Retailers and agro-processing companies are under investigation by the National Agriculture Marketing Council, which is concerned that these groups may use their “excessive” market power to the detriment of consumers and farmers.
These concerns are described in the council’s report on food price trends released last week. It says that food prices have returned to levels seen at the height of the pre-vious food price crisis in 2003.
The conclusion that recent price movements are “not abnormal” from a long-term perspective means that significant food price volatility is becoming the norm. Analysts point out that this can have a disproportionate impact on poor and especially rural consumers.
The council voices concerns in the report that the increasing concentration in agriculture may affect the sector’s sustainability, the success of emerging black enterprises and the spending power of poor consumers. It identifies the dairy sector as an industry in which farmers are at the mercy of regional monopsonies, echoing the findings of the Competition Commission, which referred several dairy processors to the Competition Tribunal last year on charges of collusion.
The council’s report emphasises that farmers are rarely able to influence prices because there are numerous farmers selling the same product to a few large buyers.
Despite the ability of retailers and processors to benefit at the cost of consumers and farmers, the council finds that the total agriculture chain is “succeeding in its goal to provide affordable food to the population of South Africa”.
Using data gathered by the council, the report finds that the cost of a food basket, as a share of a R1Â 000 monthly wage, dropped from 25% in January 2003 to 20,6% in March 2005 and increased to 22,2% in March this year.
The report says this demonstrates that “food prices have declined since the last high point of 2003 and recently increased to the same levels as 2003”.
The price hike in January 2003, described in the report as the “height of the previous food price crisis”, was primarily because of maize price hikes.
Inasmuch as recent price swings are “not abnormal”, the report implies that we are in an era of volatile food prices.
Data from Statistics South Africa suggests that this era began around the time of the 2003 maize price hikes. Grain producer price inflation from 1994 to 2003 climbed steadily, with some volatility. In contrast, inflation swings from 2003 have been much more volatile.
The recent price hikes have a disproportionate impact on poor rural consumers, according to Food and Allied Workers’ Union researcher Eric Watkinson.
He said that consumer price inflation for rural groups is 2% higher for lower-income groups in rural areas than higher-income rural consumers.
This difference is primarily because of maize prices, he said: “If you travel to rural stores, it’s surprising to see the higher price of maize.”
He acknowledged that the price difference might depend on transportation costs and distribution systems, but argued that the disparity occurs even in rural areas where maize is milled near its point of sale.
Professor Ben Cousins of the programme for land and agrarian studies at the University of the Western Cape said the massive price fluctuations described in the report have implications for food security, especially for poor consumers. Government initiatives to help people become self-sustainable producers would improve their food security position in the context of price volatility, he added.
Noting that concerns about food security were absent from the council’s outlook, he said that this shortcoming is generally true within the broader policy environment.
In 2003, high maize prices were partially the result of speculators using pension-fund money to bid up prices. But Watkinson said the introduction of limits on the amount of money that people could trade on the futures market meant that this kind of speculation was less likely to explain current high prices.
He said there is room for the maize price to rise further when the crop estimates committee releases new estimates in the next few months, revealing the true impact of the drought on crops.
The recent dry spell caused the committee to revise crop estimates downward in March but Watkinson said the estimated crop for March of 1,625-million hectares approximates the crop estimates for 2001/2 of 1,722-million hectares, which was considered to be a good crop year.