Posted on May, 7, 2024 at 09:05 am
The Competition Commission’s economic research unit says that lower food inflation in South Africa is a positive sign for households in the country. However, it warns that food prices are still rising at a rate that may threaten food security.
The commission published its latest update to its Essential Food Pricing Monitoring Report, which has been tracking the comparative trends in grocery retailer margins in South Africa versus global peers, as well as documenting the changing pricing given local conditions.
Assessing and analysing the pricing of staple foods like bread, sunflower oil, maize, and individual quick freezing (IQF) chicken, the commission found that, as of March 2024, indications are that spreads across food value chains are beginning to settle.
This follows periods of “intense volatility” covered in previous editions of the report.
Previous reports flagged potential problems in the retail value chain, where retailers were charging high prices despite inflation easing significantly for staple foods.
Local retailers were seen maintaining or bumping up their margins in the last four years, while international retailers have seen their margins thinning.
While the commission conceded that there may be various reasons for this – including different levels of competition – it picked up an ongoing “rocket and feather” effect in food pricing, where shelf prices shoot up amid high inflation, but take significantly longer to come back down, even if there is a rapid decline in inflation.
However, in the latest report, pricing appears to have settled.
“This has happened despite ongoing load-shedding, the deteriorating rail and port situation, and sporadic disturbances in global shipping markets following the conflict in the Red Sea.
“We have also highlighted instances, such as in sunflower oil, where drastic producer price cuts have followed a period of wider farm-to-producer spreads, which indicates that producers have become better at transmitting lower production costs to price.”
In the egg value chain, retailers, on average, even absorbed some of the pricing pressure from the producer level. Alongside efforts to ration egg purchases, this has insulated consumers from the effects of the avian flu outbreak, the commission said.
Risks lie ahead
However, despite the apparent easing of prices, the commission warned that the cost pressures stemming from load shedding and transport costs have not abated – and the impact of drought conditions is likely to add to pressures throughout the value chain.
This has led to consumers swapping out items in their baskets for other foods – one of the most prominent being a move away from chicken pieces to canned pilchards as a source of protein.
These trends “are likely to continue and remain an important feature of grocery shopping in the coming months,” the commission said.
“While the price of canned pilchards has increased, our analysis shows that canned pilchards producers have absorbed some of the cost increases that they have experienced. This is likely to have benefitted consumers as they increase their consumption of pilchards over other protein sources.”
Recent findings from Deloitte in its ConsumerSignals report for the first quarter of 2024 echoes this sentiment, with the group’s survey indicating that households in South Africa are becoming more frugal to keep up with the rising cost of living.
This includes switching to cheaper brands and turning to lower-cost cuts of meat and food items.
Source: Business Tech