According to the ‘Essential Food Pricing Monitoring Report’, released by the Competition Commission on August 24, South African consumers may be facing opportunistic price increases in sunflower oil as processor prices have increased by far more than sunflower seed prices this year.

Retailers have failed to pass on wholesale cost reductions for bread in the past, resulting in widening retail margins, the commission notes.

The findings come at a time when there is widespread concern over food price inflation faced by already struggling consumers and the commission’s food price monitoring efforts have revealed several concerns in South Africa’s food markets and food value chains.

Some other concerns brought to the fore include a wide farm-to-retail spread in prices, large price differences between regions for basic fresh produce, growing margins at the processor and retailer level, as well as the general trend of price inflation that started with the Covid-19 pandemic and has since been exacerbated by supply chain constraints and the Eastern European conflict.

“Ongoing food price monitoring, therefore, remains a priority for the Commission especially given its importance to the welfare of South Africans and poor consumers in particular,” the commission said.

The latest report found that there had not been a significant increase in the prices of fruits and vegetables in recent months, except for tomatoes, where there had been price volatility.

The commission's previous two reports also noted that the yearly inflation in edible oils and fats was significantly higher than overall food inflation.

Previous analysis highlighted the risks posed by the Eastern European conflict in this respect, given South Africa's position as a net importer of sunflower seeds and the importance of Eastern European countries to the global supply of sunflower seeds and edible oils.

The latest report expands on the commission’s previous work by focusing on the sunflower oil value chain and the role of sunflower seed prices as a driver of retail and producer prices. It also examines other basic commodities including bread, maize meal and fresh produce.

Among the latest findings is the recognition that the high and growing concentration along the sunflower oil value chain, from sowing seed to the refining level, has created a risk of opportunistic price increases above cost increases during periods of inflation. This is sometimes referred to as the “rocket and feather effect”, with prices being quick to rise and slow to fall where there is cost inflation in the value chain.

The report also found that processor prices have increased by 72% and retail prices by 36% this year alone. This indicates that retailers have absorbed some of the increase and that the retail margin has fallen by about 14%.

In the case of processor prices, these increases have not been entirely driven by the price of sunflower seeds since the South Africa Futures Exchange (Safex) price for sunflower seeds has been fairly stable over the period, with no significant increases.

There has also been a widening of the seed-to-producer price spread for sunflower oil, resulting in growing processor margins. While processors may have seen some cost increases for energy and fuel, the large widening of margins is a cause for concern for the commission as it may indicate opportunistic pricing behaviour that is not related to costs.

An increase in the wholesale-to-retail price of bread over time was also noted. While this may be indicative of increases in the costs of retailers, the evidence suggests that cost decreases in the past have not been passed onto consumers by retailers and that this is the source of margin growth.

Regarding maize meal, the report found that, while retail prices increased this year, the retail prices appear to be largely related to the increase in the Safex price for white maize but the overall spread has increased.

Additionally, the price of a margarine brick increased by 6% from January to June. However, this increase is significantly lower than the increase in the retail or producer price of cooking oil.

The commission said all of these foods were within the scope of the current investigation.

“The commission will continue monitoring food prices going forward as the global food markets begin to normalise and ensure that any cost reductions are passed on through the value chain immediately,” the commission said.

The commission has also initiated investigations into basic foodstuff value chains to act against any opportunistic behaviour given the levels of concentration in the value chain.