Food prices remain too high, here’s what could go up further

There are several positive signs of easing food cost pressure throughout the economy, including the relaxation of load shedding, the strengthening of the Rand against the US dollar and decreasing fuel prices.

These factors were regularly cited as some of the leading cost drivers that kept food prices higher for longer. If these factors continue to ease, their effect on food prices should also subside, resulting in lower prices.

However, the Competition Commission says, it has observed that prices remain high and are increasing at a rate that is unaffordable for low-income households according to the latest edition of the Essential Food Pricing Monitoring Report released on Friday.

The Commission monitors the prices of essential foods to support transparency regarding the margins producers and retailers earn. The monitoring includes products such as sunflower oil, brown bread, canned pilchards and individually quick frozen chicken.

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Easing cost pressures slow to translate to lower prices

According to the report, the Commission found that easing cost pressures has been slow to translate into lower food prices in several essential food value chains:

This edition of the report shows that although overall inflation as well as food inflation have eased, food security remains a serious risk for consumers as price levels remain high relative to consumer income.

“While there are indications of several positive signs of easing cost pressures, there are still several risks that may emerge in the coming months that could potentially push prices higher for some important foods,” the Commission says in the report.

Kagiso Zwane, economist at the Commission, said prices are settling at levels that remain unaffordable for many households, with data from the Pietermaritzburg Economic Justice and Dignity Group showing that households earning the minimum wage have a widening food affordability shortfall.

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Remaining risks for food prices

He noted that the risks to food prices include the effects of the mid-summer drought of 2023/24 that are still filtering through value chains for summer crop products such as maize meal and cooking oils, while a bitter winter affected the production of potatoes and tomatoes in key producing areas of Limpopo.

The poultry industry is also still recovering from the avian flu outbreak and is in a stock-rebuilding phase, especially regarding egg-laying hens.

According to the report, the Commission observed an increasing but stable trend in retail prices for maize, brown bread and tinned fish and a declining trend in retail prices for sunflower oil and eggs since the previous report in May.

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Maize meal facing price increases again due to drought

Zwane pointed out that the drought completely reversed the price reductions in maize meal experienced throughout 2023, with increasing white maize prices quickly transmitting to higher producer prices, despite the lower prices of 2023 not falling by the same extent.

According to the report, there are concerning signs that maize meal is once again facing increasing prices as the effects of the drought have started trickling to prices further down the value chain.

As a staple food, increases in the price of maize meal have a particularly harmful effect on consumer welfare.

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Brown bread prices increased despite lower wheat prices

Zwane said the producer spread for brown bread increased in recent months, but the retail price of bread did not increase to the same extent.

However, despite lower farmgate prices for wheat, the producer price of brown bread increased over the period under review for this report.

He noted that the annual reports of millers show a price protection strategy where Premier’s earnings before interest, taxes, depreciation, and amortization (EBITDA) increased by 21%, while the increase was 9.9% for RCL and it passed through a price increase in bread, buns and rolls. Tiger Brands passed through a 6% price increase and sacrificed 15% in volumes.

The report states that the farm-to-producer spread of brown bread is largely driven by the price volatility of wheat and less responsive producer prices.

The wheat price has been falling since November 2023 while the producer price of a loaf of bread has increased.

“As a result, the farm-to-producer spread for bread widened in January and February 2024 and has been above the long-term average for the first half of 2024.

“This type of margin expansion by bread producers at a time when costs are declining is concerning especially since brown bread is a staple for poor households.”

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Pilchards and chicken: protein sources for low-income consumers

Zwane also pointed out that while the popularity of pilchards continues as households switch to alternative sources of protein to meet their needs, it appears that retailers did not fully pass on increases in producer prices, although in recent months retail prices increased while producer prices were constant.

Poultry prices continued to show differing trends after the avian flu outbreak led to a steep increase in the producer price of eggs. Zwane said egg prices have been slow to decrease and remain considerably higher than before the outbreak, although retail prices have been stable.

Retail spreads for individually quick frozen chicken pieces are stable as the sector recovers from the effects of load shedding. The interim results released by Astral and RCL both show that chicken producers have improved their profitability in the interim periods.

The producer and retail prices for eggs remain considerably above pre-avian flu outbreak levels. However, retailers have not fully passed on the higher producer prices. This is likely because producers and not retailers carried the brunt cost of containing the outbreaks as well as any associated financial losses, Zwane said.

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Lower producer prices for sunflower oil not seen on the shelf

Regarding sunflower oil, he said that the lower prices at the producer level of the value chain have not translated into lower retail prices for sunflower oil, which raises a concern about slow price transmission.

A steep decline in the average producer price of cooking oil has not translated into lower average retail prices for this essential food product.

As a result, the producer-to-retail spread for cooking oil is now above the levels seen immediately before the onset of the war in Ukraine.

The Commission says there are areas where prices above historic levels are cause for concern and may warrant further investigation, such as the retail price for cooking oil and the producer level for brown bread.

In addition, the Commission says in the report it remains concerned about the high levels of food prices and will continue to monitor food prices so that consumers are not harmed by unjustifiable increases.