South Africa’s high food prices

South African food producers and retailers have been slow to pass on the effects of declining cost pressures to cash-strapped consumers, an issue that may warrant further investigation, the nation’s antitrust agency said.

Cost pressures are easing because of an end to rolling power outages, the rand’s strength against the dollar and declining fuel costs, the Competition Commission said in a report published Oct. 4.

Still, essential-food prices “remain high and are increasing at a rate that is unaffordable for low-income households.”

The antitrust body began a probe last year into what it described as an unjustified increase in essential-food prices spawned by factors including the coronavirus pandemic and the impact of Russia’s war with Ukraine.

Annual food inflation eased to 4.1% in August from a peak of 14.4% in March 2023, according to Statistics South Africa data.

More than a third of South Africa’s workforce is unemployed, and about 10 million people live off a 350-rand monthly government grant.

Faced with a large number of people who have limited disposable income, South African food retailers have to compete vigorously on price and inflation and their price levels have “generally been below official food inflation every year for the last 10 years,” said Nedbank Group Ltd. analyst Paul Steegers.

While South Africa’s food inflation is officially measured across a static basket, the retailers measure their internal inflation across a changing basket of goods depending on consumer demand.

That means retailers are also taking into account so-called downtrading as consumers look to cheaper products, Steegers said. This is seen in consumers more regularly forgoing brands and buying the stores own-label items instead.

Still, the probe found some notable exceptions where prices have risen and then failed to adjust lower as production pressures have eased.

A “steep decline” in the cost of producing cooking oil hasn’t translated into lower average retail costs and egg prices remain “considerably higher” than they were before an outbreak of avian flu, it said. The price of brown bread has also increased despite lower farmgate prices for wheat.