Only a week after the first case of Covid-19, the disease caused by the coronavirus, was confirmed in South Africa (and two more cases since then), the fear of a spread of the virus appears to be changing consumer behaviour and demand patterns. 

Anecdotally, over the weekend we noticed a surging demand for sanitisers to the extent that several retailers ran out of supplies in Pretoria. In other countries such as the US, consumers are in “panic-buying” mode, clearing shelves of everything from cleaning wipes and hand sanitiser to pasta, rice and bottled water. The UK is experiencing similar behaviour with retailers reporting a spike in demand for essential products and foods. 

Will South Africa experience similar behaviour? It is too early to tell, but we find the growing demand for sanitisers, spooked by fear of the virus spreading, similar to consumer behaviour in the US and the UK when the first cases were reported. If a similar shift in consumer behaviour occurs in South Africa, in the very short run, an increase in demand would be a positive for retailers, especially food and other essentials. In the medium term, however, depending on whether the virus continues to spread, there might be a decline in demand, possibly due to quarantine restrictions, business and school closures and fear of exposure to the virus in public spaces with large numbers of people. 

Businesses at the forefront of such an adverse shock would include restaurants (and subsequently agricultural suppliers), public transport, hairdressers and similar personal services providers, to name a few. So far we haven’t observed much change in consumer patterns in such establishments, at least from anecdotal observations over the past few days. The traffic in most restaurants around Pretoria and Johannesburg seemed normal. 

In the US, restaurants and fast food stores have increased their in-store cleanliness efforts as a way to ease consumer fears. We will be monitoring whether such efforts and consumer behaviour become prevalent in South Africa in the coming weeks, and what that would mean for the food retailers and thereafter demand for agricultural products and prices.

Another area we are monitoring and highlighted last week is global agricultural value chains. The potential decline in Asia’s agriculture demand and falling prices could see the value of South Africa’s agriculture exports to Asia declining in 2020. 

South Africa’s agriculture is export-orientated, with exports of roughly $10-billion in 2019. According to data from Trade Map, the potential disruptions the coronavirus could cause to global value chains is a key concern. This is specifically the case for Asia, as the epicentre of the outbreak, and also an area that accounts for a quarter of South Africa’s agriculture exports. The commodities most exposed to the Asian market are wool, fruit, grains, beverages, vegetables and red meat.

Globally, what we have learned over the past few weeks is that fear changes consumer behaviour and subsequently changes demand patterns for products. South Africa appears to be experiencing early signs of this through spiking demand for sanitisers. If this extends to food and other essentials as is the case in other countries affected by the virus, agribusinesses will experience the shocks (possibly through spiking demand first and softening in the medium term). The implications of this on food price inflation are unclear in the near term. 

Suffice to say, South Africa has large food supplies for 2020. Hence, we have placed our forecast for food price inflation this year at about 4% y/y. 

Of course, Covid-19 is a world-wide shock and it remains too early to make any definitive assessment of the potential economic effect. There are still many unknowns, including how far the virus could still spread, particularly in Africa, how effective global efforts to contain the spread will be and how quickly consumer behaviour normalises after the virus is overcome. These are some of the issues that we will be paying close attention to going forward. DM