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Warning to firms who don’t lower food prices after drought ends

| Economic factors

The Competition Commission is closely watching businesses in the food sector whose prices may have risen as a result of the drought.

That’s the message from Commissioner of the Competition Commission Tembinkosi Bonakele.

He was speaking to the media during the annual competition law, economics and policy conference in Cape Town on Wednesday, where he outlined the role the commission played to combat cartels and unfair business practice.

“Food prices are a very big problem, especially after the drought that is still persisting in some parts of the country,” he explained.

“We are monitoring the price of staple foods and all indications are that they have been rising,” he said.

“We have had to import maize, which is quite unusual because we are a net exporter of maize. This is going to have a huge impact on consumers.”

Vegetable prices increased by 23% year-on-year in April, when the full effects of the drought were evident, according to data from Stats SA. Bread prices increased by almost 15% in the same period, while fruit prices increased by nearly 6%.

Concern businesses will abuse drought to hike prices

Bonakele said the commission is concerned businesses are going to abuse the rising prices and will observe whether those prices come down when the drought fully abates.

“When you have these crisis spirals, we are also worried that some people start abusing that,” he said. “We are not saying prices should not go up, as it is a free-enterprise country.

“But we have learnt lessons that sometimes people can deliberately short the market,” he said. "Sometimes people can form cartels in situations like this. So we are keeping a watchful eye.

“At the same time, we are also collating information, because information is power,” he said. “We know that the drought is going to end and it is going to be interesting to watch if those prices start coming down. So it is important data that we are collating.”

In April, Agriculture Minister Senzeni Zokwana warned businesses suspected of profiteering from the drought that the commission would take them on.

"I agree we need to find formulas that makes sure... nobody misuses the drought and suddenly, before there are shortages, begins to hike prices. We cannot rule out the Competition Commission coming on board," Reuters quoted Zokwana as saying.

Commission has started inquiry into overall retail sector

The added caution comes as the retail sector is in the full glare of the commission, after it launched an inquiry in the grocery retail sector this year.

The inquiry is attempting to determine whether there are features of the grocery retail sector that undermine competition.

In a paper explaining the inquiry, the commission quotes the 2016 Barclays Equity Research report, which states that “37% of people cannot afford to purchase both adequate food items and non-food items such as transport and cellphone airtime. This group has historically been the core customer base for most small and independent retailers in townships, peri-urban and rural areas.”

The retail inquiry is one of several sector-specific inquiries being conducted by the commission. However, multinational mergers such as the SABMiller and AB InBev deal and over 200 other smaller domestic mergers per year hamper these efforts due to tight resources.

“We have so many problems in our economy,” said Bonakele. “We need more resources. We are talking to government about this. We have submitted a new structure … to government to adequately increase the resources to the competition authorities.”

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