Retail

Bad news about egg prices in South Africa

Egg production costs in South Africa are still recovering from a disastrous avian flu outbreak in 2023, yet retailers have increased their margins on the product.

The Competition Commission’s latest Essential Food Pricing Monitoring (EFPM) Report found that egg prices in South Africa remain appreciably higher than the long-term average. 

The commission explained that a highly pathogenic avian flu outbreak that occurred towards the end of 2023 severely affected South Africa’s egg value chain. 

This outbreak severely affected local poultry and egg producers and led to the culling of up to 8 million chickens.

Since then, several measures have been put in place to assist producers in their recovery.

The Competition Commission explained that various private and public measures, including biosecurity protocols and monitoring programs, imports of fertilized eggs, and tariff rebates, enabled the recovery.

However, the commission said prices have been slow to normalize. 

At the time of the outbreak, the head of the South African Poultry Association’s Egg Organisation, Dr Abongile Balarane, said the sector would fully recover in around 17 months.

This means that domestic supplies are expected to completely normalise by May 2025.

The Competition Commission said signs of the recovery are evident in the fact that egg producer prices are currently cheaper than in November 2023. 

“However, the producer-to-retail spread has widened recently but remains below the levels before the outbreak,” the commission said. 

A producer-retail spread reflects the difference between the price that egg producers sell their eggs for and the price that consumers pay in stores, i.e., the retail price.

If this spread widens, it means retailers are charging more for eggs than they pay farmers. 

Therefore, in South Africa’s case, even though the producers’ prices have gone down, retailers are keeping prices high.

“This suggests that retailers have started trying to claw back their margins on eggs, which seems premature given that producer prices have not recovered fully,” the commission said.

Other essential food products

The Competition Commission’s report also considered the prices of other essential food items in South Africa. The report tracks food prices throughout the value chains of selected essential food items.

“In this edition of the EFPM report, we observe that some of the prices of the foods we track have started falling, albeit modestly,” the commission said. 

“Nevertheless, monitoring remains necessary to ensure that as costs decline upstream, those are passed through quickly and proportionately to retailers and subsequently consumers.”

For example, this latest edition of the report found that, despite better and more responsive price transmission for sunflower oil, the producer-to-retail spread of sunflower oil remains at its highest level since 2021.

In other words, the commission explained the average retail price for sunflower oil is not responsive to lower average producer prices. 

It said this calls into question the behaviour of retailers with regard to sunflower oil.

Positively, the commission reported that the producer-to-retail spread of canned pilchards has been on a downward trend in the last six months. 

“This illustrates the restraint shown by producers and retailers in their pricing behaviour for canned pilchards continues,” it said.

The commission has also observed lower average retail prices for brown bread during the time under review.

In addition, it found that the price of IQF chicken continues to be fairly restrained with modest increases coming through at the producer and retail level. 

“Major players in the poultry industry have experienced improvements in operations and profitability which were supported by favourable commodity and feed prices, easing load-shedding, and lower avian-flu related costs,” the commission explained. 

It said that, despite an orange indicator for November and December 2024, the producer-to-retail spread for IQF chicken remains less than 38%.

This suggests that there has not been a material change in the pricing behaviour of retailers and producers.

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