Is the price of cooking oil overheated?

The Competition Commission is keeping a close watch on the local price of sunflower oil — which it  says does not reflect recent drops in the global price — and has expressed concern  that increasing producer concentration could lead to cartel activity.

In its Essential Food Price Monitoring Report for August, released this week, the commission said price hikes for sunflower oil could be “opportunistic” because  processor prices have risen far more quickly this year than sunflower seed prices have. 

The report, based on public information, found that sunflower oil processor prices have soared 72% this year while retail prices rose half as much. This indicated retailers had absorbed some of the increase —  the retail margin had fallen by about  14%.

Sunflower oil prices  spiked globally as a result of Russia’s invasion of Ukraine late in February as the two countries account for about 62% of world sunflower oil exports. 

But the UN Food & Agriculture Organisation said this month its latest food price index, for July, showed “sunflower oil prices dropped markedly amid subdued global import demand, despite continued logistical uncertainties in the Black Sea region”.  

The Competition Commission’s food price report said the war “may have presented an opportunity for retailers and wholesalers to raise prices in anticipation of sunflower seed price increases rather than in response to them”.

It said that in recent years the sunflower value chain had changed significantly with increasing levels of concentration and “suspected cartel conduct”. 

James Hodge, the Competition Commission’s chief economist, said this week: “We know everyone is facing higher fuel and electricity costs, but the real question is whether those can fully explain why we are seeing a spike in the price of essential foods.

“Consumers are told that prices are going up because of global factors but they do not know to what extent that justifies that increase.  There needs to be transparency. Opportunistic pricing behaviour can only thrive where there is lack of transparency.” 

The commission has initiated investigations into price transmission and margins in the value chains of basic food items such as bread and maize — where it has previously identified cartel activity — and edible oils.

Higher food prices have fuelled inflation with producer inflation reaching 18% in July and consumer inflation a 13-year high of 7.8%.

The basic household food basket cost rose 12.6% year on year to R4,775.59 in August, according to the Household Affordability Index compiled by research organisation the Pietermaritzburg Economic Justice & Dignity Group. The basket includes cooking oil, maize meal, cake flour, eggs and milk.

Morne Botes, commercial director at Southern Oil, whose brands include B-well canola and other edible oils, said the international price of sunflower oil had dropped about 20% in the past two months “and these levels should be seen on-shelf. Promotional levels should be seen around R79.99 for 2l.”

He said the surge in prices earlier this year spurred wider planting,  “which will lead to more supply in 2023, which is bringing more stability to pricing. The oil in Russia and Ukraine has also found its way to neighbouring harbours to service demand, which has brought some relief to the market and stability in pricing.”

But Botes said local growers only met 80% of vegetable oil demand and the rest had to be imported. This meant SA “will remain directly linked to international pricing due to supply constraints”.  

Given the supply issues when the Ukraine war started the on-shelf price for sunflower oil in SA would have been “totally unaffordable” for most consumers if the full market price was passed on, Botes said. Producers and retailers had worked to accommodate “a cash-strapped consumer base”.

Hodge said any reduction in  inflationary pressure must be passed on to consumers.  The commission would expedite its investigations as “anything that has seen a significant increase, it’s urgent for us”. 

The commission also found instances dating from 2019, and continuing this year, when retailers had not passed on producer-price cuts in the cost of bread to consumers.

Pick n Pay said in response it tried to provide the best value for customers. “We know that bread is one of the most important foods in the weekly family basket, and have actually reduced our margins to make sure it remains as affordable as possible.” 

 Massmart declined to comment while Shoprite did not respond to questions. —  Additional reporting Dineo Faku