Big Food raises a big question
Critics say it drives up prices; it says it brings them down. The M&G takes a closer look
In South Africa’s food value chain, oligopolies exist in almost every link. From seed to store, just a handful of players control much of each market. This is the last thing on the minds of most people when they fill their shopping baskets but it could be hitting them where it hurts most — in the wallet.
Concentration in a sector is presumed to lead to higher prices. The Competition Commission found the dominance of just a handful of players in the bread and cereals industry led to collusive behaviour, which pushed up the price of these goods.
In a 2016 report, the World Bank estimated that prices in South Africa for certain commodities were 20% to 40% higher as a result of cartels.
Counterarguments by Big Food are that a few dominant players in each link of the food value chain is the result of intense competition, and their economies of scale enable them to sources goods at the lowest possible price and pass it on to the consumer.
Intense regulation of the sector under apartheid saw some industry players flourish. Although the industry was deregulated post-1994, these players sustained their dominance and it was difficult for smaller competitors to enter the market.
Neva Makgetla, a senior economist at the economic research body Trade and Industrial Policy Studies, says Big Food is a highly concentrated sector and has not brought down real food prices, which have consistently risen at a rate greater than inflation over the past 20 years. “Basic economic theory suggests that the one has something to do with the other,” she said.
The Agricultural Business Chamber (Agbiz), whose members include major companies in the food value chain such as Monsanto and Tiger Brands, says, although there may be concentration in some parts of the value chain, essentially the South African agri-food system is an open and competitive market.
“The current food system without a doubt works for the greater good of society and results in lower food prices for consumers,” said John Purchase, the chief executive of Agbiz. “On a comparable basis, our food prices are of the lowest in the world and attest to the competitiveness of most of our value chains.”
Purchase said studies such as The hardest. The annual food price barometer of the Pietermaritzburg Agency for Community Social Action, which follows the food basket inflation of low-income households, showed prices rose 15.1% from September 2015 to September 2016, admittedly aggravated by the effects of the drought.
General food price inflation, as reported by Statistics South Africa was 11.3% in September last year.
Tracey Ledger, the author of An Empty Plate, argues there are at least two important ways the current concentration of power in the sector is not working in South Africa’s interest.
Measures such as exclusive lease agreements have ensured the growth a few players in the food retail sector and has barred smaller players or forced them to pay higher rent — a matter the Competition Commission is investigating.
Then there is the way suppliers are treated, Ledger said. The share of the retail price of food that goes to farmers is declining and so increasingly the smaller farmers can’t survive. This is a key problem because agriculture is one way of creating growth in rural areas, Ledger said.
Some basic goods also have significant mark-ups from when they leave the farm gate until they reach the supermarket shelf, Ledger said.
For example, in 2015 one litre of fresh full-cream milk would cost R4.30 at the farm but retails for R12.19. Fresh chicken leaves the farm at R22/kg but retails 55% higher at R39.96 in the store. Fresh tomatoes are sold by the farmer for R5/kg but retail for R17.45.
The question of food quality is also important.
“There is an idea we are benefiting from the system because we all get access to cheap food. But we don’t,” said Ledger.
Studies show at least 80% of families cannot afford to buy adequately
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