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Outcry at watchdog’s criticism of food price increases

Katharine Child Retail Correspondent

The Competition Commission has sparked an outcry with its statement on Tuesday that maize meal price hikes in 2021 and 2022 were “opportunistic”.

This suggested retailers were taking advantage of soaring global food prices and inflating profit margins. The commission, which acts as a competition prosecuting authority, investigates collusion and monitors food prices.

Professor Johan Kirsten, director of the Bureau for Economic Research at Stellenbosch University, said that the comment had economists abuzz.

He criticised a lack of analysis in the statement, saying the commission’s research should be more “thoughtful”.

Kirsten said the commission’s conclusion that price hikes were not justified was irresponsible. Other economists warned on social media of inflammatory statements.

Food prices rose globally after Russia invaded Ukraine, due to Ukraine's role in producing vegetable oils and maize. Sanctions against Russia increased fertiliser prices.

A drought in Argentina and Brazil, which produce half the world’s soya, added to prices of animal feed and increased meat, dairy and egg prices. The weaker rand since late last year added to woes as many agricultural inputs are imported.

“The Competition Commission is wrong [in their statement],” said agricultural economist Wandile Sihlobo. “There are clear factors driving the prices. Their work on this issue is misguided.”

The commission was more cautious in its Essential Food Pricing Monitoring report, saying some food price hikes may be unjustified, but it did not go as far as saying there is evidence of profiteering.

In the criticism of the commission’s comments, three main themes emerged:

One was that the commission does not have a legal basis to prescribe or conclude that food prices are unjust as the Competition Act only prevents “excessive pricing” by companies proved to have monopolies.

The other is that the factors that led to food prices soaring globally are well known. The third was that retailers and producers faced unprecedented load-shedding costs.

The commission said that in 2022 white and brown bread retail prices rose 20% and 19%, respectively, but that input prices, such as the local wheat price, rose only 14%-15%.

“This is concerning and may indicate opportunistic behaviour throughout the value chain,” said the commission.

Kirsten said food manufacturers and retailers should be celebrated for limiting increases to 5%. He said that fuel costs rose dramatically, while retailers had to pay higher wages and suppliers had to deal with loadshedding.

“The question to ask is, how did retailers manage to keep prices only 5% higher in an environment where finance costs increased more than 5%?

“[Only] by ignoring all the other cost elements in the food supply chain, could one easily get to such weird and irresponsible conclusions,” said Kirsten.

In a February results release, Woolworths highlighted rising losses due to increased food waste due to load-shedding.

Shoprite said it spent R500m on diesel to power generators in the last six months of 2022 halfyear to January 1. Pick n Pay said it spent R60m a month on diesel, and warned in February that “unprecedented load-shedding”, would cut into its full-year profitability. Shoprite and Pick n Pay highlighted higher insurance and security costs since the KwaZulu-Natal riots.

Simon Crutchley, CEO of AVI, which makes Bakers biscuits and Willards chips, warned in a results presentation that the full costs of load-shedding have not yet been seen in food prices.

Shoprite makes about 5.8% operating profit margin and Pick n Pay 2%-3% with Woolworths Foods just more than 6%.

Smalltalkdaily analyst Anthony Clark said: “Food price inflation has been quite dramatic in the last few years.” Global maize prices fell in November, but food-producing companies buy goods in advance. “Lower input prices do not immediately transfer into prices on shelves.”

Clark said that food producers and retailers’ costs rose due to power cuts, ailing infrastructure and lack of reliable water supply. “The commission should not be screaming at food retailers and food producers. Perhaps it should be pointing its finger at the government.”

Bowmans competition lawyer Heather Irvine said the commission’s power “is limited to assessing whether a dominant firm has charged excessive prices”. If the commission starts interfering with pricing decisions over products at the product level, even if only through issuing press releases and threatening complaints, it could have perverse consequences.

She said that Woolworths might for instance decide not to stock “basic” products bought by poor consumers, and focus only the on “premium commission products,”’ doesn t which care about. “That would reduce rather than increase competition.”

FTI economics professor Nicola Theron called on the commission to conduct proper research. The commission did not reply to requests for comment and what legal basis it had to decide food price hikes were unjustified.

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2023-03-30T07:00:00.0000000Z

2023-03-30T07:00:00.0000000Z

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