South African consumers are facing opportunistic pricing as retailers’ prices for edible oils and fats were significantly higher than overall food inflation in 2022.
Retailers have also not passed on wholesale cost reductions for bread to consumers since 2019, resulting in greater retail margins.
These and other findings are contained in the latest Essential Food Pricing Monitoring Report – which focused mainly on the prices of cooking oil, bread and maize – released by the Competition Commission on 24 August 2022.
Speaking to Refilwe Moloto on CapeTalk’s Breakfast Show, the Commission’s chief economist James Hodge said that the report showed no consistency in increasing and decreasing food prices relating to inflation and deflation.
The report outlined several concerns in South Africa’s food market and value chains, which included:
- Wide farm-to-retail spread in prices.
- Large price differences between regions for basic fresh produce.
- Growing margins at the processor and retailer level.
- A price inflation trend started during the COVID-19 pandemic and has worsened due to supply chain constraints.
Hodge believes that current global economic conditions, a lack of transparency, and consumer confusion, as a result, have created opportunistic pricing opportunities for producers and retailers.
“The problem, at the moment, and it’s a problem identified globally, is that because there have been many shocks, we all expect prices to go up, but we don’t know what they should be going up by because it’s not transparent,” Hodge said.
“It creates an opportunity for producers and retailers to push prices up much higher than they should.”
He added that prices should come down when inflation and the shocks subside, but consumers are used to the higher prices.
Therefore, producers and retailers are not quick to bring them down, and the report reflects this in the latest data on cooking oil and bread.
According to the Commission’s report, cooking oil was “the main culprit” with the biggest increase.
Hodge noted that the wholesale price for cooking oil went up by 70%, and the retail price went up by 40% in 2022 alone.
While this shows that retailers have absorbed some of the increase, we shouldn’t see any increase as sunflower seed prices have been fairly stable over the period with no significant increases.
The price of a margarine brick – which also uses sunflower oil – only increased by 6% from January to June 2022. It is significantly lower than the increase in the retail or producer price of cooking oil.
Although oil producers may have seen some cost increases for energy and fuel, the large widening of margins from the price increases is a concern. It indicates opportunistic pricing behaviour unrelated to costs.
Another concern in the report was the wholesale-to-retail price of bread over time. Since 2019, the retail markup on bread went from R2 to R5.
While this may be a result of increases in retailers’ costs, there is evidence to suggest that cost decreases in the past have not been passed on to consumers, and this has been a notable source of margin growth for retailers.
What’s being done to combat opportunistic pricing
Hodge said that these investigations would be conducted quickly as consumers are already struggling with the current consumer environment.
He added that the Commission would continue monitoring food prices as the global food markets begin to normalize and ensure that any cost reductions are passed on through the value chain immediately.
The Commission has also initiated investigations into basic foodstuff value chains to act against any opportunistic behaviour given the levels of concentration in the value chain.