CompCom flags possible opportunistic pricing in cooking oil

The price of sunflower oil at retail level has increased by a whopping 41% between March and June 2022, meaning that consumers went from paying R31.24 in March to R43.96 per 750ml bottle in June – a hike that the Competition Commission says has been driven largely by producer price increases.

In its latest Essential Food Price Monitoring Report, the commission notes with concern that consumers may be facing opportunistic price increases this year as processor prices for sunflower oil have increased dramatically more than seed prices, an increase that even retailers are struggling to contain.

Between January and June 2022, the producer price of cooking oil has increased from R506.67 to R873.33 per 20 litres, a 72% price jump during the first half of the year.

According to the commission’s analysis, producer prices have been largely driven by rising production costs – such as elevated energy costs – as well as producer appetite to chase profits. The commission further highlights that although sunflower seed prices have changed in the last two years, prices have remained relatively stable, and as such seed price rises cannot take all the blame for spikes in edible oil prices.

The commission’s report comes on the back of Statistics South Africa’s (Stats SA’s) release of the latest Consumer Price Index (CPI) data on Wednesday, which revealed that headline CPI rose to 7.8% year-on-year in July from 7.4% y/y in June.

 

 

 

 

 

 

 

 

 

 

 

 

Since 2020, producers’ and retailers’ cooking oil margins have remained increasingly volatile. This trend, according to the commission, continued well into 2021, with producers reaping way more benefit than retailers.

Retailers have seen their margins drop significantly over the last two years, going from 40% in February 2020 to 20% in 2022.

“This shows that price increases at the retail level have been fed through from the producer level. Crucially, retailers appear to have absorbed some of the upward pricing pressure coming through from the producer level,” the commission says in the report.

“Had retailers not done so, one might expect that the prices paid by consumers would be even higher than they currently are.”

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Rising production costs

In the report the commission provides a brief snapshot of the various factors playing into production costs for producers, with the larger driver being the ongoing conflict between Russia and Ukraine.

Together, Russia and Ukraine supply more than 75% of global sunflower oil to international markets. Further, Ukraine supplies about 30% of the world’s maize and wheat, while Russia supplies about 20%.

So, as expected, the onset of the conflict in February has spurred a supply difficulty, driving product prices up around the world.

Another challenge that producers face relates to surging energy prices, which are highly influenced by the war in Ukraine and also related to Eskom’s electricity supply issues locally.

Higher fertiliser prices, spurred by increases in natural gas prices in 2021 that led to a drop in ammonia production – a key ingredient in fertiliser – also contribute to increased producer input costs, as South Africa is a net importer of fertiliser.

Prices of other essential foods

The report notes increases in other essential food items such as bread, maize meal and margarine, as well as some fruits and vegetables.

In June 2022, consumers were paying R17.41 for a loaf of white bread at the till, R4.99 more than what producers were charging at the time. In January this year, the retail price for white bread was R15.46, while the producer price was R11.31.

Brown bread cost consumers R15.90 in June 2022, while producers were charging R12.73. This is higher than the R13.99 and R11.67 that retailers and producers were charging respectively in January 2022.

“This suggest that retailers regard the consumers of white bread and brown bread differently in terms of price sensitivity, with brown bread consumers likely viewed as more price sensitive than white bread consumers.”

An analysis of the price of maize meal shows a 27% increase, with a 2.5kg bag of maize meal rising from R26.65 in January 2022 to R33.61 in June of the same year. In South Africa, maize meal is an essential food item in the baskets of many households, especially low-income homes. According to the commission, the price of maize meal began showing volatility in June 2020.

“As South Africa is a net exporter of maize, this volatility is unlikely to stem from international price changes and may be explained by a combination of changes in production costs and price-setting behaviour along the value chain.”

The prices of margarine have seen slight increases, rising from R25.21 in January 2022 to R26.88 in June. This price increase, according to the commission’s assessment, was led mainly by increases in the price of sunflower oil which is a key component in the production process.

In terms of fruit and vegetable prices, the commission notes that between the months of May and July, avocados were the most expensive, while oranges were the cheapest. In terms of vegetable prices, the average price of tomatoes has remained volatile, increasing from R5.95 to R12.48 per kg during the two-month period.

“As we have noted in previous reports, the tomato value chain has been under strain following heavy rains in 2021. The rain caused a spike in the price of tomatoes since [demand outstripped supply].”

The commission has noted its commitment to monitoring these food prices, especially as global food markets start to register price normalisations.

Once this happens the commission says it will ensure that consumers are offered price relief in line with the cost reductions that are expected to filter through the value chain.

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