Morne Botes, Commercial Director at Southern Soil
The government has announced a phased VAT increase, raising the rate by 0.5 percentage points in 2025/26 and another 0.5 percentage points in 2026/27, bringing it to 16%. This decision comes amid economic volatility and ongoing concerns about food inflation, a persistent and highly sensitive issue in South Africa.
A VAT increase puts immense pressure on households and small businesses, shaping not only business returns and spending habits, but also longer-term outcomes.
As such, South Africans are set to brace for another challenging year and will continue to feel the pinch with the lower income groups hardest hit, with little room for alternatives. For context, according to the recent Household Affordability Index, it costs South Africans R5 313,22 to fill an average food basket. If you examine this from an inflationary perspective, it means consumer inflation was at 3,2% in January 2025, up slightly from 3,0% in December 2024, which is a lower increase than the 2,5% registered in December 2024.
Inflationary pressures and rise in pricing
Food inflation stems from multiple factors in South Africa, a prime example is cooking oil. As a pantry staple, its cost fluctuates significantly, impacting household budgets.
In fact, cooking oil prices have been highly unpredictable, largely due to external factors. The war in Ukraine disrupted global sunflower oil supply chains, while erratic weather patterns have impacted soybean and canola production. In South Africa, the weakening rand has also contributed to price increases.
Other key cost drivers to consider include rising fertilizer, fuel, and electricity prices, which have significantly increased food production expenses. Additionally, oil manufacturers rely on an energy-intensive refining process, further driving up costs. And, if we combine this with the actual supply chain expenses to bring products to retail, all these factors contribute to significant price increases.
Beyond the pantry staple
For many South Africans, cooking oil lives beyond the pantry and viewed as a source of income and its cost can be a difference between making profits and loss in a day. From the Gogo deep-frying vetkoek in her backyard to the street vendor serving up fresh slap chips and russians – cooking oil plays a vital role in the informal economy, which accounts for approximately 30% of the business landscape, 42% of total employment and 6% of GDP (approximately R280 billion).
This proposed VAT increase, will hit micro-entrepreneurs, many of whom are the backbone of this economy largely based and operating in townships, taxi ranks, and roadside stalls – and very importantly, a key feeding solution for communities and families.
The price of nutrition and health
Despite how hard of pill this is to swallow, the sad reality for many consumers is that they are forced to prioritise price over nutrition. With rising food costs and budget constraints, consumers are opting for cheaper alternatives and more processed foods, which are often high in unhealthy fats, sugar, and sodium. However, eating well shouldn’t be a luxury.
Food service brands have a responsibility to educate consumers on healthier choices while ensuring affordability and accessibility. Locally produced oils, like Canola-based products, for example, offer heart-healthy fats and essential Omega-3s at a price that suits South African households. Moreover, specifically formatted oil blends can also be used for extended frying life to stretch budgets.
Fortunately, we are seeing consumers are becoming more conscious of value and health benefits, opting for food staples with added nutritional. Looking ahead, we anticipate a stabilisation in pricing, but volatility will continue remain a factor. However, the real challenge for consumers and small businesses is now bridging the gap between cost and quality , especially with impacted wallets due to inflation and VAT increases.
