Sunday, September 20, 2020

Price fixing keeps food prices high

Botswana is expected to continue to remain highly dependent on food imports, and she will not escape food price escalations resulting from both the economic crisis and imbalances in world trading systems.

In addition, the effectiveness of a single tariff regime for Southern African Customs Union (SACU) member countries is undermined by uncompetitive behavior and anti competitive practices of large South African companies who dominate the market.

This conclusion was derived from the findings of a research carried out by the Botswana Institute of Development Policy Analysis (BIDPA), which particularly focused on grains generally used as staple foods such as maize, rice and wheat and sorghums.

“Even if these products were produced domestically, which would be very costly, local farmers would expect prices that would cover their costs. They would also expect to receive prices at least as high as those they would obtain if they were exporting their produce,” read part of the BIDPA report.

However, mention was made of the fact that it is in government’s interest to implement appropriate incentives to develop domestic production. Also relevant mechanisms for implementation of the competition policy would assure that the market power of food processors is not abused.
While the tariff on basic food products is relatively low, the Southern African Customs Union (SACU) tariff gushes up the value chain, such that the higher the tariffs the greater the degree of processing.

This has resulted in a situation where food processors, who incidentally possess a considerable amount of domestic market power in SACU, are also protected from foreign competition.
Moreover, acknowledgement was made of the fact that the value chain for a good number of food products is dominated by a few very large South African transnational corporations which operate in all of the SACU market.

The BIDPA report also stated that such domination applies all the way along the value chain; from fertilizer, to storage, milling, transport and finally retailing.
Some of the largest fines in South African history were imposed on companies such as Tiger Brands and Food Corp, which were charged 99 million Rands and 44.5 million Rands, for collusion over bread prices and collusive behavior.

In the same vein Sasol was fined 188 million for anti-competitive behavior in the fertilizer sector and Tiger Brands has brought evidence of collusion in the milling sector.
BIDPA pointed out that even at the time of preparing the report under discussion(May 2010), an investigation was launched by the Competition Commission against some of South Africa’s largest retailers for alleged involvement in collusion and price fixing. Some of these retailers apparently have operations in Botswana.

The investigation was triggered by discovery of evidence showing that that domestic retail prices were not adjusting as world prices fell.

Executive Director of Botswana Confederation of Commerce and Industry Manpower (BOCCIM), Maria Machailo-Ellis, concurred with the findings.

She said, “On the issue of border closure to allow for distribution within the local market, products such maize and sorghum, which are set to be produced by farmers in the Pandamatenga area is in our view problematic.”

“It should be understood that most local businesses like Sefalana and others do enter into Forward Contracting with suppliers outside the country, whereby both parties are definitely assured of business and a vital relationship that has been nurtured overtime,” explained Machailo-Ellis.
Government is thus urged by the BIDPA report to ensure appropriate use of trade policy measures to restrict imports of maize meal and wheat flour. The reason given is that the prices of these products have a critical bearing on the welfare and lives of lower income groups.

Again, these products do not help farming, but only empower the processing industries which remain the domain of foreign capital. It is recommended that Government should consider liberalizing trade in these products.

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Sunday Standard September 20 – 26

Digital copy of Sunday Standard issue of September 20 - 26, 2020.