The advent of Covid-19 gave rise to collateral socio-economic adversities and opportunities alike. South African consumers were not only confronted with navigating the unchartered waters of Covid-19, but the second pandemic of rapid rise in prices of essential food and pharmaceutical products. Vulnerable consumers needed protection from possible exploitation and price gouging.
It is for these reasons that the Competition Commission saw the need to proactively monitor essential food prices throughout the value chains of selected essential food items. These included staple foods such as maize meal, fresh produce, cooking oil and meat.
Consequently, the commission has since March 2020 consistently released an Essential Food Pricing Monitoring (EFPM) to promote transparency on price margins from farmgate to retail shelves.
Recently, the commission released the second edition of this year’s EFPM Report, highlighting observations by the Economic Research Bureau (ERB) that prices for essential food items remain high and are increasing at a rate that is unaffordable for low-income households.
Let’s dive into what the EFPM Report is, how we compile it, what the key observations are, and what role the commission can play as it continues to monitor the prices of essential food items.
The Report is a compilation of observations using publicly available information and includes an analysis of the aggregate spread between retail and producer prices. It elevates transparency regarding the margins earned by producers and retailers of products that include sunflower oil, brown bread, canned pilchards and individually quick frozen (IQF) chicken.
Our methodology reflects the needs and concerns of a competition regulator – price transmission throughout value chains. For our analysis, the spread is the percentage difference between the producer price of goods and the retail price.
At the producer level, we used a lagged approach to capture the fact that farmgate prices take several months to transmit through the value chain. For example, producer prices of sunflower oil are compared to the sunflower seed price three months earlier.
The analysis of spreads is not intended to and does not accuse any firms of anti-competitive conduct or unfair pricing acting alone or with competitors. Rather, it is used to assess price transmission through the value chain and show where spreads are expanding and falling.
Spreads are influenced by the full range of actors and costs in the value chain and are not only reflective of firm behaviour. Lastly, the EFPM reports track specific essential foods and not all foods that are relevant to consumers. As such, the findings only apply to these food value chains, rather than all food value chains.
Since the publication of the last EFPM Report in May 2024, there have been several positive signs of easing food cost pressures throughout the economy including the relaxation of load shedding, the strengthening of the rand against the US dollar, and decreasing fuel prices. These factors have been cited as among the leading cost drivers that have kept food prices higher for longer.
If these factors continue to ease, their importance on food prices should also subside, resulting in the reduction of food prices. However, expanding margins can reflect opportunistic "rocket and feather" pricing behaviour by processors and retailers taking advantage of movements in the cost of commodities and processed products respectively.
The rocket and feather effect is when prices tend to rise quickly – like a rocket – in response to cost pressures but are slow to decrease – like a feather – once cost pressures have eased. Our team of economists once again applied the Consumer’s International Early-Warning System detailed in the previous edition of the Report.
What were the key observations of the Report?
This edition of the Report found that easing cost pressures have been slow to translate into lower food prices in several essential food value chains:
• Despite lower farmgate prices for wheat, the producer price of brown bread increased over the period under review.
• A steep decline in the average producer price of cooking oil has not translated into lower average retail prices for this product. As a result, the producer-to-retail spread for cooking oil is now above the levels seen immediately before the onset of the war in Ukraine.
• The effects of the avian flu outbreak continue to be felt by consumers. The producer and retail prices for eggs remain considerably above pre-avian flu outbreak levels. However, retailers have not fully passed on the higher producer prices.
What happens next? We are aware of the impact high prices for essential food items has on consumers and therefore we are committed to advocating for greater transparency in the pricing of essential food items. Ensuring this transparency requires a multi-faceted approach and includes continued monitoring and increased advocacy initiatives.
The commission therefore remains determined to continue monitoring food prices and engaging with industry players to gain a deeper understanding of what their main drivers are. Through our consistent advocacy efforts and previous report observations, we have seen positive responses from the industry as prices have changed fairly.
Based on the information the commission has now, we are not in a phase of invoking our investigative and prosecutorial powers yet but will keep the public informed should this be needed.
* Makunga is spokesperson for the Competition Commission of SA
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