Under the lockdown levels, the Competition Commission conducted investigations into the overall retail food prices and identified milk as the most concerning in all food items.
“It shows that the retail price for milk has seen a greater increase than the underlying increase in producer prices (raw milk purchased from farmers) which have risen more slowly” said the Commission.
Earlier in the year, the Milk Producers Organisation (MPO) had warned of erratic milk prices in both producer and retail.
According to the Commission’s report, it found that the pricing at retail level were quick to respond to producer erratic prices but slow in decreasing consumer prices.
“The Commission has received, particularly during the initial lockdown phase, a number of complaints from farmers and industry regarding higher retail prices despite downward pressure on prices for farmers,” states the report.
Milk price data show sporadic increases since 2012 to 2020 with a mean annual growth rate of around 7.38% which according to the MPO was higher than the average annual inflation at around 5%.
From January 2016 to January 2020, MPO said it observed 3 indices (dairy products, unprocessed milk, retail – cheese, eggs, milk) on 5 occasions, where producers were affected twice by negative price changes as compared to the other 2 indices where it occurred only once.
The Commission supported this observation and had investigated the producer price of milk which had gone up by “just under R2/litre from R3.20/litre in January 2012 to R5.13/litre in September 2020, whereas the retail price has increased by over R6/litre from R8.35/litre to R14.73/litre, with the price spread growing from about R5 to almost R10”.
Since this discovery, the Commission said it became active in enforcement activities conducting merger investigations in the industry during lockdown. The Commission further heard from dairy farmers about the rising input costs and the levels of price increases for feed concentrates which affected their margins.
“This suggests that in recent years, farmers have been subjected to a margin squeeze with feed costs increasing but the raw milk price not keeping pace at all,” said the Commission. This in essence according to the MPO saw the highest level of price increase also at dairy farm level.
MPO has for a bitter while called for transparency and had undertaken to drive the principal of demand elasticity with retailers.
“The buy-in of retailers alone will not be enough, primary industry will need to monitor supply carefully to be transparent,” said van Heerden.
According to the Commission, its findings are of concern especially for policy makers and competition authorities.
“Ultimately what this means is decreasing profitability and the exit of smaller farmers who are not able to achieve the necessary scale to decrease costs and increase profitability,” the Commission noted.