Why food isn’t getting cheaper

2009-02-06 00:00

CONSUMERS should not expect much to come of calls for food prices to be lowered as a result of the recent fuel price reductions.

The reality of the situation — according to industry experts, producers and retailers — is that a lower rate of food inflation is a more likely possibility.

Consumers are now being told that the fuel price is only a relatively minor cost-driver influencing the price of food.

Over the past few weeks, politicians and unions have insisted that food prices be lowered as a result of the recent fuel price decreases.

This prompted retailers and producers to explain why widespread food price decreases are not plausible.

Dr John Purchase, CEO of the Agricultural Business Chamber, told Weekend Witness that there are significant lags in respect of the time it takes for consumers to experience the benefits of fuel price decreases. Furthermore, fuel is a relatively small component of the total price of most food products.

Mark du Plessis, chief executive of Potatoes South Africa, this week noted that a 30% drop in the fuel price will only lead to a three cent/kg drop in the production cost of fresh potatoes.

The weakening of the rand has also not helped consumers.

“A lot of product prices are a factor of the international [commodity] price and the rand-dollar exchange rate. Maize and wheat are examples, and maize then feeds into poultry, dairy and meat prices.”

Both Professor Andre Jooste, senior manager in the Market and Economic Research Centre at the National Agricultural Marketing Council, and Purchase stressed that agriculture has a “long value chain”.

“A lot of ‘past-costs’ get absorbed for some time by producers and other role-players in that value chain and are then only reflected later in retail prices,” Purchase added.

Purchase said producers have other costs to deal with, including capital, labour, chemicals and fertiliser.

He said fertiliser prices increased 300% within only a short period of time.

“Food inflation was never as high as the cost escalations in respect of these other major inputs,” Purchase said.

Both Pick n Pay’s group finance director, Dennis Cope, and Spar’s group merchandise executive, Mike Prentice, shared similar sentiments.

“When fuel costs rose last year, suppliers did cite a rising fuel cost, but also rising commodity costs, interest rate increases, payroll increases and overall food shortages, which were being experienced globally and not just in SA,” Cope said.

President of the KZN Agriculture Union (Kwanalu), Robin Barnsley, said that a debate needs to take place to determine who is best placed to pass on any price benefit to shoppers, as different business models exist in the chain.

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