Good news, the price of food items tracked by the Competition Commission in its essential food pricing monitoring report have started to come down. Bad news, the extent of the price decline has been modest. Joining CNBC Africa to discuss the latest food price trends is Kagiso Zwane, Senior Economist, Competition Commission.
Let's begin with what's happening with food, I mean as most of us are preparing or almost preparing for a dinner time here in the southern tip of the continent. The good news I can tell you is that the prices of some food items tracked by the Competition Commission in its essential food pricing monitor report have started to come down. The not so good news or perhaps even bad news is that the extent of the price decline that we have seen or the Competition Commission has seen has been modest. So to discuss the latest food price trends I'm joined by Kagiso Zwane, Senior Economist over at the Competition Commission. Kagiso, thanks so much for your time. Let's start off with the good news in terms of what you are seeing by way of some essential food items that are coming down. Just talk to us about which items are pleasing you at the moment in terms of pricing trends. Thank you for having me and good afternoon to your viewers. So beginning with the good news, some of the good news is the price of canned poultry which continues to show very encouraging trends in terms of what is happening at the retail level. So there we do see that retailers have exercised what we term as some restraint in how they price that important product. Similarly, we are encouraged by the trends in the pricing of IQF chicken, which is frozen chicken commonly known as a bry pack. We noted several editions back that this is a food where the market dynamics such as imports etc. do allow for a more constrained price path. So that has continued. And lastly, another piece of good news I think in the basket that we track has been the price of bread, where we are seeing some modest decreases in the price of bread, despite some pressure coming up elsewhere in the value chain, particularly at the producer or factory gate level. So those are the three, I think, pieces of good news that came through from the basket of items that we track. I'm glad that you mentioned the factory gate level because Statistics South Africa released their latest numbers on producer price inflation, albeit lagging numbers, just given the fact that we're looking at the picture as of March. But according to the numbers that were released earlier, I mean, you mentioned canned poultry, so I'll tell you what fish is doing right now. It's increasing at around 7.8% year on year in terms of the producer price inflation number measured by Statistics South Africa. In terms of grain mill products and even starches, just given the fact that you mentioned bread, also rising at around 7.1% according to that. And you mentioned a bit of chicken as well, chicken coming in at 2.6%. So I'm interested in, I mean, you've got fish, you've got potentially some items that make up bread, currently rising at double the rate of CPI, according to the latest statistics. And I'm just wondering what maybe we can assume in terms of those price increases filtering into some of the goods that you're talking about in the months to come, if at all? I think, yeah, that's an excellent question, because our methodology is concerned precisely with that question about the filtering and the extent of the filtering. So we have couched our work in terms of this animating principle called the rocket and feathers effect. Because what we saw during that very high inflationary crisis that we have just come out of, is that when costs went up, and they did go up, I don't think anybody can deny that the cost of doing business went up during that period. It did seem as though in some value chains, prices overcompensated for that. So that's the rocket side where prices are very quick to go up. And I think now we are in a feather phase with the foods that I just mentioned, where with some cost abating, the prices are coming down quite slowly like a feather. So we are concerned when we do see price increases like the one that you have described, is that if it's in keeping with this rocket effect, then they may be overshifting. And this is why our monitoring becomes so important. Because as a competition regulator, we are alive to the fact that in many markets for essential foods, competition is not as robust as we would like it to be. And in that context, price transmission can be either very slow or indeed overcompensate for price increases. So while we can't say with certainty what might, what the future holds for the products that you mentioned, starches, fish and the like, it does I think highlights the importance of maintaining vigilance in these markets, especially in a context where climate change and geopolitical events can cause very sudden disruptions in these value chains. Sure. And I do see that you do highlight the effect or disruption being caused by climate change. But before we get there, I just want to say, I mean, obviously these food items that we're talking about are what the rate of increase is looking like at the factory gate. And I know you probably have heard this so many times before, what the industry says in terms of pushback as to why prices come down like a feather is that when they leave the factory gate, there's transport costs that have to be butted or layered on, there's the cost of energy. Although we have seen a load shedding abate, but in some corners it's still quite tricky. And especially if you look at what the energy tariffs have been of late. And then there's also the issue around water and all other host of municipal issues that many of these companies have invested in their own sort of insulation measures in order to be okay. And that's why they explain why prices are so high or fall down like a feather as it were. But in terms of your latest report, when you talk about the fact that we're seeing a moderation in prices, albeit modestly, can you expand on what you mean by modestly? Because it suggests that you feel prices could have come down even more. Yeah. I think we can't as South Africans run away from the fact that food prices are high. So what has happened really is that what we see is that they have stabilised at a higher level and work done by other institutions in the public sector and civil society do show that at that level, food security, household level food security remains a risk. So, you know, we have seen an improvement of the operating environment in the last year or so. You mentioned load shedding. You know, the currency is seemingly stronger than it was also during that period of 2023-2024. Fuel prices have also been on a favourable trajectory and the like. So there is an improvement in the operating environment. And with that improvement, we do hope that prices will come down. I think we highlight the modesty aspects because precisely of the rocket and Fed effects. When the prices went up, it wasn't modest. And now the operating environment has improved. There are other costs that we might not see, but the operating environment, I think, has improved. And we are seeing the effects of that operating environment come through as financials for major food producers also start to come through. I mean, in the poultry industry, the annual financials do point to that improvement in the operating environment and you see it in the profit margins. So that is where the modesty aspects of it comes in, is that you are then seeing widening spreads in our analysis, despite prices at other levels of the value chain coming down. And then you are seeing then a return to strong profitability by some of the major players in these sectors. Sure. Yeah, the spreads, I think you are referring to sunflower oil specifically. I see that you as a commissioner are still concerned about what's going on there. Although good news on the price of eggs, as it were, at the factory gate, they have come down. Good for me. I tend to eat boiled eggs on most mornings. But Dr. Son, out the box question now, just in terms of this expansion of zero rated goods announced by the finance minister earlier this month regarding the budgets, I think we're still all waiting to see how that settles. But can you talk to us about how that could impact your monitoring, if at all? Yeah, that's an interesting question. I think with the expansion, of course, of the zero rated basket, should we have that expanded zero rated basket? I think for us as the commission, our task would be to expand to the extent to which the data allows the products that we track. So you will see from that list that I think apart from the poultry products, I know chicken for sure, that those are all already zero rated, because that is our starting point. You know, I think people in our position, you and I, Fifi, we have certain privileges, which I don't think it would make much public policy sense for a regulator to focus on some of our luxurious consumption. But as then more and more foods take on the designation of being important through the VAT process, and I think that is really the only process that we have in society for designating foods as being important socially. Our monitoring then does have to expand with that if we are to be a responsive regulator. Sure, it will be interesting to see, of course, what that does look like. But I just told you I have boiled eggs for breakfast, hardly counts as luxurious food, in my view. This is true, this is true. We have seen some of the prices that they've been paying for eggs on that end, and the consumers on that end have not been happy. But Garissa, thanks so much for your time, just giving us the latest from the Competition Commission in terms of their tracking of food prices. Garissa Zouanis, Senior Economist over at the Competition Commission.
Theme: Modest Decrease in Food Prices Tracked by the Competition Commission
Amidst the bustling food market in South Africa, there has been a mix of good and bad news when it comes to the prices of essential food items. The Competition Commission, in its essential food pricing monitor report, has observed a modest decrease in prices for some food items. Kagiso Zwane, Senior Economist at the Competition Commission, joined CNBC Africa to discuss the latest trends in food pricing. Let's delve into the key points discussed in the interview. One of the positive trends noted in the report is the decrease in the price of canned poultry. Retailers have shown restraint in pricing this essential product, resulting in encouraging trends at the retail level. Additionally, the pricing of IQF chicken, also known as a bry pack, has continued to show constrained price paths. Another noteworthy decrease has been observed in the price of bread, despite some pressures at the producer or factory gate level. Moving on to the producer price inflation numbers released by Statistics South Africa, certain food items have seen an increase in prices at the factory gate. Fish, grain mill products, and starches have shown year-on-year price increases, raising concerns about potential future price hikes for these items. The Competition Commission's monitoring mechanism, known as the rocket and feathers effect, aims to track the extent and speed of price changes in response to cost fluctuations. Zwane emphasized the importance of vigilance in monitoring food prices, especially in markets where competition is not robust. He highlighted the potential for slow price transmission or overcompensation for cost increases, underscoring the significance of ongoing monitoring efforts to ensure fair pricing in the market. Despite the positive trend of price decreases, Zwane acknowledged that food prices in South Africa remain high, posing risks to household food security. The Competition Commission's monitoring indicates that prices have stabilized at a higher level, albeit modestly decreasing. Zwane pointed out that certain costs, such as energy, transport, and municipal services, contribute to the high prices observed in the market. Regarding the expansion of zero-rated goods announced by the finance minister, Zwane noted that the Competition Commission would adapt its monitoring to incorporate newly designated essential food items. As the list of zero-rated products expands, the Commission aims to track these items to ensure responsive regulation and fair pricing practices in the market. In conclusion, while there have been modest decreases in food prices for some essential items, challenges remain in ensuring affordability and accessibility of food for consumers. The Competition Commission's efforts to monitor and regulate food prices play a critical role in promoting competition and fair pricing in South Africa's food market.
"Despite the positive trend of price decreases, Zwane acknowledged that food prices in South Africa remain high, posing risks to household food security."
['Competition Commission', 'food prices', 'South Africa', 'essential food items', 'pricing trends', 'producer price inflation', 'market competition', 'fair pricing']