When food prices shot through the roof in 2002, cabinet appointed a commission to investigate possible interventions to dampen the impact of high food prices on poor South Africans. At the end of 2003, Judi Madumo-Mazibuko, spoke to the commission’s chairperson, Professor Johan Kirsten, to find out how far the enquiry is.
Professor, why did food prices rise?
There are several explanations. It started off at the end of 2001/2002 with the exchange rate depreciating. At the same time there was the Zimbabwe crisis.
What has Zimbabwe got to do with food price increases?
There was a shortage of food in the SADC region. Everybody expected that Zimbabwe would buy maize from South Africa as there was still a lot of maize here. So maize, sunflower and wheat prices went through the roof. Obviously with imported food such as rice, a low exchange rate makes commodities more expensive. Maize influences the feedstock industry. Maize goes into poultry, eggs, milk and beef. So when the maize price went through the roof, it created havoc with most final products. Obviously there are other pressures. If you process food such as mealie-meal, the maize is only one share of the final product. Its share is normally around 40% or 50% of the value of the final product. Then there are other processing costs such as machinery, energy, bags and labour. So when wages increase, then costs of distribution increase. The cost of machinery all contribute to additional increases in food prices.
Were there any differences between price increases in urban and rural areas?
It’s a bit soon to give you an answer because we are in the process of analysing all the data that we received. But there is a discrepancy between the rural and urban prices. In some cases where we have manufactured food products, we find that in rural areas prices are still higher than in urban areas. And obviously one reason is that the transport costs are higher. But then sometimes in rural areas you have a monopoly situation where people must buy even if prices increase because they have nowhere else to go. But if you look at stuff like bread, milk, and meat, it’s cheaper in rural areas. The explanation may be that these products come from the local producers themselves.
Did your commission look at what impact zero-rating of basic foodstuffs would have?
That was not really part of our brief. But we did some analysis of what would be the impact of zero rating. There’s been a lot of theory about this. Some people believe that retailers will not pass on benefits that accrue from zero-rating to consumers. Take the price of white bread and brown bread. It’s supposed to be a 14% difference because of VAT. But it is now narrowing. The difference is 10% and sometimes it is 9%. So, I don’t think the zero rating will benefit much unless you monitor that very carefully. Government can go and check the prices every month to see that prices have come down. That was done in Australia but it cost them a lot of money. But we haven’t invested very much in researching the issue of zero-rating. I know treasury will never go the zero-rating option.
From your investigation, was there any profiteering by big business?
Some of it was.
Really?
Ja, there were many guys – small guys and people we don’t know, that took the exchange rate as an excuse to increase prices. But the fact that we have had low inflation for a long time – 6% to 7%, never gave them the opportunity to increase prices beyond that. In fact now the reverse is happening. If you look at the Producer Price Index, which is 0,3%. Prices at the production level are increasing on a year on year basis by only 0,3%. Basically that means there has been no increase from September 2002 to September 2003.
During the investigation, how were consumers involved in the enquiry?
A toll free number was used in the early parts of 2003, about March/April. People also made a few calls a day. They sent faxes. Since April it’s been quiet.
Do you think that the work of the commission has received support from consumers?
Ja, obviously people call on all sorts of products not necessarily the products we were concerned about. Since April we had very few calls. Recently, we had a media release. People called to say that they just want to tell me that this or that is not true. Or that all the things are not as we portray them. It is very difficult because in some regions you find that shopkeepers still charge people what they want. So the prices are really regionally-bound. You have people in some areas not experiencing cheaper prices. But even if I go to my local Spar here, all the prices that we monitored are all on specials.
Some people are questioning whether you will be neutral in your investigation because of your past link with the Free Market Foundation. What’s your take on this one?
The link with the Free Market Foundation, I don’t know about that. What happened is we did some work for a non-governmental organisation (NGO) on the process of deregulation and the effect of deregulation on the South African economy. They submitted that report to the Free Market Foundation for publication. We have no link with the Free Market Foundation.
From the work that you have done since January, is there any policy recommendation that you are going to make to Minister Thoko Didiza?
I can’t tell you much of that now. But there are certain things that Government should do. What we will probably say is that 45% of our population is really living on the border line and most of them below the breadline. So, although we can explain all the pictures in terms of ( ex) change ( rate) and so on, it does not say that the government has no duty. We argue that the government has a strong duty in terms of nutrition, in terms of human capital. If you don’t ensure that all of our people have food, you won’t build a nation. So we are looking at current food security programmes to see where the gaps are. Then we can see where the government can introduce certain measures. Obviously the argument for this whole investigation is factored on the broader issues of social structures in the economy, the whole debate about the Basic Income Grant (BIG), that you guys have embarked on. All things in this broader scheme of things, creating employment but also ensuring that there is income so that you can have a basic food basket with a healthy life.
So at the end it’s a matter of economic policy?
It’s difficult to see this food price issue in isolation, because ultimately it boils down to the basic needs of many people. If people don’t have access to the right to food, and the right to a just life, reasonable life, how can they go hungry everyday and yet people expect them to be happy? So there are duties of government but also duties of business. But you cannot clamp down on business and think that they are unnecessarily evil in their methods. So we need to find a balance in terms of monitoring and also the duty of government.
Commission members
Professor Johan Kirsten
Pretoria University
Fikile Mazibuko
University of Natal
Prof Johann Potgieter
Pretoria University
Prof. S’bu Nkomo
Pretoria University
Josephilda Hlophe-Nhlapho
Cosatu
Prof. Herman van Schalkwyk
Free State
Lumkile Mondi
Chief Economist, IDC
Nonia Rampomane
National Consumer Forum