Are retailers and food producers exploiting South Africans through higher-than-warranted food prices? In short, the answer is no, according to Wandile Sihlobo, chief economist at the Agricultural Business Chamber (Agbiz) and professor Johann Kirsten of Stellenbosch University’s department of agricultural economics.
The Competition Commission’s recent report on the latest Essential Food Price Monitoring (EFPM) Report suggests that South African have been done in by retailers who charge “opportunistic” and “unjustifiable” prices for several food basket essentials.
The report finds that from January to December 2022, the prices of sunflower oil, white and brown bread and maize meal were concerningly high and may indicate opportunistic behaviour throughout the value chain.
However, according to Sihlobo and Kirsten, the commission’s report is problematic because global dynamics have played a significant role in pushing up food and energy prices.
“We live in a time of higher food prices, part of the global poly-crisis triggered by the pandemic and Russia’s war on Ukraine, which caused seizures in supply chains,” Sihlobo wrote in his weekly agricultural market viewpoint.
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Reasons for higher food prices
In an article published in the Sunday Times, Sihlobo and Kirsten argue that factors exist that influenced recent food prices.
Firstly, the drought in South America in the 2019/20 season, and the growing demand for grains and oilseeds in China were primary drivers of global prices, Sihlobo and Kirsten said.
China was on a path to rebuild its pork industry, which African swine fever devastated, requiring increased volumes of grains and oilseeds. China’s growing demand had a consequential impact on global grain prices because of its share size of imports. For example, the country imports about 60% of globally traded soybeans.
As Covid-19 spread in early 2020, several major grain producers, such as India, Kazakhstan and Vietnam, worsened the increase in global prices by temporarily banning exports. As this unfolded, shipping costs soared, contributing to already elevated global grain prices.
“Reporting on such must be done responsibly and with great care.”
Throughout this period, drought in South America didn’t stop, weighing on global supplies.
According to Kirsten and Sihlobo, this matters because Brazil and Argentina account for half of global soybean production and about 15% of global maize production. Thus, when these countries face drought, the impact is visible in global grain supplies and prices.
This was further worsened by the Russia-Ukraine war as both countries are substantial players in the grains and oilseeds market. The start of the war led to a surge in grains and oilseeds prices for much of 2022. As the war intensified, the drought in South America continued.
Ignorance perhaps?
“A regulating body such as the Competition Commission should be mindful of the critical role it plays in society and be more thoughtful in its research and statements, especially on politically and socially charged food security issues,” Sihlobo said.
The drivers of food prices are evident and a global challenge and in the coming months, food prices are likely to remain elevated, softening in the second half of the year.
“There is also a lag (of anything between three and nine months) between farm and retail prices, which some researchers tend to ignore,” Sihlobo wrote.
Public anxiety about high food prices does not need to be further aggravated, he added. Reporting on such must be done responsibly and with great care, Sihlobo cautioned.
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