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South Africa: Consumers Hit Hard By Increasing Costs

Bonile Ngqiyaza

25 April 2008

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Cape Town — Food prices are rocketing, and contributing significantly to inflation, which this week hit double digits for the first time in five years.

But this is no surprise to consumers, who groan at the tills when their supermarket trollies are totalled up.

In addition they need to deal with interest rates increases, the threat of a 53 percent increase in the cost of electricity and the spectre of paying R10 per litre for petrol.

Statistics SA figures show that food prices have gone up across the board.

Grain and rice prices have doubled in little more than a year on international markets, amid shortages that have provoked riots in some countries.

Locally, in the past two weeks thousands marched in protest of the increases.

The stark reality is a 700g loaf of wholewheat bread - a staple for many - cost about R4,74 in January 2006, last year the price increased to R5,23 and this year in January it cost R5,93.

The cost of food has led National Consumer Union spokesperson Ina Wilken to call on government to intervene with food subsidies.

She said many consumers, faced with a litany of increases, were now unable to cut back any more.

"The government must seriously begin with a strategy," she said.

She urged consumers to stick to basic foods, check prices and plant vegetables even on small pieces of ground.

"To tell consumers to tighten their belts is a joke."

Mike Schussler, chief economist at the T-sec Group, says the rise in food prices is an international phenomenon.

"Food prices are rising because a lot of food is now going into biofuels. On top of everything else, other countries are getting richer fast - India, China, Vietnam and the like. They are eating a lot of meat. Those are the two main reasons.

"In addition, Australia is in the midst of a drought," said Schussler.

He said South Africa was also affected even though the country was able to produce enough food to feed itself.

"We will get affected. We currently spend 25 percent of our income on food. We're also getting richer and also eating more meat.

"We're part of the world, South Africa will be influenced by international events. The world is one big soccer ball. If the ball is kicked high, we feel it."

Schussler declined to speculate how long food inflation would continue.

Thinus Taute, the Transvaal Agricultural Union regional manager, said there were quite a number of reasons causing the spike in food prices.

"But firstly, you have to look at international prices. Farmers are preparing their fields, obviously they have to use a lot of fuel - that's pushing prices up. The blackouts that we are experiencing also play a role.

"In many instances farmers have a lot of produce which they have to transport quickly. Cold storage gets affected - that is just a tiny problem with the electricity," said Taute.

He said South Africa would change from being an exporter to being an importer at the rate things are going. "We're losing a lot of farmers - black and white - because of high input costs."

Pick n Pay spokesperson Tamra Veley said the retail giant was extremely concerned about the food-price increases, particularly on basic foodstuffs.

"There are a number of things that we are doing. As of Tuesday we are selling four basic foods at cost that means nothing is added on. Those four will vary from region to region.

"But they will include milk, basic bread, a brand of mealie meal and a brand of rice. In addition to that, Pick n Pay is strategically buying forward all the time to make sure that we keep prices down as far as possible and as long as possible.

"We are also entering into strategic negotiations with suppliers to make sure that they keep prices down. There are a lot of hard negotiations," Veley said.

She said the retail giant's Boxer chain was also grouping basics together in bulk discounts. "Selling goods in bulk discount obviously has an impact on our business, but we think it's the right thing to do."

Shoprite group's marketing director, Brian Weyers said that international shortages and manufacturers' rising input costs have led to increases in prices of basic foodstuffs over the past few months.

Weyers said that the supermarket group's margins remain under pressure and the group has been subsidising some basic products like bread, maize and red meat, even plastic bags.

"The supermarket group enters into tough negotiations with suppliers in order to reach the best possible price.

"In the first three months of the year the top 10 ranked categories in terms of percentage increase in cost price over 2007 are edible oils, wheat products, canned milk/cream, everyday cheese, fresh milk/cream, festivities perishables (hot cross buns and cakes), powdered milk, pasta products, dried cereals and margarine/butter.

"On all but two, the group's selling price inflation has been lower than the cost inflation," Meyers said.

Spar is starting to subsidise some of its Spar-brand commodities, focusing on basic foodstuffs like milk, rice, oil and sugar.

"These are the ones that are hurting people," said Spar group merchandising executive Mike Prentice.

The chain expects to pick four commodities to subsidise every two weeks, spending R1-million over the next 10 weeks.

Prentice said Spar sales had not been affected yet but he believed customers at higher-end stores were probably trading down.

He recommended that consumers "shop a lot more carefully and cut the non-essentials out".

He didn't expect the price crisis to improve soon.

"It's frightening. We're staring down a barrel here."

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