South African Food Prices Remain High Despite Easing Cost Pressures, Says Antitrust Agency

According to a recent report by the Competition Commission, South African food producers and retailers have been slow to reflect easing cost pressures in their pricing, leaving cash-strapped consumers grappling with high food costs. Per Bloomberg, the antitrust agency has expressed concerns that the failure to pass on cost reductions may warrant further investigation.

The commission’s report, released on October 4, highlighted several factors contributing to declining cost pressures. Among these are a reduction in rolling power outages, a stronger rand against the dollar, and falling fuel costs. Despite these factors, prices of essential food items “remain high and are increasing at a rate that is unaffordable for low-income households,” the report said.

The ongoing price challenges come in the wake of an antitrust probe that began last year, which examined what the commission described as an unjustified rise in essential food prices. These price hikes were initially driven by the combined effects of the COVID-19 pandemic and global disruptions caused by Russia’s invasion of Ukraine. While annual food inflation in South Africa eased to 4.1% in August from a peak of 14.4% in March 2023, according to data from Statistics South Africa, prices for many basic goods remain high, disproportionately affecting low-income households.

Read more: Pork Industry Faces Legal Challenges as Antitrust Lawsuits Against Seaboard Foods Dismissed

More than a third of South Africa’s workforce is unemployed, and nearly 10 million people rely on a monthly government grant of just 350 rand (about $20), exacerbating the financial strain on the nation’s most vulnerable. This has led to increased scrutiny of food retailers, many of whom have been accused of not doing enough to make essential goods affordable.

In defense of the industry, Nedbank Group Ltd. analyst Paul Steegers explained that South African retailers are locked in fierce price competition, with inflation on their shelves generally lower than the country’s official food inflation rate for the past decade. Per Bloomberg, Steegers noted that retailers often measure their own inflation against a dynamic basket of goods that changes according to consumer demand. This allows them to adapt to trends such as consumers opting for cheaper products, including in-house brands over more expensive, well-known labels.

However, the Competition Commission’s probe uncovered several exceptions where food prices have stubbornly remained high, despite falling production costs. One notable example is the cost of cooking oil, which has dropped significantly at the production level but has not seen a corresponding decline in retail prices. Similarly, egg prices remain elevated following an outbreak of avian flu, and the price of brown bread continues to climb despite lower wheat prices at the farm level.

Source: Bloomberg