Consumers are angry that the government is treating them like a cash cow instead of fighting corruption and improving its fiscal discipline. File photo by Dwayne Senior/Bloomberg via Getty Images
For most South Africans, the recent wave of food price increases has been suffocating — leaving some questioning why the state hasn’t stepped in to protect consumers.
Data from Statistics South Africa this week showed that food price inflation eased for the fifth consecutive month, falling from 9.9% year-on-year in July to 8% in August. But the inflation rate for this component remains above the five-year average.
Moreover, although the current cost-of-living crisis has put food prices in full focus, there are indications that affordability has been a problem for much longer. In 2018, the Pietermaritzburg Economic Justice and Dignity group flagged an “affordability crisis” among households.
In its 2018 analysis, contained in the household affordability index, the group found that workers earning a minimum wage of R20 an hour did not earn enough to secure an adequate amount of nutritious food for their families. Households relying only on grants were likely to be even worse off.
Despite a clear affordability problem — made worse in the wake of stagnant economic growth and high unemployment — South Africa’s food prices are essentially unregulated, according to Marc Wegerif, the development studies programme co-ordinator at the University of Pretoria.
“This really comes with the deregulation and liberalisation of the economy at the end of apartheid,” he noted.
According to a 2021 paper by the Centre of Excellence in Food Security, up until the early 1990s, agricultural commodities were subjected to different kinds of controls under the Marketing Act of 1968. But the early 1990s marked a period of deregulation, which “sought to effectively reduce government’s direct role in food price determination and marketing while also encouraging import liberalisation”, the paper notes.
“The minimalist stance of the government regarding market intervention has assisted in ushering in an era of corporate control on food value chains and therefore on the food system.”
Price-setting has thus been left up to the market, although the state does have some tools to intervene on pricing, such as import tariffs and zero-rating certain grocery items.
Last year, in the wake of rising inflation, the Democratic Alliance called on the government to scrap VAT on a bigger basket of food items to provide relief to poor households. The party’s call wasn’t heeded; Finance Minister Enoch Godongwana sought to protect the public purse instead.
Other tools for mitigating price increases aren’t even on the table.
Wegerif gave the example of export tariffs. An export tariff on maize, for example, would bring down the price at which the staple is sold locally. Certain countries have grain reserves as a way of stabilising prices and to help cope with food emergencies.
With the food sector effectively unregulated, the pricing power is in the hands of a small number of firms, which have the primary goal of maximising profits.
When the Covid-19 pandemic initially hit — and the government introduced a raft of unprecedented restrictions through the national state of disaster — some asked why the state had neglected to introduce food price controls to shield the poor.
The pandemic, which caused the country’s unemployment crisis to deepen, set off a series of events that caused inflation to climb. In 2022, a war-induced supply chain caused food prices to spiral even further.
In July 2020, the Competition Commission released its first report monitoring how food markets had responded to the crisis, flagging high markups on fresh produce and essential food items. The competition watchdog has continued to keep an eye on price dynamics in the pandemic’s aftermath.
Earlier this year, the commission found that consumers were subjected to “unjustified price increases” of sunflower oil, white and brown bread and “opportunistic price increases” in maize meal over a two-year period. In its latest food price monitoring report, released last week, the commission said stubborn food inflation indicated that there is inadequate competition among producers and retailers.
But the commission’s findings have been rebuffed by some, who maintain that the recent food price spiral was caused by factors outside the control of local producers and retailers — such as the drought in South America, the high demand for grain in China, high shipping costs and Russia’s war on Ukraine.
Wandile Sihlobo, the chief economist of the Agricultural Business Chamber of South Africa, called the Competition Commission’s reports “deeply misguided”.
“They did not fully appreciate the factors behind the food price increases and the fact that there is a lag between farm prices and retail prices,” he said. “For people to look at prices at a retail level and think that they have to be controlled, they are misguided.”
Sihlobo said that, in the wake of inflationary conditions, food producers actually absorbed costs rather than having passed them on to consumers.
But, Wegerif noted, when prices are sent soaring by international events, the government can choose to make use of the tools it has to bring them to heel. “The point is, what are you doing to protect our market and consumers from their impacts so that people can eat? … Your job is to see those risks and to moderate their impacts, especially on the poorest in the country.”