ESSENTIAL FOOD PRICE MONITORING REPORT (SEPTEMBER 2023)
by the Competition Commission of South Africa
- Despite headline inflation reaching its lowest level since October 2021, food inflation remains at nearly double the overall inflation rate. The Competition Commission (“Commission”) therefore continues to monitor essential food prices and prices throughout the value chain to see whether consumers are being harmed by the state of competition throughout food value chains. As commodity prices fall, our attention turns to the speed at which lower input costs translate into low prices for consumers – slow price transmission is an indicator of low competition levels throughout food value chains. However, the disruptive effects of load shedding have forced food producers and retailers to spend more money on adapting to longer and more frequent power outages. The cost of adapting is likely keeping food prices higher than what food input costs would imply, but this effect certainly varies across food value chains, producers, and retailers
- Consumers should be just as concerned about the potential for opportunistic pricing practices when costs fall as when they rise. Both instances provide companies with pricing power an opportunity to expand margins at the expense of consumers. When costs rise, they can do so by overcompensating for the increase. When costs fall, companies can do this by not lowering prices to reflect their lower costs.
- This report begins with a brief discussion of new research insights on the role of mark-ups by larger companies in food markets and in the current inflationary period. We also highlight the work that has been done by competition authorities to shed some light on margin levels in food markets.
This edition of the EFPM Report shows that as upstream inflationary pressures in commodities and food production have eased, consumers are yet to feel the benefit of lower input costs. This is the case in all the value chains that we track as well as beef, covered in the deep dive. Unfortunately, this has coincided with severe loadshedding that has invariably played a role in slowing the pace of downward price transmission. However, the financial results of food companies show a mixed picture on the costs of loadshedding, which calls a measure
of caution when explaining it’s role in food prices. Even with the additional effect of loadshedding, the rocket and feather effect has been longstanding feature of food value chains domestically which indicates that these value chains at the producer and retail level are not as competitive as they could be.
Red the full report here: EFPM Report (September 2023)