Food prices: ‘Competition Commission needs more input’

29 September 2023

By: Carien Kruger

Agricultural economist Wandile Sihlobo says the watchdog should broaden its consultations as it investigates the agriculture and food sectors.

The investigation into possible malpractices in fresh produce markets is valuable work, but the commission could have more impact by interacting with the private sector and relevant government departments, said Sihlobo, chief economist at the Agricultural Business Chamber of South Africa (Agbiz).

He was part of a panel discussing food inflation at the commission’s annual conference on competition legislation, economics and policy.

James Hodge, the commission’s chief economist, led the discussion against the backdrop of food inflation that has been at record levels until recently.

This inflation hits the poorest consumers the hardest. “Since the start of the Covid-19 pandemic, we have seen food prices increase by about 34%, with prices of vegetables, oils and fats, bread and dairy products rising much more,” said Hodge. 

“For the poorest 10% of households, food purchases represent 40% of their spending, while for the top 10% of households, they represent only 5%.”

Sihlobo said the commission’s work is important, especially in the context of the pressure consumers are under.

However, it is problematic when the commission “doesn’t talk to anyone” and its findings do not align with what happens in practice, he said, adding that some people view the commission’s work as antagonistic, which is not helpful.

Sihlobo said international events play a role in prices, and he was frustrated with a previous commission report because it did not pay enough attention to the factors driving cost pressures.

According to him, it is essential to realise there is not a strong direct link between the costs of farmers’ production inputs, such as fertilizer and seed, and the prices of agricultural commodities or food. 

“The only way farmers can interfere with or influence the price of a commodity is by limiting the quantity they produce,” he said.

Almost all production inputs are imported, such as 80% of fertilizer and 98% of agricultural chemicals. Therefore, farmers can safeguard themselves only by ensuring they get better yields and by timing their trades correctly to cover costs.

Sihlobo said just before the pandemic broke out, significant factors drove up international grain prices. China purchased a lot of soybeans and maize, and South American countries experienced a drought for about four years. Brazil and Argentina produce about half of the world’s maize and soybeans.

The prices of commodities on the JSE’s derivatives market (Safex) are determined by prices on the Chicago exchange in the US. Much later, the war between Russia and Ukraine also began to play a role.

Sihlobo said the commission’s latest report was useful because it began to refer to the time lag between commodity prices and retail prices, which was initially not included. It can take three to five months for movements in commodity prices to be reflected in retail prices.

In response to Hodge’s question about the connection between production input costs and vegetable prices, Sihlobo said the connection is not strong. Vegetable prices are largely determined by prices at fresh produce markets.

More routes to consumers needed

Prof Reena Das Nair of the University of Johannesburg said new models must be created for products to reach consumers so they do not do so only through large retail groups. More independent retailers should be part of the route to the market.

But she acknowledged that large groups have an important role to play in developing small and medium-sized farmers and processors as suppliers.

In response, Sihlobo said the Agricultural Product Standards Act (Act 119 of 1990) often renders small businesses’ products unsuitable for store shelves, so the departments of agriculture, land reform and rural development, trade, industry and competition, and health must be involved in this conversation.

The master plan for agriculture and food processing pursues inclusion of smaller farmers but the goal is to develop commercial black farmers, he said. “We are building a new class of commercial black farmers.” 

This could end the two parallel agricultural systems: one with commercial white farmers and the other with small-scale black farmers.