Behind the scene in pricing of South Africa’s most consumed food items

When prices of food rise, South Africa’s poorest households, which spend a large portion of their household income on food, are the hardest hit, in some instances forced to reduce the quality and quantity of food consumed. These are the households that spend between 30% and 40% of their income on food. This, with no doubt leads to increased food insecurity at the household level. Food prices are influenced by, among others, supply and demand, inventories, macroeconomic factors, exchange and interest rates, global economic activity, oil price volatility, global weather patterns, financial investment and policy shocks. So, it is clear that fluctuation of food prices, may be attributed to falling supply or increased demand.  This is true, however, there are other behind the scene factors.

  1. Who feels the pinch when basic food price skyrocket?

Food prices have gradually increased over the past couple years, with food and non-alcoholic beverage inflation increasing to 4.2% during February 2020 year-on-year, with Headline inflation increasing to 4.6% (Statssa, 2020). Any change in the market food price (especially in grain products such maize and wheat) can strongly influence a household’s food security, especially middle-income and low-income households. It is a well-acclaimed fact that volatility of price can affect the continuous flow of the food supply chain and is a highly undesirable trait. Information asymmetry is one of the factors that contributes to food price escalation, and could lead to market distortions. Without proper availability of information across value chains, it becomes difficult to understand price transmission between consumers, retailers, processors and farmers in the country. This in turn limits the formulation of adequate support measures to different players in the value chain. While current high food prices may or may not remain high, there is a pressing need to understand the structural underpinnings that relate to these.

2. Are witnessed retail food price increases also benefiting producers?

For instance, producer prices and production trends of wheat and maize are available from Grain South Africa, however, millers and bakers’ prices and production levels are neither collected nor accessible from their representative organised associations, respectively. Noteworthy, there are only four major players engaged in the milling and baking process for both wheat and maize. And what we know is that between January 2013 and January 2020, price of brown bread and super maize meal increased by 49.91% (R16.97 to R25.44) and 39.33% (R9.01 to R12.47) respectively.  These food price increments have not necessarily increased producer prices, implying the imperfect transmission of price from consumers to producers. While consumer-producer price transmission does not necessarily need to be close to unit but it must be large enough to sustain the profitability of producers. There are increasing claims from producer groups that they are not benefiting from the increase in food prices, yet they are subjected to faster increases in farm inputs and labour costs. This motivates the importance of price transparency in grain value chain which is necessary to deal with all the issues that challenge participants in supply chains. This will also improve market signals whether through price or other mechanisms for greater fairness across the chain, especially for small-scale farmers. Unfortunately, some supply chain players/participants have little interest in improving the transparency of pricing.

3. Finding the common ground

Improving data transparency can improve policy making decisions and subsequently strengthens competition and fairness in the agricultural value chains and price settings. This will also increase the effectiveness of markets and improve perceptions of fairness from farmers up to consumers – the two main objectives of the Marketing of Agricultural product Act. In order to achieve this (price transparency) it will be ideal for industries and public institutions to commence the monitoring, collection and processing of data across the basic food value chain, focusing on key commodities such as maize and wheat. 

Article by: Ms Fezeka Matebeni, Agricultural Economist

Disclaimer: The views and opinions expressed in this article are those of the author. They do not purport to reflect the opinions or views of Mzansi Agriculture Talk or its members.

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