The Competition Commission says that South African consumers have been subjected to unjustified price increases for sunflower oil, white and brown bread over the last two years – and may have also been subjected to “opportunistic price increases” for maize meal over the same period.
The commission published its latest Essential Food Pricing Monitoring (EFPM), covering 2021 and 2022.
The EFMP is the eighth report published since 2020, where the commission tracks the pricing of specific and essential food types.
The report was launched in response to the fluctuating market brought on by black swan events like the Covid-19 pandemic and, more recently, Russia’s war in Ukraine and persistent load shedding.
“The food sector remains a priority for the commission as poor consumers spend a significant portion of their income on essential food items. As food inflation remains elevated and load shedding continues to affect business operations, food price monitoring will remain a priority for the commission, given its importance to the welfare of South Africans.,” the commission said.
To date, the EFPM reports have pointed to concerning features in several food markets and value chains.
Examples include larger differences between what farms get paid for food items and in-store prices, growing margins at the processor and retailer level, and potential opportunistic pricing behaviour for staple food products such as bread and cooking oil.
Following the commission’s August 2022 analysis of steep prices for sunflower oil throughout the value chain, the latest report investigated the price of a range of essential food products such as bread, cooking oils, maize meal, rice, flour, margarine, and pasta at the retail and wholesale levels.
The commission’s previous investigation revealed that there had been a significant increase in the producer price of sunflower oil starting from March 2022.
These increases were transmitted to retail prices. While these increases resulted in a widening of margins across the value chain, retailers appeared to have absorbed some of the increase resulting in lower retail margins from March 2022.
From June to December 2022, as the commission started its inquiries into pricing, the wholesale price of sunflower oil fell drastically from R32.72 to R23.88.
“The spotlight on conduct by processors of cooking oils in the August EFPM report likely contributed to this decline, and those companies remain under investigation,” the commission said.
Retail prices fell from R45.33 in July 2022 to R38.71 in December 2022.
However, the steeper decline in wholesale prices relative to retail prices has resulted in the retail margin increasing to 38% in December 2022 from 22% in March 2022.
“The fact that retailers have been quick to increase percentage margins has meant that consumers have not seen the extent of relief that wholesale price drops would warrant. The percentage margins may be similar to 2021, but the higher wholesale price means that the retailers are taking more rand margin than before, which is unlikely to be justified,” the commission said.
The net effect of processor and retailer conduct in 2022 is that consumers are still paying far more for cooking oil than in 2021. The commission said that it remains concerned about the cooking oil value chain pricing and is currently conducting a formal investigation.
From January 2022 to December 2022 white and brown bread retail prices shot up by 20% and 19%, respectively.
These increases came much faster than producer prices, which were recorded at 15% for white bread and 14% for brown bread, the commission said.
This implies that increases to shelf prices – R15.47 to R18.62 for white bread and R13.99 to R16.61 for brown bread – may not be justified by costs.
“As shown with cooking oil, applying the same margins on a higher cost base results in much higher rand margins which are unlikely to be justified by actual shelf cost increases,” the commission said.
The price of maize meal increased 32%, going from R26.62 to R35.29 from January to December 2022, the commission noted.
Meanwhile, the South African Futures Exchange (SAFEX) price of white maize increased at a slower rate, resulting in the price of maize charged by farmers being a lower proportion of the retail price of maize meal over the year.
“This is concerning and may indicate opportunistic behaviour throughout the value chain and raises questions about using export parity pricing throughout the maize value chain,” the commission said.
Fruits and vegetables
The commission also looked at the prices of five fruits and five vegetables, but the results were inconclusive.
Vegetables are largely insulated from global markets and reflect domestic market outcomes. Over the year 2022, the prices of carrots, potatoes, and cabbage were generally stable and in the case of carrots and potatoes declined during the middle of the year rising from September onwards.
Tomato prices were volatile but declined during the first half of the year before increasing in the middle and falling between August and October. Onion prices increased steadily from January to August, however, prices shot up from August to November before coming down slightly in December.
“It is unclear what is driving the price of onions as these increases appear to be more than simply seasonal variations,” it said.
With the fruits, these too are driven mainly by domestic market outcomes, although the export of certain fruits does expose pricing to global markets to some extent.
The price of the fruits tracked by the Commission fell over the course of 2022, with avocado falling the most, followed by oranges.
The commission said that the prices of the five fruits and vegetables were generally volatile over 2022 and an in-depth value chain analysis will be conducted by the Fresh Produce Market Inquiry.
The commission launched a Fresh Produce Market Inquiry to assess if there are features in these markets that impede competition.
Read: Light at the end of the tunnel for high food prices in South Africa
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