CompCom calls out ‘unjustified’ price hiking of essential foods

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FIFI PETERS: There is this new economic concept going around called ‘greedflation’. I discovered it as recently as last week. It describes a process in which companies are charging more for their products than they should, well above inflation, to make the most profit they can. So we’re talking about greed inflation now, because the Competition Commission says that the price increases we have seen in the past two years for sunflower oil, white bread, brown bread, maize meal – just to name a few [items] – have been unjustified. Therefore we have to ask if there has been an element of greedflation happening.

We’ll put that question right now to the Competition Commission principal economist Thulani Mandiriza.

Thulani, thanks so much for your time. I don’t know if you’re familiar with the term greedflation, but I wonder what you think about it and how applies to the report that you just issued.

THULANI MANDIRIZA: Thanks, Fifi, for having us. Yes, I’m familiar with the term. It almost accords with what we were trying to call ‘opportunistic pricing’.

But I think the main finding here, the correct way maybe to read our report, is to actually check the change in margin, or the change in the spread between the producer and the retail value.

I think that’s what we have tried to do in the report – to show that the margins are now starting to increase over and above what they were before. So I think that’s where we are saying there could have been some kind of opportunistic pricing arising from those differences in the spread over time.

FIFI PETERS: So we are looking specifically at the past two years ending 2022, the period 2020 to 2022.

THULANI MANDIRIZA: Yes. This is the period that we have started tracking a section of these prices that emanated from the Covid pandemic; so where there was panic buying and also opportunistic pricing behaviour on various products related to Covid so that [is] when we started [to] check all these developments.

Now, unfortunately we have a war in Ukraine which also added to some dynamics there in terms of sunflower seeds as well as wheat, because these countries produced the bulk of the wheat that we normally use in the country.

I think that’s the trajectory that we choose to try and understand all of these [things]. So for the last two years, like you pointed out in your intro, we have seen some fluctuations; but I think the trend is worrying because those margins are now starting to increase enough from that time – for your cooking oil, white bread, brown bread, and the maize meal and [so on]. So what we do in this report … we use new public … information. We package that information and just monitor the trend.

Over and above what you see in this report, the commission [conducted an] investigation again of the major retailers. That is a separate process that we are actually part of getting, using the real cost data from the retailers; using the real cost data from the supermarkets.

But here what we’re trying to paint out is a picture from the aggregate information that we collect publicly, and further we produce a report to the public, or in showing areas the Competition Commission is concerned about.

And I think from a report like this we now refine our instruments, our investigation, and actually zoom in [on a] problematic area. But this is a general action that we see, and we are concerned. I think one of the key things that we have done in this report was to also try and look at the value chain in relation to poultry, chicken, and see what has been happening there. I think it’s very clear …

I think you also know that the share prices, the farmers, the food producers, have been under pressure due to the cost of feed, because they are vertically integrated. So we were concerned that, because most of these guys are [dominant players] – they control almost like 60% of the market – and I’m talking about Astral and [RCL Foods] are almost 60% of the market. So we were concerned and looking at the thrust … of that market, a highly concentrated market, critically integrated, and there are other smaller players that rely on these [companies] to get feed. So we were worried initially that there was … something that we have to look at. I think that’s what we focus on large industries.

The finding generally says that the government intervened by putting import tariffs on chicken from Brazil, from Europe, and what we would normally expect is that the food manufacturers would try and maintain the prices.

But what we found in our report is that they actually also increased the prices after the increase in the import tariff. Therefore the protection that was meant for [the industry], and also for the consumer, was [not carried through] because they also increased their prices, taking advantage of the protection that they were getting.

So that was one of the things that I think we just tried to highlight in this particular report.

FIFI PETERS: But I imagine it was quite a complex exercise, because you’ve even mentioned one of the factors that contributed to prices going everywhere just being the Russia/Ukraine war more recently in the period, which caused the supply chain disruptions that we thought were behind us to surface again in terms of the difficulty of getting certain product out, and the impact that had on certain prices, from maize to fertiliser.

But you also had the fact that fuel prices again probably are the consequence of the Russia/Ukraine war, though some of those commodities have come down [in price].

What hasn’t changed – in fact, what has got worse – is load shedding, because last year was the year that we had record load shedding. Obviously this year’s going to take over from 2022, but I just imagine that there were quite a number of complexities in trying to decipher all those different elements and the exact impact they had on pricing.

Thulani just to wrap up, I’ll put it to you in terms of the food producers that you mention – that, while their share prices have been under pressure, what they’ve also told us is the millions of rands that they’ve had to pay and spend extra to keep the lights on in their operations, and generator costs and diesel fees in all of that because of load shedding. So I guess the question put simply – and sorry I took so long to get there – is have you heard a response yet from some of these companies [whose price increases] you are saying could have been unjustified?

THULANI MANDIRIZA: Yes, that’s a brilliant question, and I think we also even acknowledge that in our report. So we look at all the sectors in our report, we acknowledge the abnormalities during this period, what we call structural breaks – whatever term one might use. There have been some disruptions along the way.

But the key thing that we try and highlight – and I think this is the message that we maybe are trying to get to in this report – is that despite all of that one has to look at the margins. That’s why I think our focus is looking at the margin. So even if you have inferred [increased] costs maybe from this bill from load shedding, that in itself I believe we look at the actual margins, the difference between the producer and the retail price, and just look at the trend there.

So that’s the measure that we use. It takes into account all the differences in terms of the increased costs and excess pricing.

So what we acknowledge in this report is that there have been a lot of kind of disruptions, but the key thing is to try and make sure that these disruptions are not used to increase prices unjustifiably.

So in this report, because we’re using publicly available information, we don’t interrogate the actual cause for each [case of opportunistic pricing] that has been mentioned here.

That we are doing separately in a formal investigation, where we now have to seek through and look at all those costs. The retailers of course tell you they lose more than half a billion rand on diesel over the year, and all that, so those costs would have to be impaired. We have to take that into account in the formal investigation.

But what this report says is that the main component – you talk about maize meal – the main determinant for the maize meal price is the Safex [South African Futures Exchange] price. So we should be able to speak [for the industry as a rule] unless the same [companies] come to us and say, we know this, we have ensured and checked additional costs that are not directly linked … because we know what proportion of the Safex price gets into the final price of the maize meal. Unless there other justifiable reasons. Then we’ll look at that during an investigation.

But for this particular report we are showing a trend that is worrying and showing a trend that is concerning, because there isn’t really a very direct relationship with what we see and the behaviour of the margins that we have of the pricing. That’s [the issue] that we are trying to highlight in this particular report.

The question that you have asked – we have to do that in an additional exercise, which is much more complex, which will take a bit more time. So then I’ll have to sift through all the [information], and see which are justified of course, [and] which are not just justified of course.

FIFI PETERS: Okay. Well, we look forward then to … hearing what you have to say once you have completed that investigation.

Thulani, we are looking forward to seeing the outcomes of the investigation as soon as you complete it. Certainly let us know. As consumers we are very interested in whether this situation around food prices going through the roof is something that is seriously unjustified, and I think we’d be more interested in seeing those who are doing so held accountable and food prices coming down to levels they should be at.