event 29 июля 2021

Research article // Long term relationship between food, energy and water inflation in South Africa

By Saul Ngarava. South Africa is a water scarce country, with limited irrigable land and an energy sector that is coal-based and water intensive. The intricacies between these resources translates into an increase in price in one sector transmitting into the other. Through a parsimonious VAR, the study sought to investigate the relationship between food, energy and water prices for the period January, 2002 and December, 2020.

category Research Papers, Publications and Books tag Water tag Food and Agriculture tag Water tag Energy tag Economy globe Africa globe Южная Африка
Figure 1 Food energy water nexus Source Gulati et al 2013 WWF SA 2014

Food-energy-water nexus. Soruce: Gulati et al., 2013, WWF-SA, 2014

Highlights

  • Energy inflation has impact on water inflation in the short and long run.
  • Energy inflation impacts itself in the short run and is affected by food inflation in the long run.
  • Food inflation impacts itself both in the short and long run.

Abstract

The food-energy-water (FEW) nexus provides leeway into the lateral transmission of price volatilities within the sectors. The problem is that any inflationary price tendencies in one of the FEW sectors will have direct and indirect effect on the other. The objective of the study was to ascertain the relationship between inflation in food, energy and water, and determine whether there were spill-overs, in South Africa. Monthly consumer price indices for food, energy and water for the period spanning from January, 2002 to December, 2020, were used. Parsimonious vector autoregressive (VAR) model was used in data analysis. The study found that prior to 2013, inflation rate was higher for food relative to water and energy, respectively. After 2017, water had a higher inflation rate relative to energy and food, respectively. Furthermore, energy inflation had positive impact on both water and food inflation, whilst water inflation also had positive impact on food inflation. The study concludes that there is a nexus in the lateral inflation between food, energy and water. Recommendations include building resilience within the nexus through decoupling food and other sectors from fossil fuel-derived energy. There is need to strike a balance in biofuel and energy production policy to foster complementarities. Operational efficiencies within the sectors also need to be fostered.

Keywords
consumer price index; food-energy-water nexus; impulse response function; parsimonious vector autoregressive, variance decomposition

Published

July 2021

By

Water-Energy Nexus

Citation

Ngarava, S. (2021). Long term relationship between food, energy and water inflation in South Africa. Water-Energy Nexus. https://doi.org/10.1016/j.wen.2021.07.002

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Long term relationship between food, energy and water inflation in South Africa

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