Ina Opperman

By Ina Opperman

Business Journalist


Food production cheaper, but savings not always passed on to us

Food inflation remains at nearly twice the inflation rate for all goods and services.


Food production is becoming cheaper, but a new report shows the savings are not always passed on to consumers.

While the upstream inflationary pressures in commodities and food production have eased, consumers do not benefit because rolling blackouts are also slowing the pace of passing savings on to consumers. South African retailers are also much more profitable than those in other countries.

This is true of all the value chains the Competition Commission tracks for its Essential Food Pricing Monitoring Report include sunflower oil, bread, maize meal and individual quick frozen chicken pieces, as well as beef.

According to the latest report, issued today, the financial results of food companies show a mixed picture of the costs of loadshedding, which calls for a measure of caution when explaining its role in food prices.

The commission’s economic research bureau said even with the additional effect of loadshedding, the rocket and feather effect has been longstanding feature of food value chains domestically which indicates these value chains at the producer and retail level are not as competitive as they could be.

The rocket and feather effect refers to prices shooting up in response to a cost increase but slow to decrease when costs subside.

The latest edition of the report details how, while overall inflation decreased, food inflation remains at nearly twice the inflation rate for all goods and services.

ALSO READ: Food prices still increasing for poor people – food basket survey

Key findings about food production prices

The report includes an update on recent pricing trends and margins at the producer, with these key findings:

  • Bread and wheat prices (lagged three months to reflect the time to feed into producer stock) fell by approximately 10% during the first quarter of the year but producer and retailer prices for bread increased by 3% in this period and only started to decrease in the second quarter.
  • White maize prices (lagged three months) decreased consistently and by 23% since February but producer and retail prices for maize meal must still decrease.
  • Cooking oil prices were declining since a year ago when the report indicated producer prices were rising despite sunflower seed prices remaining stable in South Africa. However, while retailers cut their margins during the period of rising prices, they were slower to reduce prices resulting in expanding margins. More recently, sunflower seed prices (lagged three months) dropped but producer prices have still not responded.
  • Individual quick frozen chicken piece prices remained lower than food inflation, but the commission will continue to monitor this value chain following the reimposition of anti-dumping tariffs.
  • Some of the large food companies recorded large revenue increases as a result of price increases rather than selling more. Some producers have indicated load shedding costs had no material impact on their businesses, except for poultry producers.

This report also took a closer look at the South African beef sector, a crucial component of the country’s economy and diet, and found it is becoming increasingly concentrated with more companies vertically integrating across several points of the value chain.

The key findings for this sector were:

  • The number of commercial cattle farmers has more than halved in the last 10 years.
  • The top 10 cattle feedlots account for almost 70% of cattle, up from 50% only six years ago.
  • Feedlots are increasingly integrated into abattoirs and the top 10 slaughtered close to 50% of cattle.
  • During 2023, weaner calve prices declined substantially, resulting in lower prices for beef carcasses too. However, the retail price for beef cuts collectively did not decline this year, resulting in the retailer share reaching 40% of the shelf price, the highest share since January 2021.

ALSO READ: You’re paying more for food thanks to Eskom

Why are SA companies more profitable than their peers?

The commission actively monitors essential food prices and investigate the factors driving food inflation to ensure transparency regarding the profit margins set by producers and retailers. With upstream commodity prices declining in the first half of 2023, the commission now focuses on how quickly this translates into lower prices for consumers.

According to the report, the commission noted competition authorities in Canada, Ireland and the United Kingdom recently published reports on the state of grocery retail competition in these countries regarding high food inflation.

These reports assess trends in retail profits over the past three to four years and when the commission compared their findings to South Africa, it noticed local retailers are much more profitable than their counterparts in these countries.

The commission said this could be due to various factors, including differences in the level of competition. In some markets like the UK, retailer margins are decreasing as discounters gain prominence, while in South Africa, margins increased between 2019 and 2022 before a recent decline primarily attributed to load shedding costs.

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