Commission should investigate entire value chain
October 8, 2009
By Mncane Mthunzi
At the dawn of our democratic dispensation, our government made an essential decision of following a free market system as an economic model for South Africa. This has proven to be one of the key milestone decisions we have taken as a country and it is the decision that we are proud of as business in particular, and the society in general.
The recent developments in the food sector, in particular the issue of food inflation, have opened a debate where some people have begun to question the rationale of this free market system. This comes as a result of several recent investigations by the Competition Commission on anti-competitive behaviour in the food sector.
It is imperative to state that we respect the rule of law and we further recommit ourselves to comply with all government legislation and co-operate with its agencies. Furthermore, the commission is an important organ of our democratic setup and it should be offered the support it deserves as it discharges its mandate.
The industry's position with regards to the Competition Commission's investigation of supermarket chains on food inflation and anti-competitive behaviour is rather unequivocal.
That is, the industry welcomes the investigation for the reason that we oppose any sort of anti-competitive behaviour in the market, be it price fixing, colluding or any form of anti-competitive behaviour.
Nonetheless, we challenge the commission to investigate the entire food value chain to get the full picture on food inflation. We should be under no illusion that the current investigation, while welcomed, will provide answers to the challenge of high food prices.
In fact, the commission is unlikely to achieve its objectives due to its limited scope of investigation. It will fully benefit the consumer if the entire food value chain is investigated.
The notion that the retailers are short-changing consumers also needs to be challenged. The success of retail business is intrinsically dependent on the consumers, without which retailers would not have achieved the prosperity that they have and made some contributions to the development of our economy.
It therefore makes sense for the retailers to view food inflation as the enemy of the poor and they must do everything in their power to fight against it. Business is not only about profits but also about the wellbeing of the consumer too.
Food price is only one piece of the puzzle in the food value chain and therefore it is important to bring other dimensions to this highly charged subject with the hope of advancing public education.
In particular, there are two key opportunities to concentrate on from this argument. The first is for the industry to educate consumers and stakeholders about the food value chain and its complications. The second is about strengthening the social dialogue with the hope of having a positive outcome from this discussion.
Some arguments point out that the producer price index (PPI), which measures the cost of inputs, has been going down for about three months now, but that deflation has not been passed on to the consumer, which is measured through the consumer price index (CPI).
On its face value this argument is logical. If the price for your input drops the price for the finished product should follow suit. However, in reality, the relationship between CPI and PPI is not necessarily that linear. There are different variables in your production inputs, imported material, fuel and transportation, as well as a time-lag effect.
Therefore a drop in one input, should have a bearing on the final product in the long run, but it might not necessarily translate into an immediate drop in the price of the final good or service.
It is my fervent belief that, if nothing else, the Competition Commission's probe will assist our industry in exposing the weaknesses in this complex food value chain so as to address them to the benefit of the consumer.
The second and most fundamental point is that the food price investigation presents an opportunity for the industry to join in the social dialogue and demonstrate to the consumer that business interests and consumer interests are not necessarily incompatible. Business will benefit immensely if consumers know their rights and responsibilities so that they make informed choices with assurance that no one is taking advantage of them.
Our industry understands the stringent requirements that will be imposed by different pieces of legislation aimed at protecting consumer interests.
The industry will take advantage of our government's willingness for the industry to regulate itself.
We will develop industry regulation codes to hold ourselves accountable in ensuring consumers do not endure high prices unethically, and that consumers receive quality service.
We have noted with interest the call by one of our industry unions to nationalise the food industry. Such calls are not helpful in finding appropriate solutions to the escalating food prices.
Institutions like the Competition Commission will hopefully assist us in finding appropriate solutions to our challenges.
Our government's commitment to the free market system and policies that encourage fair competition is our ultimate protection from some of the degenerated debates we experience in this country.
Mncane Mthunzi is the chief executive of the Consumer Goods Council of SA
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