South African food producers and retailers have been slow to pass on the effects of declining cost pressures to cash-strapped consumers, an issue that may warrant further investigation, the nation’s antitrust agency said.

Cost pressures are easing because of an end to rolling power outages, the rand’s strength against the dollar and declining fuel costs, the Competition Commission said in a report published October 4. Still, essential-food prices “remain high and are increasing at a rate that is unaffordable for low-income households.”

The antitrust body began a probe last year into what it described as an unjustified increase in essential-food prices spawned by factors including the coronavirus pandemic and the impact of Russia’s war with Ukraine. Annual food inflation eased to 4.1% in August from a peak of 14.4% in March 2023, according to Statistics South Africa data.

More than a third of South Africa’s workforce is unemployed, and about ten-million people live off a R350 ($20) monthly government grant.

Faced with a large number of people who have limited disposable income, South African food retailers have to compete vigorously on price and inflation and their price levels have “generally been below official food inflation every year for the last ten years,” said Nedbank Group analyst Paul Steegers.

While South Africa’s food inflation is officially measured across a static basket, the retailers measure their internal inflation across a changing basket of goods depending on consumer demand. That means retailers are also taking into account so-called downtrading as consumers look to cheaper products, Steegers said. This is seen in consumers more regularly forgoing brands and buying the stores own-label items instead.

Still, the probe found some notable exceptions where prices have risen and then failed to adjust lower as production pressures have eased. A “steep decline” in the cost of producing cooking oil hasn’t translated into lower average retail costs and egg prices remain “considerably higher” than they were before an outbreak of avian flu, it said. The price of brown bread has also increased despite lower farmgate prices for wheat.

Hampered by months of rolling blackouts, South African grocers have had to buy diesel for backup generators. Shoprite Holdings, Africa’s largest supermarket chain, spent R254-million on the fuel at its South African supermarkets in the six months through June. While that was about half of what it spent on diesel in the second half of last year, the cost of backup power solutions has eroded profit.

Now, as rolling power cuts have eased “some retailers have accumulated the diesel savings and reinvested it into shelf prices — as opposed to returning the savings to shareholders,” said Ya’eesh Patel, an analyst with SBG Securities. This is being driven “by an extremely competitive grocery retail market,” he said.

Shoprite, Pick n Pay Stores, The Spar Group and Woolworths Holdings have all pointed to their internal inflation being lower than the official inflation rate over multiple reporting periods.

Even so, the study found that the price of a basket of essential food increased more than 50% between September 2020 and May 2024, becoming less affordable for households earning the national minimum wage.

That is, a month of work in October 2020 would have earned a minimum-wage worker R3 654, leaving a shortfall of R263. The same worker would have earned R4 634 rand in May 2024, leaving a shortfall of R697, the commission said. This highlights how many households still face the risk of food insecurity, it said.

Overall, an uptick in the country’s economic growth, combined with “robust competition in both the formal and informal markets are likely to sustain consumer friendly shelf prices as retailers vie for a limited, but growing consumer wallet,” Patel said.