Producer prices are determined by supply and demand, and the South African consumer market has changed a lot in the last decade. Farmers are normally far removed from this market, but the changes in its composition will directly affect their future incomes. Their strategies will have to take these changes into account.
Rainbow consumer market
South Africa is indeed a rainbow nation, with a wide variety of cultural and economic groups in both urban and rural areas. The South African Advertising Research Foundation (SAARF) has developed a tool to segment the population based on socioeconomic standing. These segments are called SAARF Universal Living Standard Measures (SU-LSM) and range from SU-LSM 1 (the lowest) to SU-LSM 10 (the highest segment). A summary profile of the South African consumer market is shown in Table 1.
LSM groups 1 to 3 include 30% of the total SA population but they have only 5,9% of the total available household cash. However, they are responsible for 22% of total fast-moving goods purchased. This group gets the largest share of social grants and pensions. Any increase in these grants increases their purchasing power directly. They predominantly live in rural areas (70% plus).
LSM groups 4 to 6 include the growing black middle class with more than two million black adults. This is a very important group in terms of spending power. They hold 28,8% of total available cash and account for 37% of fast-moving goods. Some 48% of people in LSM group 4 and 11% of people in LSM group 6 live in rural areas. Groups 7 to 10 hold the highest proportion of total cash (63%) and are responsible for 41% of fast-moving goods purchases. Average monthly income varies between R6 880 and R19 974. Less than 5% of this group live in rural areas.
Food consumption patterns in SA
Lower income groups spend a larger percentage of their total income on food (LSM 1 = 71%, LSM 10 = 11,2%). The percentage of total income spent on meat remains fairly constant over all income groups. The percentage spent on grain decreases with increase in income, but the percentage spent on dairy and meat increases (see Figure 1). Dr Koos Coetzee is an agricultural economist at the MPO. All opinions are his own.