Sifiso Ntombela | How the coronavirus could change SA’s food market

After an
extensive lockdown to contain the spread of the coronavirus, South Africa is lifting
some restrictions to revive and stabilise the economy.

Latest
projections indicate that the economy could decline by over 7.1{e93887a69cdd95d753f466db084bbc3aa0067124675315461d28d68a72842cc2} in 2020,
implying thousands of businesses will not reopen after the lockdown is lifted,
partly due to low aggregate demand and decaying investments.

According to the
World Economic Forum, nearly 40{e93887a69cdd95d753f466db084bbc3aa0067124675315461d28d68a72842cc2} of businesses across the world will not
survive the Covid-19 pandemic, suggesting a looming rise in global unemployment
and humanitarian calamity.

In South Africa,
the Covid-19 crisis will have the severe impact on sectors such as tourism, mining,
manufacturing and construction. The trade data for April 2020 released by the
South African Revenue Service shows early signs of suffering in these sectors.

In April, the
country had a trade deficit of R35 billion, largely driven by a decline in
mining, vehicles and precious metals and stones.

One of the few
sectors that is showing a positive growth and would not be heavily affected
when the economy finally opens up is agriculture. This is because it was
allowed to continue operating during the shutdown and it has an inelastic
demand.

Agriculture is
coming from an advantageous position of being an essential service under
lockdown; however, the demand side of food has been affected by a collapse of
informal food trading, hospitality and closure of fast-food outlets during the
hard lockdown.

Opportunities
in a changing food market

The Covid-19
crisis has not only affected food demand levels, it has also created a new
patten in food purchasing, influenced by social distancing and the emergence of
multifunctional homes.

As people modify
their houses to allow working and exercising at home, they are changing their behavior,
which subsequently alters the type of food demanded, the packaging and manner
in which food is distributed.

Consumers are
increasingly demanding fresh, healthy and locally produced food directly from a
farm or processor. The direct connection between a farmer and consumer is
facilitated by technology innovations which enables online food trading.

The expanding
e-commerce has a potential to create a new cohort of domestic food processors
and distributors thus presenting new opportunities to reshape the food system
in the country. It is promising to break entry-barriers in the food market for
new players, especially the youth and women, who were previously unable to
secure market contracts to supply large and centrally organised supermarkets.

Though Covid-19
has changed the food market and created new opportunities, the youth will not
be able to capitalise unless affordable capital and technology is made
available for them. This calls for Development Finance Institutions (DFIs) and
government to create financing solutions that take into account the ground
realities of youth.

Access to
capital

There are more
than 12 support measures announced by government, Development Finance
Institutions and the private sector in the past two months, including:
Resilience Facility by the Department of Small Business; Smallholder Farmer
Relief by the Department of Agriculture, Land Reform and Rural Development; Solidarity
Fund by the Presidency; Business Funding Solution by the National Empowerment
Fund; South African Future Trust, and others.

The majority of
these funding measures are supporting existing businesses, with limited to zero
focus on new innovative business ventures.

Moreover, the
announced support measures have stringent eligibility criteria, including a high
minimum revenue threshold for each firm, proof of positive income for at least
the past 12 months prior to the national lockdown, and evidence the business
was in good financial state prior to the Covid-19 outbreak.

Effectively, most
of the financial solutions created are perpetuating inequality in the country
and reinforcing entry-barriers for new businesses in the formal economy, and
worryingly, the government is leading the pack.

The changing
consumer behavior influenced by social distancing practices suggest that there
will be a new economic equilibrium post the lockdown and these will stimulate
new businesses and innovations. The ability of the economy to recover from the Covid-19
crisis will largely depend how the policy and business environment safeguard
the existing businesses and simultaneously accommodate and support new
businesses ventures.

This will be
possible if financial and support measures that have been created recognise new
players in the economy. It is becoming evident that post Covid-19, many
business that ascribed to traditional ways of business operation will likely
not survive the new normality of social distancing and technologically inclined
customers.