The 17th Annual Competition Law, Economics, and Policy Conference hosted by the Competition Commission in conjunction with the Competition Tribunal recently brought together role-players in Johannesburg to share insights on the current state of competitive markets and the way forward fostering an inclusive growing and deconcentrated economy.
One of the plenary sessions focused on food inflation, which has been persistently high due to different economic shocks. The structure of modern globally traded agricultural markets also makes food products susceptible to some of these economic shocks. The roles of fuel and fertiliser as cost drivers are two examples.
The panel explored if there is a basis for concern locally in this regard. It also looked at competitor enforcement in food and agro-processing.
No direct link
James Hodge, the chief economist at the Competition Commission South Africa (CCSA), facilitated the panel discussion and said the poorest of consumers have been hard hit by food inflation after food prices increased by approximately 34% since the outbreak of Covid-19. However, these prices are also partly the result of other global shocks.
Wandile Sihlobo, chief economist of the Agricultural Business Chamber of South Africa (Agbiz), said grain, oilseeds and red meat are to a certain extent largely linked to world markets and the role of producers in this regard often comes under the spotlight as almost all of South Africa’s inputs such as fertiliser (80%) and agro chemicals (98%) are being imported.
He reiterated that there is no direct relationship between the price of inputs and food prices or commodities when it comes to producers. They take on the prices of commodities as it is. Producers need to ensure they get better yields and position their trading more efficiently to take these prices on.
Developing regional value chains
Prof Reena Das Nair, from the University of Johannesburg (UJ), said developing food markets that can replace imports of inputs and processed foods can make South Africa more resistant to some of the global shocks such as climate change.
Regional value chains are important as primary products can be beneficiated into value-added food products in the region while imports of commodities such as soya bean can be replaced by South Africa.
This, however, requires co-ordinated policies to develop value chains and more importantly competitive markets, because without competitive inputs small- and medium-sized enterprises will not be able to produce products at a sustainable margin.
She said South African supermarket chains are also becoming more dominant in the Southern African region and large retailers need to be encouraged to be open to smaller players and support them through supply development programmes.
A regional retail charter or a charter that incorporates some of the larger lead players, who have a strong role to play in upgrading the capabilities of input suppliers as well as processors along the value chain, is an option.
Concentrated input markets
Das Nair also said the research centre called The African Market Observatory has been collecting prices of fertiliser in different African countries and found a stark contrast between pricing in, for example, Zambia and Malawi and South Africa where the prices of fertiliser are margins of 30 to 80%, higher than in other countries.
A disparity in key input prices of this nature makes it more difficult for these countries to develop strong regional value chains. This is an international problem. These global players supply fertiliser to the African continent and it is a highly concentrated market with a history of anti-competitive behaviour.
Alexey Ivanov from the Brics Competition Law Centre said that the production of fertiliser, seeds and agrochemical products are heavily monopolised globally. In the trade segment of the value chain, there has been monopolisation through the utilisation of new market power access to information among others.
It is a similar situation in the global trade of agriculture production with the growth of new unique market power. However, the competition authorities around the world are addressing this through bargaining powers, superior bargaining positions and buyers’ power instruments while the competition regime in South Africa is also on board. – Christal-Lize Muller, Plaas Media