Linkage between Governments' COVID-19 Response Measures, Real Exchange Rate and Prices of Wheat and Rice in South Africa

Abstract

The outbreak of COVID-19 disease caused disruption in global supply chains as countries imposed various measures in a bid to contain the coronavirus. 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 (February 07 - September 25, 2020) for the stringency index obtained from Our World Data, 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’s 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 strong positive relationship between South Africa’s real exchange rate and the prices of wheat and maize. However, increases in wheat and maize prices were borne by consumers as exhibited in higher retail prices that were observed in South Africa between February and September 2020, but wheat prices were the most affected. Results further reveal that there is a strong nexus between the levels of strictness imposed by the different countries, thereby implying that imposition of very strict measures in one country also tends to spur imposition of equally strict measures against COVID-19 in other countries. The significance of the results in minimising the impact of COVID-19 outbreak is twofold. First, countries may consider revisiting the kind of restrictive response measures they put in place as these measures affect supply chains in other countries. Second, South Africa’s need to diversify the sources from which she imports the major grains – maize and wheat.