Fuel and fertiliser costs drive up the price of a basic

South Africa's food inflation story in 2025 is becoming clearer—and it's not reassuring for households already stretched by cost-of-living pressures. While global geopolitical tensions between the US and Iran ripple through energy markets, South African food producers are caught in a cost squeeze that threatens to push grocery prices higher before year-end.

The mechanism is straightforward: fuel and fertiliser costs are climbing. Fertiliser markets remain tethered to crude oil prices, and any supply disruption—real or anticipated—sends shockwaves through agricultural input costs. When a farmer's fertiliser bill rises 15-20%, those costs eventually land on the retail shelf. But here's where the story gets murkier: the transmission from farm to supermarket is not always mechanical.

## Why Are Input Costs Rising Faster Than Wholesale Prices Fall?

Food processors and retailers have increasingly adopted what economists call "rocket and feather" pricing—prices shoot up instantly when input costs rise (the rocket), but fall slowly or not at all when costs stabilise or decline (the feather). This asymmetry has become endemic in South African food retail. Bread makers, dairy processors, and packaged-goods manufacturers have learned they can absorb margin pressure by passing costs upward aggressively, then resist downward adjustments when input prices ease.

The May fuel price increase expected in South Africa will be the third consecutive monthly rise, compounding pressure on transport costs for agricultural inputs, distribution, and retail logistics. For staples like bread, maize meal, and vegetable oil—items that dominate low-income household budgets—even a 3-5% price increase translates to real purchasing power loss.

## What Role Does Geopolitical Risk Play in Food Costs?

The US-Iran conflict introduces volatility into crude oil markets that extends beyond petrol pumps. Freight costs for imported fertilisers (South Africa imports roughly 60% of its nitrogen fertiliser) are sensitive to shipping rates, which spike during periods of Middle East tension. Even a 5% increase in shipping premiums adds R 200-400 to the cost of a tonne of fertiliser, eventually trickling into food prices.

## How Can Investors and Consumers Navigate This Environment?

For investors, the play is counterintuitive: watch for listed food retailers and processors that *resist* passing full cost increases to consumers (signalling pricing power erosion and margin compression), while also monitoring agricultural input suppliers for margin expansion. For households, bulk purchases of non-perishable staples before May price increases are rational, though this dynamic itself can create hoarding-driven artificial shortages.

The critical unknown is whether the South African Reserve Bank's inflation mandate will force faster interest rate cuts to ease consumer pressure, or whether geopolitical oil volatility will keep fuel prices elevated through mid-year. Either way, food inflation—currently running 4-6% year-on-year—could re-accelerate to 7-8% if fertiliser and fuel price momentum sustains.

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