Food prices go up, but never come down – and the Competition Commission wants to know why

The South African Competition Commission has noted a sharp increase in staple foods in South Africa – which may be at risk of price gouging by retailers.

The commission’s latest Essential Food Pricing Monitoring Report identified specific problems with sunflower oil and bread prices in South Africa, saying that consumers “might be facing opportunistic price increases” in these two categories.

It noted that sunflower oil processor prices have increased by far more than sunflower seed prices this year, resulting in widening retail margins. It added that retailers have, in the past, also not passed on wholesale cost reductions for bread to consumers.

The increase in these two stable food products comes while there is global and domestic concern over food price inflation by already struggling consumers, the commission said.

Stats SA’s latest consumer price information shows that fats and oils, bread, and cereals currently carry the highest food price inflation at 36.2% and 13.7%, respectively.

Prices of these products have been driven higher by the Russian invasion of Ukraine. South Africa is a net importer of sunflower seeds, and the Easter European block is the global supplier.

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The commission said that high and growing concentration along the sunflower oil value chain – from sowing seed to the refining level – creates a risk of opportunistic price increases above cost increases during periods of inflation.

“This is commonly referred to as the ‘rocket and feather effect’ whereby prices are quick to increase and slow to decline where there is cost inflation in the value chain.”

The commission found that processing prices have increased by 72% and retail prices have climbed by 36% in 2022, indicating that retailers have absorbed some of the increase.

However, in the case of processor prices, these increases have not been entirely driven by the price of sunflower seeds since the SA Futures Exchange (SAFEX) price for sunflower seeds has been fairly stable over the period and not seen significant increases.

“Whilst processors of oil may have seen some cost increases for energy and fuel, the large widening of margins is a cause for concern for the commission as it may indicate opportunistic pricing behaviour that is not related to costs.”

Other goods

Bread as staple food for consumers is also a point of concern. The commission noted that the wholesale-to-retail price of bread has increased significantly over time.

It said that while this may indicate increases in the costs of retailers, evidence suggests that cost decreases in the past have not been passed onto consumers by retailers, and this is the source of margin growth.

The commission listed the following factors as several more concerns that currently face South Africa’s food markets and value-chains:

  • Wide farm-to-retail spread in prices;
  • Large price differences between regions for basic fresh produce;
  • Growing margins at the processor and retailer level, and;
  • The trend of price inflation that started with the pandemic and has been exacerbated by supply chain constraints and the Eastern European conflict.

The latest commission also had positive findings, in that there hasn’t been a significant increase in the prices of fruits and vegetables in recent months.

“This is encouraging as fresh produce is an important source of nutrition and the food basket of lower-income households. It is only tomatoes where there has been price volatility,” the commission said.

Regarding maize meal, the commission found that while retail prices have increased in 2022, the retail prices appear to be largely related to the increase in the SAFEX price for white maize, but the overall spread has increased somewhat in 2022, the commission said.

It found that the price of a margarine brick increased by 6% from January 2022 to June 2022 – significantly lower than the increase in the retail or producer price of cooking oil.

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Artmotion S.Africa

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