The Linkage between Governments’ COVID-19 Response Measures, Real Exchange Rate, and Grain Prices in South Africa

Moses Herbert Lubinga, Fezeka Matebeni, Corné Dempers, Ndiadivha Tempia


Coronavirus disease (COVID-19) outbreak disrupted global supply chains as countries imposed various response measures to contain the spread. This paper examines the nexus between governments' COVID-19 response measures, real exchange rate, and prices of wheat and maize in South Africa. We used daily data, spanning from February 07 until September 25, 2020, for the stringency index, import parity, and South African Futures Exchange (SAFEX) prices of maize and wheat. We considered South Africa's major suppliers of wheat and maize, i.e., Argentina, Germany, and the United States (US). Maize was disaggregated into two categories, namely: white and yellow maize. Both descriptive and Pearson correlation analyses were used to establish the nexus. Findings suggest that COVID-19 response measures are associated with the observed depreciation of South Africa's Rand against the US Dollar and the spikes in SAFEX prices of wheat and maize. Furthermore, results reveal a moderate to a strong positive relationship between South Africa's real exchange rate and the prices of wheat and maize. However, consumers' increases in wheat and maize prices were borne, as exhibited in higher retail prices observed in South Africa between February and September 2020. Results also reveal a strong nexus between the levels of strictness imposed by the different countries. Therefore, imposing very strict measures in one country tends to lead to similar strict measures in other countries. The significance of the results in minimizing the COVID-19 outbreak is twofold. First, countries may consider revisiting the restrictive response measures put in place, given that the measures affect supply chains in other countries. Second, South Africa needs to diversify the sources from which it imports maize and wheat.


Keywords: food price inflation, import parity price, National Agricultural Marketing Council, SAFEX Price, South African Grain Information Service.

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