South African food supply to normalise after unprecedented demand
In the past 15 days, Tiger Brands experienced a 60% spike in its pasta volumes, says CEO Noel Doyle.
But “people haven’t eaten 60% more pasta – it’s sitting in [their] pantries.” South Africans need not panic, however, because “I think the supply chain is going to normalise.”
“You may see some empty shelves occasionally,” adds Doyle. “It’s just that we didn’t have 60 days of buffer stock for pasta and rice,” he explains.
South Africans have been stockpiling the grains in large quantities because the country is in lockdown to curb the spread of COVID-19.
The lockdown comes with restrictions on movement and encourages social distancing.
The government has put a special dispensation in place for workers providing essential services, including those in the food supply chain and medical services. The government did this to discourage panic buying.
South Africans have mostly heeded this call, but not fully; at least in the first two weeks of the lockdown.
This was most pronounced in pasta and rice for Tiger Brands. Retailer Woolworths says it also shifted large volumes of what consumers deemed essential goods pre-lockdown, but this demand has since moderated.
No rice supply, but supply unaffected
Tiger Brands’ South African operations have been mostly unaffected by the lockdown. Woolworths has closed its fashion, beauty and home stores, while its food business remains open because it is an essential service under lockdown regulations.
Last week, a shipment of rice docked on South African shores. “We are packing it. We have another [shipment] coming in a few weeks. I don’t think you can expect to see dramatic shortages in either of those commodities [pasta and rice],” says Doyle.
“[But] we are not carrying any surplus rice stocks.” This is because rice is fully imported, and it is an expensive commodity, according to Doyle. “You’re not going to try and keep two or three months in a normal cycle. You try to keep your stock levels as low as possible.”
Roar against depreciating currency
In recent weeks, the South African rand has weakened significantly against the dollar. But “the volatile exchange rate is more of a medium-term challenge, than an immediate-term challenge,” says the Tiger Brands CEO.
“In most of our categories, we’ll have procurement positions. Our short-term procurement position would be four to six weeks. Some of our procurement positions could go out for six to seven months. Generally, we cover our foreign exchange liability when we contract. It is something that we’ll start seeing creep into our income statement,” he explains.
“We can already see it in rice,” Doyle points out.
A ship from Thailand is making its way to South Africa to deliver the commodity. But the rice on the approaching ship is 40%-45% more expensive than the ship which docked last week.
“That’s because we’ve had a relatively short position in rice,” says Doyle.
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In its recent update to the market, retailer Woolworths presented a mixed outlook for its different operating units.
Woolworths relies on online to handle demand
In the four weeks to the end of March 2020, sales in the food division rose 27.6%.
“The period immediately prior to the lockdown saw unprecedented demand on specific products that consumers considered essential. This demand has begun to moderate, as shopping patterns are re-set and as confidence in the food supply chain grows,” the company said in its update.
The majority of its food stores remain open. “Our supplier partnerships are ensuring a consistent supply of product during this critical time,” it added.
Woolworths has also placed more focus on its online business “to contend with significantly increased demand.”