Agri SA has expressed its concern about the government’s intended intervention in the price of food – and warns that it could lead to empty shop shelves.
The organization is now writing to Thoko Didiza, minister of agriculture, land reform and rural development, about the consequences of interference with food prices.
Agri SA referred to a comment by Khumbudzo Ntshavheni, minister in the presidency, that the cabinet instructed the economic grouping to compile an action plan on food prices, food security and access to food.
“Although Agri SA shares the government’s concern about the rising price of food, the government’s interference in the market can lead to empty shop shelves,” says Kulani Siweya, chief economist at Agri SA.
Siweya says inflation on the price of food remains high, but the Competition Commission’s latest monitoring report on essential food prices shows that although some input costs are falling, other critical inputs remain high due to factors such as load shedding or rising fuel prices.
The report uses Tiger Brands, the maker of Albany bread and Ace Super cornmeal, as an example of this.
Tiger Brands’ mill and bakery’s turnover increased by 5% in the past financial year as a result of a volume increase of 11%, together with a 16% increase in the price of its products. The operating margin for the processing and baking of the raw product also fell from 9.4% to 8.2%.
However, in the first half of the 2022-23 financial year, Tiger Brands spent R76 million to counter load shedding. This is 2% of this manufacturer’s total expenditure and is also 533% more than the R12 million spent in the same period in 2022 on diesel and other interventions against load shedding.
“The report highlights the highly complex dynamics of the food system and how, if it wants to tackle the situation substantively, the government can start by fixing functions within its competence, including repairing road and port infrastructure, reducing rural crime and the termination of loadshedding.”
Historically, well-intentioned controls on product prices can cause market distortions, says Siweya.
“By reducing participants in the value chain’s motive to make a profit, it can stifle innovation, as well as the quality and availability of products and services.”
Siweya says it is also important to distinguish between short-term price increases and long-term market dynamics; none of which are best addressed by broad government intervention and require tailored solutions, says Siweya.
“In fact, responses to short-term problems can have adverse long-term consequences.”
Agri SA says that given the insights provided by economists, a nuanced approach to all the factors that influence food prices must be pursued. It must also be underpinned in conjunction with well-constructed policies, underpinned by sound economic principles.
“Any interventions must find an appropriate balance between dealing with the issues that have been identified and preserving the benefits of a free and competitive market,” says the agricultural organisation.