Shar­ing out the pain of food price squeeze

Sunday Times - - Business News - By PALESA VUY­OL­WETHU TSHANDU

● The gov­ern­ment has called on re­tail­ers to help ease the pres­sure of higher prices on con­sumers, but it is un­likely that South African house­holds will es­cape the im­pact of ris­ing in­ter­na­tional oil costs and a weak­en­ing cur­rency.

Last week, the gov­ern­ment an­nounced it would place more prod­ucts on the VAT ex­emp­tion list to ease the con­sumer bur­den — and has asked re­tail­ers to do their part.

In par­tic­u­lar, it asks that re­tail­ers do not in­crease the prices of other prod­ucts.

But re­tail­ers couldn’t ab­sorb all of the im­pact on whole­sale prices of ris­ing fuel costs and higher im­port prices, said Kevin Lings, chief economist at Stanlib.

“If they ab­sorb all of it they run the risk of floun­der­ing or start­ing to in­cur losses and then the dam­age would be that they would likely in­cur store clo­sures and you would get re­trench­ments.

“It’s got to do with mar­ket forces . . . [be­fore the cur­rency slump] the eco­nomic en­vi­ron­ment was more buoy­ant and re­tail­ers were look­ing to in­crease prices,” Lings said.

“We’ve seen some mar­gin com­pres­sion, but re­tail­ers are not in a po­si­tion where they can sim­ply af­ford to ab­sorb ev­ery­thing.”

The cur­rent zero-rated bas­ket in­cludes 19 house­hold sta­ples such as brown bread, maize meal, milk, eggs and veg­etable oil.

With con­sumerism the big­gest driver of eco­nomic ac­tiv­ity in South Africa, adding more items to the list — and thus gather­ing less tax — will place fur­ther pres­sure on the econ­omy.

Zero-rat­ing more prod­ucts does not un­duly strain re­tail­ers’ mar­gins as VAT is passed on to the Na­tional Trea­sury in any event — but rais­ing VAT it­self may have bruised the bot­tom line.

Ste­fan Salzer, part­ner and MD at Bos­ton Con­sult­ing Group, said the in­creased tax had af­fected re­tail sales.

Stats SA re­ported that April’s to­tal re­tail sales were R80-bil­lion, down from R83-bil­lion in March. ( The VAT in­crease from 14% to 15% came into ef­fect on April 1.)

“It is im­por­tant, though, to ac­knowl­edge that it’s not the VAT in­crease alone that caused re­tail sales to fall be­low ex­pected lev­els,” said Salzer.

“The in­crease in the gen­eral fuel levy and the steep hike in the petrol price make trans­porta­tion costs much higher — which in turn af­fects re­tail­ers’ bot­tom lines.”

Is there any risk that re­tail­ers might take ad­van­tage of the ex­tra zero-rated prod­ucts to in­crease prices on other items?

Not at all, said Mark Pren­tice, group mar­ket­ing ex­ec­u­tive at Spar.

He said that, given “the pure mar­ket forces in South Africa, with three or four ma­jor supermarkets com­pet­ing that heav­ily, there is no chance any of us would prof­i­teer off that.

“Any zero-rat­ing will be passed di­rectly on to the con­sumer.”

David North, group ex­ec­u­tive of strat­egy and cor­po­rate af­fairs at Pick n Pay, said the gro­cery chain would work con­struc­tively with any pro­pos­als from the gov­ern­ment on mak­ing food more af­ford­able.

Africa’s largest re­tailer, Sho­prite, which caters to lower-in­come shop­pers, said it would is­sue a re­sponse once of­fi­cial in­for­ma­tion re­gard­ing the VAT-ex­empt items had been re­ceived.

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