South Africa’s Competition Commission has continued its look into the country’s high food price inflation and identified the prime villain as load shedding – the daily power cuts that have plagued homes and businesses all year.
The commission is monitoring the value chains and pricing of four “essential foods” – sunflower oil, bread, maize meal, and individually quick frozen (IQF) chicken pieces.
The commission’s September report looks at why South Africa’s food price inflation is twice as high as consumer price inflation, and specifically why food prices haven’t dropped faster as input costs go down. It’s known as the “rocket and feather” effect – prices tend to shoot up when input costs rise, but reduce slowly when input costs decrease.
The short answer is load shedding.
The commission said that the cost all along the food chain of adapting to load shedding “is likely keeping food prices higher than what food input costs would imply”.
Unlike its flawed August report, the commission this time gave due weight to the huge cost burden that electricity cuts and other infrastructure failings are putting on producers and retailers. It noted that chicken retail prices had not gone up as fast as producer prices, so retailers are being squeezed. It also noted the hundreds of millions that producers and retailers are spending on diesel generation because of South Africa’s daily power cuts.
The Daily Maverick said that in response to the commission’s report, the Consumer Goods Council noted that food prices were high, and would be forced higher, because of the impact of load shedding and other factors beyond the control of producers or retailers.
“Load shedding-induced costs continue to escalate as the energy crisis worsens and it has so far been a herculean effort by food manufacturers and retailers to absorb the costs without passing them on to consumers.
“However, there is a limit to how long businesses can continue absorbing these costs without increasing prices to ensure viability,” the council said.
