Despite wide criticism from the agribusiness, agropreneur and agricultural economist Mahlogedi Thindisa believes the investigation by the Competition Commission into allegations of price gouging conduct should be welcomed by all.
The release of the latest macroeconomic data by Statistics South Africa (StatSA) provides interesting reading. StatSA figures were released soon after the publication of the much talked about a report by the Competition Commission titled Essential Food Price Monitoring Report (EFPMR).
The dominant narrative regarding the EFPMR is the claim by the commission on what it red flags as “instances of unjustifiable price increases on certain essential food products”. Whilst the statement is harsh, both EFPMR and StatSA data depict a sharp spike in price increases of some essential food products over time.
The EFPMR was a consequence of food price monitoring by the commission, pursuant to the advent of Covid-19 and the resultant declaration of the State of National Disaster. Besides the EFPMR, complaints were lodged with the commission under sections 8(a): excessive pricing; 8(c): exclusionary conduct; and 9(1) (a) to (c): price discrimination in accordance with the Competition Act 89 of 1998, as amended. Ordinarily, the veracity of allegations of price gouging conduct must be subjected to investigation.
The projected period to undertake this investigation is estimated to be eighteen (18) months. The commission has committed to the principles of fairness, transparency and integrity. Various value chain actors would be afforded an opportunity to submit comments and inputs consistent with the principle of audi alteram partem.
Vulnerable households struggle
An investigation by the commission into allegations of price gouging conduct should be welcomed by all and sundry. Considering the National Development Plan (NDP) and subsequently the Agriculture and Agro-processing Master Plan (AAMP) identified the food industry as strategic to the economy. It contributes to about 2% of the GDP.
Additionally, it provides livelihoods to more than 300k smallholder farmers via backward linkage. It employs more than 222 000 people. It’s a fundamental cornerstone towards food security.
Vulnerable households spend a greater portion of disposable income on essential food items. Most importantly, an investigation by the commission provides an opportunity to dispel the complaints and accusations that individual enrichment, short-term financial gain and unethical behaviour drive parochial thinking of agribusinesses and retailers.
It’s generally accepted that the adverse impact of amongst others (i) Covid-19; (ii) conflict due to geopolitics and its effects on the high cost of production; (iii) climate change; (iv) crisis of intermittent electricity supply; (iv) high cost of burrowing; and (v) logistical inefficiencies {rail, road and ports} contributed to the increase in prices of essential food.
Notwithstanding, investigations are necessary to determine what are the drivers and how prices are transmitted along various stages of the value chain. Moreover, the quantum and pace of price increases over time.
How are prices determined?
The latest data by StatSA indicated headline inflation was 7.1% in March 2023. In contrast, food inflation was recorded at 14% when delineated from core inflation. The biggest increase within the food sub-divisions was 20.5% and 20.3% for vegetables and bread-cereals respectively.
Therefore, food inflation is listed as one of the drivers of headline inflation. At the level of essential products, StatSA data depict a 19% year-on-year increase in the price of bread. Probably factoring in the wheat import parity price.
While maize meal increased by 35%, similarly, the price of onions increased by 45%. Data at various stages of the value chain indicated the average farm gate price of onions as R8.13 per kg.
In contrast, the municipal fresh produce market sells on average at R11.56 per kg. While onions were sold at R22.50 per kg at the retail end. By the same token, the wholesale price of 2.5kg of maize meal was R32 on average juxtaposing R41 at the retail shelf. Cognisant and appreciative of the equilibrium theory and transaction cost economics theory, notwithstanding their limitations.
The legitimate question is which stage/s in the value chain is value being extracted? Hence, how are prices being determined by value chain actors? A list of recommendations to improve the efficiencies and competitiveness of the value chains is the ultimate outcome.
Investigations will likely build confidence
As a friend of the farmer, it’s tempting to assume that farmers are being squeezed. Especially when large-lead-dynamic companies within the food industry are declaring above 25% pre-tax profits during belt tightening environment. The pursuit of a singular financial motive is unsustainable. Instead, agribusinesses and retailers are nested in a pluralistic community affecting others, hence, the requirement for a more equitable model of management.
Ethical management is a powerful vehicle for economic inclusion, growth and development. Agribusinesses and retailers may transform society when the needs of both are intertwined. A classic example of a societal benefit is the intentional adoption of Enterprise and Supplier Development (ESD) programmes.
Transformation lies firmly at the heart of a functional society. Agribusinesses and retailers exist and operate in a social environment that does not encourage the isolation of the firm from society. The role of agribusinesses and retailers as powerful instruments of food security, livelihoods, development and innovation should be conspicuous.
Consistent with assertions by Dr Michael E. Porter, a professor of economics at the Harvard Business School “Not all capitalism or profit is equal. Profits generated through social purposes represent a higher form of capitalism. These types of profits enable societies to speedily advance while simultaneously allowing firms to prosper”.
Agribusinesses shouldn’t be exempt
Agribusinesses cannot absolve themselves from their societal responsibilities.
Agribusinesses should close the trust deficit with societies. Value chain actors should voluntarily collaborate with the investigation by the commission to dispel accusations and suspicions of pricing gouging conduct. Lastly, at the risk of pre-empting the outcome of the investigations, which by nature are geared to expose and reveal the truth.
The investigations are likely to exonerate and build confidence in the operations of agribusinesses. Shared values will unlock a wave of sustainable agribusinesses that contribute to job creation and building successful communities.
- Mahlogedi LV Thindisa PhD is an agropreneur and agricultural economist. You can follow @lepapatla on Twitter. The views and opinions expressed in this article are those of the author and do not necessarily reflect the views or positions of Food For Mzansi.
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