The Competition Commission of South Africa has found the country’s retailers are overcharging customers for essential food items.
The Essential Food Pricing Monitoring (EFPM) report highlights pricing trends and profit margins within the country’s food sector.
Rocket and feather effect
One of the key findings is the existence of ‘rocket and feather’ effects in staple food items such as maize meal, cooking oil, and bread.
The rocket and feather effect refers to swift price increases during inflationary periods, followed by slower declines when inflation subsides.
The report attributes this trend to potential competition issues within the industry.
It also suggests prices have not consistently dropped as per inflation. Price cuts are often delayed due to other cost pressures producers and retailers face.
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South African food retailers are more profitable than international counterparts
The Competition Commission noted local retailers recorded higher profits than their counterparts in Canada, Ireland, and the United Kingdom.
This discrepancy could be attributed to various factors. These include differences in the level of competition and the recent impact of load shedding costs on South African retailers’ margins.
“Additionally, retailer margins are decreasing in some markets like the UK as discounters gain prominence.
In South Africa, margins increased between 2019 and 2022 before a recent decline primarily attributed to load shedding costs,” the report noted.
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Key findings of the EFPM Report include:
- Bread and Wheat Prices: The prices for bread and wheat fell by approximately 10% during the first quarter of the year. Producer and retailer prices for bread rose by 3% during the same period.
- White Maize Prices: While white maize prices have consistently fallen by 23% since February, producer and retail prices for maize meal have yet to decline.
- Cooking Oil Prices: Cooking oil prices have been declining for a year, with retailers slower to reduce prices, resulting in expanding margins.
- IQF Chicken Price Inflation: IQF chicken price inflation remains lower than food inflation. The Commission will continue monitoring this value chain following the reimposition of anti-dumping tariffs.
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South Africa beef sector
The report found that commercial cattle farmers have halved in the last decade.
The South African beef sector is crucial to the country’s economy and diet.
However, it is becoming increasingly concentrated, with more companies vertically integrating across several value chain points.
“The top 10 cattle feedlots account for almost 70% of cattle, up from 50% only six years ago,” notes the report.
Feedlots are increasingly integrated into abattoirs, and the top 10 slaughtered nearly 50% of cattle.
Despite a substantial decline in weaner calve prices, retail prices for beef cuts have not followed suit, resulting in retailers capturing a 40% share of the shelf price, the highest percentage since January 2021.
