South Africa: Fuel and Fertiliser Costs Drive Up the Price

South Africa's food price trajectory is tightening around two volatile inputs: fuel and fertiliser. As the rand weakens and global energy markets remain turbulent following US-Iran geopolitical tensions, producers face mounting pressure that is already translating into higher supermarket prices—even as underlying commodity costs stabilise or decline.

The May 2025 fuel price hike compounds an already challenging environment for South African food manufacturers and retailers. Fuel is not merely a production cost; it is the connective tissue of the supply chain, driving transportation, processing, cold storage, and distribution. For a country already grappling with load-shedding and energy insecurity, any fuel price shock cascades rapidly through the food system.

## How are fertiliser costs amplifying food inflation?

Fertiliser prices remain elevated due to geopolitical disruptions affecting phosphate and potassium supply chains. South Africa imports the majority of its fertiliser, making the sector acutely vulnerable to currency fluctuations and sanctions-driven supply constraints. Maize, wheat, and vegetable producers—cornerstones of the domestic food basket—are absorbing these costs, which ultimately feed into retail prices that consumers see at checkout.

What makes this dynamic particularly concerning is evidence of **"rocket and feather" pricing behaviour** across the supply chain. This economics term describes how retailers and processors raise prices quickly when input costs spike (the "rocket") but lower them sluggishly—or not at all—when costs fall (the "feather"). ABITECH analysis of South African food price data reveals that even as global crude oil retreated and some commodity prices stabilised in Q1 2025, retail bread, eggs, and dairy prices remained sticky upward. This suggests that input costs are being used as cover for margin expansion rather than pure cost pass-through.

## Which food categories face the greatest pressure?

Staple grains, poultry, and dairy are most exposed. Poultry producers rely heavily on imported maize-based feed and diesel for logistics; dairy farmers face both fertiliser costs (for feed crops) and fuel for cold-chain operations. These categories comprise roughly 30% of the average South African household food spend, making inflation here politically and economically sensitive.

The broader risk is a widening gap between wholesale and retail inflation. Producers and retailers are exploiting consumer inattention and switching costs—many shoppers cannot easily shift to cheaper alternatives for staples. This dynamic, if unchecked, will erode real wages further and intensify household food insecurity, particularly in lower-income segments.

## What happens if geopolitical tensions escalate?

Oil prices could spike 15–25% within weeks if US-Iran friction intensifies, translating to a 40–60 basis point jump in South African fuel prices and a cascading 3–5% retail food inflation shock. The Reserve Bank's interest rate path could be forced higher, compressing consumer purchasing power further. For investors, this scenario demands immediate hedging of rand exposure and heightened scrutiny of retailer margin sustainability.

---