Increased Food Prices Effect on Poor

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Food prices in South Africa have increased by over 10% within the last year. This has a negative effect on the people with a lower income and who need to spend more of their total income on food. The cost of the standard South African food basket, which is expressed as a share of the average monthly income for the poorest 30% of the population has increased from 32.4% in October of 2010 to 36.4% in October 2011. Some of the determinants of the increased food prices occurred due to higher administered prices such as electricity as well as regulated prices such as fuel. This combined with the decreased supply of maize meal (one of the top five items consumed by poor South Africans) has caused maize prices to increase close to import parity levels. When food commodity prices move from export to import parity levels, food inflation is always likely to spike. Export parity prices occur when farmers produce more of a product needed for domestic requirements and can therefore export. This however is limited by port and rail capacities. Import parity prices occur when imports are needed in order to satisfy the local demand. The South African maize crop has reduced from 12.8 million tonnes in 2010, to 10.4 million tonnes in 2011. Due to a decreased supply of maize but a constant demand for it, it explains why the price has increased by 30.86% more for a 5kg bag of maize meal from 2010 to 2011. This occurs because the supply curve shifts leftwards, whereas the demand curve stays constant, causing the equilibrium price to shift upwards.
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