High food prices are here to stay

Robert Laing and Kea Modimoeng

Robert Laing and Kea Modimoeng

Consumers have been waiting months for deflation at the farm gate to appear on their grocery bills.

Vegetable prices are the most dramatic example. The most recent inflation data for August showed farmers received 24percent lower prices year-on-year, yet consumers paid 9,4percent more.

Danelee van Dyk, an economist at Standard Bank, said hefty rises in diesel along with wage increases partly explain why consumers have not enjoyed farm gate deflation.

Transport makes up a hefty part of the retail price, and truckers saw the price of diesel double until July. August saw a 16c a litre drop in the government regulated wholesale price of diesel, followed by R1,56 in September and 56c in October.

Fuel prices have come crashing down over the past few weeks, but don't hold your breath for the dramatic 44percent plunge in oil prices to appear on supermarket shelves.

Besides a weakening rand eating some of next month's fuel price drop, which government regulators will announce on Friday, consumer prices do not fluctuate as wildly as commodity prices.

Paul Connellan, Pick 'n Pay food merchandising director, said: "Fuel prices are really only felt in the supply chain once or twice a year, when we negotiate prices with our suppliers, not every time there is a fuel price increase, or decrease."

Connellan is pessimistic about food prices coming down.

"It is common knowledge that the world is currently slipping into an economic crisis, and that food shortages and consequent rising food inflation have been a global problem in recent months. We do believe, therefore, that higher prices will continue to be a feature in South Africa for the foreseeable future, as they will worldwide."

Unlike commodity prices which fluctuate wildly, consumer prices tend to move more gradually. Economists refer to this as the "sticky" price principle.

Connellan said retailers try to smooth price changes by thinking strategically: "When price increases are imminent, we buy stock forward on rising markets to ensure that we can suppress rising costs for as long as possible.

"We also sell five basic foodstuffs - such as milk, bread, rice, maize meal and cooking oil - at low cost every month, for the specific purpose of assisting lower-income shoppers to make ends meet. This is effectively a food subsidy. And we watch price increase requests from suppliers extremely carefully."

Stats SA's data indicates the numerous grocery chains competing for market share have to some extent sheltered consumers from the price hikes of manufacturers.

A dramatic hump in the food inflation chain from farming level to manufacturing has made the few local processors a logical target for the competition authorities to focus on.