food price inflation. Most responses were in the category of responses introduced to mitigate the impact of food price inflation on the poorest communities. South Africa had, as part of the developmental state paradigm, already in place a comprehensive social welfare programme that served as an important buffer during the relevant crisis periods.

(p.423) South Africa therefore did not experience any food riots, civil unrest, and did not introduce any mechanism to control food reserves and food trade. Given the history of the political economy related to agriculture, land and food, there are important political dimensions to be considered. Why, then, did the food crises not lead to civil unrest or any political instability in the country during the height of the food price crises. The following sections endeavour to provide an answer.

It should, however, be mentioned that a few months after the completion of the initial phase of the research for this chapter—during the period November 2012 to January 2013—the main agricultural export crop producing regions of the Western Cape experienced large farm labour unrests as a result of demands for higher wages. The Department of Labour set the minimum wage for farm labour and this rate was not up for review for at least another year. It is now clear that the increased cost of living, perhaps inflated by higher food costs, contributed to the demands for a doubling of the farm worker wage. There were however a number of anecdotal stories of political opportunism and criminality that were the main factors behind the unrest. Nevertheless high cost of food is a fact and poverty is rife and therefore provided fertile ground for any revolutionary ideas.

19.5.2 Political Institutions in the Context of Food and Agricultural Policy

Since 1994 South Africa has been a democracy based on the principle of majority rule but with an element of proportional voting also entrenched in the way members of parliament are elected. The ANC has since the first democratic elections in 1994 secured just under two-thirds of the votes in all the general elections in 1999, 2004, and 2009. As such the party and its officials play an important role in policy formulation and execution. It is also a well-established fact that the National Executive Committee, the highest organ of the ANC, is the most important policy-making institution in South Africa that produces documents and policy positions. In the years between the National Conference that takes place every five years the National Executive Committee convenes a policy conference, as a recommendation-making body on any matter of policy. The National Executive Committee has to convene a national policy conference at least six months before the national conference to review policies of the ANC and to recommend any new or to amend any present policy for consideration by the national conference (last policy conference took place in June 2012).

The National Executive Committee makes recommendations on the deployment of ‘cadres’ to ministerial and public servant positions and thereby ensures that policy positions of the party are carried into all organs of state. (p.424) Many of these positions do not really pass through parliament. Policy positions and programmes have to be confirmed by cabinet which is preceded by agreement in the economic cluster of ministries.

Food and agricultural policy forms part of the economic cluster and therefore necessitates a discussion on the country’s economic policy in broad terms. The economic policy adopted by the ANC is often criticized by analysts and observers arguing that the promise of the struggle has been sacrificed to a market-oriented economic policy that is tailored to the demands of national and global capital. Authors like Terreblanche (2002) offer interesting analyses and explanations of how the ANC was attracted to the benefits of business and global capitalism during the transition years between 1991 and 1994. He argues that this led to a behind the scenes compact between business and the political elite of the ANC which led the ANC to dispense with an emphasis on state-led growth and social expenditure in favour of the pro-business growth, employment and redistribution programme, betraying the ANC’s core constituency, the working-class poor.

Terreblanche’s detailed analysis of the South African political economy unpacks this alliance between South African capital and business and the governing party and how it influenced and directed the economic policy. Economic policy was therefore typically embedded in the Washington Consensus of liberal market capitalism steering thus a non-interventionist role of the state. This economic policy made it difficult for the government to deal with the structural problems of the post-apartheid state and to make meaningful contributions to alleviating poverty and most likely also informed many of the decisions in the aftermath of the food price crises.

It is quite astonishing that this blend of economic policy is so well-entrenched in government policy despite the fact that the ANC is strongly aligned with the Confederation of South African Trade Unions (COSATU) and the South African Communist Party (SACP) in what is known as the tripartite alliance (ANC-SACP-COSATU) and which typically represents workers and left wing interests. Add to this the fact that the ANC in itself is not monolith and is intensely divided along many divisions it is no wonder that most spheres of government policy-making—especially in agriculture, food, land, and rural development matters—are experiencing ‘policy paralysis’ or the inability to make important decisions. This situation of paralysis is present in land reform policy, general agricultural policy, but was certainly also present during the food price crises. This ‘policy paralysis’ can be ascribed to the fact that government (and the party) has succumbed to deep ideological divisions within the ruling alliance, which prevent any agreement on the way forward. It may well be that officials and minsters really do not know what to do or it could be that any sensible policy proposal is considered to be too controversial so it seemed easier to appoint a committee or to commission a study.

(p.425) This paralysis was not present when the new democratic government introduced sweeping and quick agricultural policy reforms in the late 1990s when all state support, subsidies and guarantees to commercial agriculture (mainly white farmers at the time) were abolished. Although agricultural economists argued for these changes for many years in order to improve the efficiency in the sector, it is now clear that the ANC stalwarts thought by removing all farm policy benefits to white farmers it would encourage farmers to sell out and thereby speed-up the process of land reform. At the same time it was believed land values would drop to be closer to productive values and thereby assist the state to acquire land for land reform purposes. Given the racial history of South Africa it was considered critical to remove all privileges to whites.

Removing the privileges and importing cheap food was considered to be a useful policy to bring cheaper food to the working class and the impoverished groups. The ruling party only after 2002 realized that relying on imported food does not necessarily bring cheaper food and gradually brought a stronger appreciation for the role of commercial agriculture in South Africa. The crisis in 2008/09 emphasized this point and with a new global recognition of the role of agriculture following the World Development Report in 2008 (World Bank 2008) it became apparent to policy makers in the ANC and government that agriculture should not be neglected. Local food production and ensuring a positive agricultural and food trade balance became an important national objective. Despite this acknowledgement, support to agriculture did not increase but at least there was no anti-agriculture bias any more.

More evidence of this new appreciation of the role of agriculture in the South African economy and specifically in the challenge of alleviating poverty and creating jobs was to be found in the National Development Plan—Vision 2030 released by the National Planning Commission (2011). The document highlights the importance of agriculture in growing the rural economy and recommends a set of policies and programmes to ensure that agriculture creates an additional one million jobs.

Koch (2011) also argues that political support for food security is now high. He bases this conclusion on the fact that the ruling party needs the political support and votes of the white commercial farmers to maintain a healthy and successful tripartite alliance between the ANC, trade unions, and the SACP. By politicizing agriculture and food security the ANC managed to ensure high political support of agriculture and food security. This was also emphasized in the 2009 election manifesto of the ANC.

As an illustration of the limited ‘direct’ action by government during the different food price crises we have reviewed different statements of the South African cabinet on the issue of high food prices. The various extracts confirm our interpretation and views throughout this chapter. Before this can be done it is important to understand that any cabinet decision would have (p.426) been prepared by the individual government departments and after which it would be discussed at the economic and employment cluster and then prepared for submission to cabinet.2 To some extent this process confirms the limited role of the parliament. The parliament has a legislative mandate and also has oversight over the expenditure and programme design of the different ministries. But most policy decisions are rooted in the National Executive Committee of the ruling party and within the cabinet and its various clusters.

Most of the cabinet statements illustrate the non-interventionist and rather neutral approach by the government. The statements have not indicated any major policy shifts and thus confirm our initial hypothesis of no or limited policy response. The social welfare programmes have, since they already take a large chunk of the budget, not been boosted as a result of the crisis. There were only small areas of targeted interventions by different ministries. The government, however, refrained from intervening in any of the agricultural commodity markets or changing its trade policy.

19.5.3 Pressure Groups, Public Uprising, and Food Riots

In South Africa the various labour unions, specifically COSATU, were very vocal while the different consumer lobby groups also made a lot of noise during the two periods of sharp food price increases. Most of these institutions blamed the food manufacturers and then later on the retailers for the sharp food price increases. The same line of critique was presented by the ANC’s alliance partner, the SACP, in a press statement issued in October 2002 (available at: <http://www.sacp.org.za/>).

The pressure from COSATU, the SACP, the Consumer Union, and NGOs as well as some suspicion within government circles increased the concern that there is collusive behaviour in some sectors of the economy, particularly in the food industry. These concerns as well as specific complaints lodged at the Competition Commission led to several investigations by the Commission into the conduct of several food companies. A number of them were found guilty of misconduct and fined large penalties.

At the same time the media used the food price crisis to stir sensation and hype while academics, commodity traders and farmers’ groups tried to explain the trends on the basis of market fundamentals and supply chain realities. We compiled a simple analysis to track the number of media reports related to the different periods of high food prices to assess the media hype and sensation (p.427) around the topic. Figure 19.4 presents this very rough review of articles carrying an issue on food prices over the last decade. We only reviewed the major print media to get a sense of whether what the media was reporting corresponded with periods of high food prices. The 2008/9 crisis received much more coverage in the local media than was the case in the 2002/3 period.

The Political Economy of Food Price Policy in South Africa

Figure 19.4 Newspaper articles on food prices in South Africa, January 2000–December 2010

Source: own calculations based on a recording of articles in the main daily newspapers.

Although the media covered the food price crisis during 2008 heavily it did not really have much impact. Most of the articles were informed by international media reports and furthermore only reported on the cabinet statements mentioned earlier or highlighted the information released by NAMC through its quarterly food price reviews. The numbers presented by the NAMC showed sharp retail price increases and provided useful material for the media in a period where other news was very stale and uninteresting. It was also good material to highlight the plight of the middle class and the poor in the run-up to the general election in May 2009.

Apart from the farm labour unrest in the Western Cape at the end of 2012–13— years after the last food price crisis—South Africa had no civil unrest and/or riots that could directly be linked to the food price crisis. It therefore played no role in framing the policy responses during the two periods in question.

(p.428) 19.6 Conclusion

Since the period of agricultural market deregulation, South Africa experienced two periods of food price crises: in 2002/3 and again 2007/8. The 2002/3 crisis was largely caused by a sharp depreciation of the South Africa exchange rate but was amplified by staple food shortages in the SADC region. In 2007/8 global commodity price trends were dominant factors in South African food price inflation.

The main objective of this chapter was to understand the food price changes during these two periods and to unpack the political reaction and policy responses to the food price crises in these two periods. Our personal recollection of events during the past decade, interviews with former politicians and state officials as well as a thorough investigation of all cabinet and government documents released during the specific years provided us with the conclusion that there were no major policy responses or changes in policy direction following the two periods of rapid food price inflation. It could be argued that the comprehensive social welfare programmes that were in place since 1998 would have provided a sufficient safety net for the most vulnerable suggesting to government decision makers that there is no need for substantive policy response. What the crisis did, however, is bring about a greater appreciation amongst politicians and members of the ruling party of the role of a domestic agricultural sector and how important it is not to depend on international trade for domestic food needs. This new ‘understanding’ did, however, not bring about specific policy changes.

We established that the policy of neo-liberal capitalism is so well-entrenched that it was difficult for the cabinet or bureaucrats to contemplate radical interventions in the market for agricultural commodities and food products. The fairly neutral response by government happened despite the call for action by the trade unions, the South African Communist Party and some strong media reporting. The evidence clearly suggests that the government’s response was more focussed on the line of statements and comments by senior politicians and a few pockets of government programmes introduced to deal with the negative consequences of the crisis within the neediest communities. The social safety net programme by the government that reaches about fourteen million people also provided some reassurance that the poorest people are already protected by substantial government programmes. At the same time the government made sure that any possible collusion by agribusiness firms and food companies was dealt with effectively by the Competition Commission.

We have shown in this chapter that agricultural and food policy in South Africa remained largely unchanged with no controls or regulations introduced. The policy of unregulated agricultural and food markets continues (p.429) although the Competition Commission increased the number of investigations into uncompetitive behaviour in food supply chains resulting in heavy fines for a number of food companies.

Taking into account all the government responses during the two periods of rapid food price inflation, the South African government implemented actions that can typically be classified as responses in the so-called ‘second class’ of interventions that mostly target the poorer section of the population in an attempt to mitigate the negative effects of price changes and include elements such as school feeding programmes, food parcels, etc. In the South African government these responses did not require any regulatory or legislative changes since they could be taken care of under the existing social welfare system and were thus possible in terms of current government mandates and in some cases only required additional funding from the treasury. This was made available fairly quickly given the seriousness of the crisis in terms of political repercussions. Note should be taken that 2004 and 2009 were election years in South Africa and distributing food parcels or providing food relief were thus useful instruments to show that the government was looking after its people. Nevertheless, South Africa had a well-funded social safety net programme in place prior to the crisis period and thus provided an important cushion during the periods of high food prices.

In closing it is worth noting that South Africa still does not have a comprehensive food security policy in place. The oversight role for food security is allocated to the National Department of Agriculture, Fisheries and Forestry, and specifically to a weak directorate in the department. This in essence prohibits the South African government from introducing a comprehensive and coordinated food security strategy. It could well be argued that the current social welfare payments are insufficient and that much more coordinated and well planned food security interventions are needed in the neediest communities of South Africa. This, however, is part of an ongoing debate in South Africa and not necessary following from the crises in 2008–9.

References

Bibliography references:

BFAP (Bureau for Food and Agricultural Policy) (2009). ‘South African Agricultural Baseline, 2009’. Pretoria: University of Pretoria.

Department of Social Development (2007). ‘Annual Report of the Department of Social Development’. Pretoria: Department of Social Development.

FAO (Food and Agriculture Organization) (2004). ‘Republic of South Africa: Integrated Food Security Strategy’. Available at: <http://www.fao.org/righttofood/inaction/countrylist/SouthAfrica/IntegratedFoodSecurityStrategy_2002.pdf>.

(p.430) FMPC (Food Price Monitoring Committee) (2003). ‘Final Report’. Pretoria: National Agricultural Marketing Council and Department of Agriculture.

Gumede, W. (2011). ‘Developing a Democratic Developmental State in South Africa’. Policy Brief 1. Midrand: Development Bank of Southern Africa.

Kirsten, J. F., and N. Vink (2002). ‘Pricing Behaviour in the South African Food and Agricultural Sector. A Report to the National Treasury’. Available at <http://www.sarpn.org/documents/d0000327/P280_Pricing.pdf>.

Koch, J. (2011). ‘The Food Security Policy Context in South Africa’. Country Study 21. Brasilia: UNDP, International Policy Centre for Inclusive Growth.

May, J. (2012). ‘Smoke and Mirrors: The Science of Poverty Measurement and its Application’. Development Southern Africa 29(1): 63–75.

National Department of Agriculture, South Africa (2009). ‘Overview of South African Agriculture’. Available at: <http://www.nda.gov.za> (accessed June 2009).

National Planning Commission, South Africa (2011). National Development Plan: Vision 2030. Available at: <http://www.npconline.co.za>.

Terreblanche, S. J. (2002). A History of Inequality in South Africa. Durban: University of Natal Press.

Vink, N. (2003). ‘The Influence of Policy on the Role of Agriculture in South Africa’. Paper presented at TIPS/DPRU Forum 2003 ‘The Challenge of Growth and Poverty: The South African Economy since Democracy’, Johannesburg, September.

Vink, N., and J. F. Kirsten (2003). ‘Policy Successes and Policy Failures in Agriculture and Land Reform in South Africa: The 1990s’. The South African Journal of Economic History 18(S 1 and 2): 96–117.

Vink, N., and J. van Rooyen (2009). ‘The Economic Performance of Agriculture in South Africa since 1994: Implications for Food Security’. Development Planning Division Working Paper Series No. 17. Midrand: Development Bank of Southern Africa.

Watson, D. D. (2011). ‘A Review of Unanswered Political Economy Questions in Food Policy’. Mimeo. Ithaca, NY: Cornell University.

World Bank (2008). World Development Report 2008: Agriculture for Development. Washington, DC: World Bank.

Notes:

(1) Research assistance was provided by Jurre Hartwigsen, Marlene Labuschagne, and Babatunde Abidoye.

(2) The economic and employment cluster is a meeting of the minsters and their directors general from the following departments: rural development and land reform (chair); science and technology (deputy chair); agriculture, forestry and fisheries; communications; economic development; finance; higher education and training; labour; mineral resources; public enterprises; rural development and land reform; tourism and trade and industry.