Food Price Monitoring Committee: Final report

Mandate

Established under Section 7 of the Agricultural Marketing Act.

Terms of reference: Monitor the prices of basic foodstuffs Investigate any sharp or unjustified price

increases. Investigate price formation mechanisms within

the value chain of basic food stuffs Investigate collusive, discriminatory or any unfair

business practice in the basic food value chain Recommendations Report quarterly to Minister

Monitoring Task

Selected 26 basic food commodities Continous monitoring at 6 monitoring points in

all 9 provinces (urban and rural) since October 2002.

Also monitored farm requisites: fertiliser, chemicals and animal feed

Inputs from consumer forums, public, and annual minimum standard of living survey.

Retail scanner data Other official data sources

Investigations on Pricing behaviour

Investigations: marketing margins and farm-to-retail price

spreads influence of changes in the exchange rate

and the in the costs of processing and marketing in the food chain

farm-to-retail price spread in the case of spaza shops and other rural stores

Analysis of price transmission in the food chain and role of market power

Outline of the report1. Summary report2. Introduction and background (context, issues,

framework, data sources)3. Monitoring price trends4. Investigation of SAFEX market and detail

analysis of 8 supply chains5. Other aspects: Inputs, silos, transport,

retailers, market power6. SADC food security situation7. Recommendations

Some highlights……..

SAFEX white maize price and maize meal price Jan 2000-June 2004

0

5

10

15

20

25

30

35

40

Jan-

00Fe

b-00

Mar

-00

Apr

-00

May

-00

Jun-

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l-00

Aug

-00

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Oct

-00

Nov

-00

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Jan-

01Fe

b-01

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-01

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-01

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-01

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l-01

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l-02

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03Fe

b-03

Mar

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l-03

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-03

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04Fe

b-04

Mar

-04

Apr

-04

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Jun-

04

Ran

ds

0

500

1000

1500

2000

2500

Ran

ds/

ton

Cheapest Maize Meal - Rands per 10KG SAFEX White maize

Average SAFEX price Jan 00-Sep01 R743/ton

166%

Average Maize meal price Jan00-Jan02. R23.5/10kg

46.3%

38%

17%

Average monthly retail prices for brown and white bread: Jan 2000 – June 2004.

Average SAFEX price Jan00-Oct01 R1321.73/ton

57.2%

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

Jan-

00Fe

b-00

Mar

-00

Apr

-00

May

-00

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00Ju

l-00

Aug

-00

Sep

-00

Oct

-00

Nov

-00

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Jan-

01Fe

b-01

Mar

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01Ju

l-01

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b-02

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02Ju

l-02

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b-03

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l-03

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b-04

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R/7

00g

loaf

500

700

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1100

1300

1500

1700

1900

2100

2300

R/to

n

Bread Standard White - 700g SAFEX Wheat

33%Average Brown Bread Price Jan00 – Nov01 R3.14

31%

15%

Average monthly retail prices for 1kg ‘Tastic’ rice: Jan 2000 – June 2004.

4.5

5

5.5

6

6.5

7

7.5

8

Tastic Rice -Rands per 1KG

Average price of rice Jan00-Dec01. R6.67/kg

16.9%

RealReal SAFEX white maize and maize meal prices.

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200

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Cheapest Maize Meal 10KG (deflated) SAFEX white maize (deflated)

Linear (Cheapest Maize Meal 10KG (deflated))

RealReal bread prices

1.50

1.70

1.90

2.10

2.30

2.50

2.70

2.90

3.10

3.30

3.50

Jan-

00Fe

b-00

Mar

-00

Apr

-00

May

-00

Jun-

00Ju

l-00

Aug

-00

Sep

-00

Oct

-00

Nov

-00

Dec

-00

Jan-

01Fe

b-01

Mar

-01

Apr

-01

May

-01

Jun-

01Ju

l-01

Aug

-01

Sep

-01

Oct

-01

Nov

-01

Dec

-01

Jan-

02Fe

b-02

Mar

-02

Apr

-02

May

-02

Jun-

02Ju

l-02

Aug

-02

Sep

-02

Oct

-02

Nov

-02

Dec

-02

Jan-

03Fe

b-03

Mar

-03

Apr

-03

May

-03

Jun-

03Ju

l-03

Aug

-03

Sep

-03

Oct

-03

Nov

-03

Dec

-03

Jan-

04Fe

b-04

Mar

-04

Apr

-04

May

-04

Jun-

04

Bread Standard Brown - 700g (deflated) Bread Standard White - 700g (deflated)

Linear (Bread Standard Brown - 700g (deflated)) Linear (Bread Standard White - 700g (deflated))

Real chicken prices

7.50

8.50

9.50

10.50

11.50

12.50

13.50

14.50

15.50

Jan-

00Fe

b-00

Mar

-00

Apr

-00

May

-00

Jun-

00Ju

l-00

Aug

-00

Sep

-00

Oct

-00

Nov

-00

Dec

-00

Jan-

01Fe

b-01

Mar

-01

Apr

-01

May

-01

Jun-

01Ju

l-01

Aug

-01

Sep

-01

Oct

-01

Nov

-01

Dec

-01

Jan-

02Fe

b-02

Mar

-02

Apr

-02

May

-02

Jun-

02Ju

l-02

Aug

-02

Sep

-02

Oct

-02

Nov

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Dec

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03Fe

b-03

Mar

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Apr

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May

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03Ju

l-03

Aug

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Oct

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04Fe

b-04

Mar

-04

Apr

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May

-04

Jun-

04

Cheapest Fresh Chicken Whole - P/KG

Cheapest Whole Froz.Chicken - P/KG

Linear (Cheapest Fresh Chicken Whole - P/KG)

RealReal stewing beef price

10.00

12.00

14.00

16.00

18.00

20.00

22.00

24.00

Jan-

00Fe

b-00

Mar

-00

Apr

-00

May

-00

Jun-

00Ju

l-00

Aug

-00

Sep

-00

Oct

-00

Nov

-00

Dec

-00

Jan-

01Fe

b-01

Mar

-01

Apr

-01

May

-01

Jun-

01Ju

l-01

Aug

-01

Sep

-01

Oct

-01

Nov

-01

Dec

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Jan-

02Fe

b-02

Mar

-02

Apr

-02

May

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Jun-

02Ju

l-02

Aug

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Sep

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Oct

-02

Nov

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Dec

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Jan-

03Fe

b-03

Mar

-03

Apr

-03

May

-03

Jun-

03Ju

l-03

Aug

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Sep

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Oct

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Nov

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Dec

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04Fe

b-04

Mar

-04

Apr

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May

-04

Jun-

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Stewing Beef - RSPKG (deflated) Linear (Stewing Beef - RSPKG (deflated))

RealReal milk prices

2.00

2.50

3.00

3.50

4.00

4.50

5.00

Cheapest Full Cream Milk Sachet - 1L (Deflated)

Linear (Cheapest Full Cream Milk Sachet - 1L (Deflated))

….Part 4: Was the SAFEX market manipulated??…

Actual and Estimated SAFEX maize prices

0

500

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Actual SAFEX White Maize Spot Prices Model Price Estimates

Early profit taking on the upside .

A smaller crop was expecteduntil the crop estimates reported an expected extra million tons of maize

1000

1200

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1600

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2000

2200

2000 2001 2002 2003 2004

SAFEXW SAFEXW_EST

R/T

on

Main variables driving the long-run SAFEX wheat nearest month contract price: R/$ exchange rate and US #1 hard red prices.

Actual and estimated SAFEX wheat prices

Supply chain analysis…..

Source Units1. Wheat avg. producer price lagged 4 months Calculated R/ton 1356.431a)Transport cost: Farm gate to silo Estimated R/ton 96.571b) Handling&Storage cost: Costs of farmer Estimated R/ton 16.42. Wheat avg. nearby contract lagged 4 months SAFEX R/ton 1469.42a)Transport cost: Silo to Milldoor Estimated R/ton 76.572b) Handling&Storage cost: Costs of miller Estimated R/ton 20.4Income from sales of bran Calculated (no lag)R/ton bran 176.833. Milldoor price (1+ 1a + 1b +...) Calculated R/ton grain 1389.54Wheat millers cost of conversion from wheat to wheat flourProduction cost (milling cost) NAMM R/ton grain 86.83Packing cost NAMM R/ton grain 13.66Administration, Warehouse and selling NAMM R/ton grain 148.6 Mill site costs R/ton grain 249.1Distribution costs NAMM R/ton grain 126.1 Total mill site costs NAMM R/ton grain 375.2Fixed Capital cost NAMM R/ton grain 54.82Floating Capital costs NAMM R/ton grain 203.61 Total millers costs R/ton grain 633.63Cost of production of wheat flour for white breadConversion cost Calculated R/ton grain 633.63Average cost of wheat (milldoor price) Calculated R/ton grain 1389.54Total wheat flour cost for white bread Calculated R/ton grain 2023.17 divided by average extraction for white bread NAMM 0.76White Bread Bakers Cost of productionAverage cost of white bread flour Calculated R/ton meal 2662.07Extraction rate of brown bread from 1 ton flour SACB loafs/ton 2135Cost of flour per loaf Calculated c/loaf 124.69Packaging SACB c/loaf 10.3Other Raw Materials SACB c/loaf 26.74Production Labour SACB c/loaf 21.59Distribution SACB c/loaf 44.84Overheads SACB c/loaf 20.14Cost of producing white bread Calculated c/loaf 248.3White bread retail price ACNielsen c/loaf 327.84White bread profit margin from miller to retailer Calculated c/loaf 79.54

Average Cost of Producing White Bread Feb00-Dec02

Maize: Milldoor prices and Margins

Real Wholesale -to-Retail Margin

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Feb

-00

Ap

r-00

Ju

n-0

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Au

g-0

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-01

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r-01

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-04

R/t

on

Real Milldoor Price Real Super Maize meal retail price

Maize: Real Wholesale –to- Retail Margin

Real Wholesale -to- Retail Margin

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200.0

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2000.0

Feb-00 Aug-00 Feb-01 Aug-01 Feb-02 Aug-02 Feb-03 Aug-03 Feb-04

R/t

on

Real Wholesale -to- Retail Margin

Findings Price trends: Difficult to generalise but food

prices did recover to lower levels. Food basket somewhat cheaper Monitoring had positive effect

Supply chain analysis: Provided clearer understanding of costs and market structure.

Market structure could provide opportunity for predatory and unjust pricing but little evidence of such practices

Recommendations Continue price monitoring: “SA Food Cost Review” Strategic grain reserves: Will have limited impact

at high costs Options for direct government action for

household food security: Some already implemented

Improved agricultural information systems Others:

monitor competitive environment; rules for derivatives market (SAFEX) Transport infrastructure