In short
It was noted that the price volatility of essential food items in South Africa is under the watchful eye of the competition authority in South Africa. This is after legal interventions intended to guard against price spikes during the pandemic were repealed when the national state of disaster ended in early April 2022. At the same time, companies that operate in the consumer goods and retail are facing continued supply chain disruption. . While dealing with these challenges, suppliers and retailers in the essential food sector must carefully consider any price increase and ensure that it can be justified. The focus on the pricing of essential food products should remain an area of interest for competition authorities in the future.
The Competition Commission in South Africa has made it clear that it is closely monitoring the price volatility of essential food items in South Africa. The justification of food price increases will continue to be a central concern of the competition authority, despite legal interventions intended to prevent this during the pandemic recently repealed by the end of the national state of disaster in the country. Across the continent, competition authorities increasingly recognize their role as guardians of fair practices and consumer protection, and they have expressed their intention to uphold these principles in the future. At the same time, companies operating in the consumer goods and retail (CG&R) sector are facing severe supply chain disruptions caused by geopolitical and environmental challenges, compounded by the pandemic, but also impacted by a lack of infrastructure.
In early 2020, South Africa’s Minister for Trade, Industry and Competition issued various regulations in response to the declaration of COVID-19 as a national disaster in South Africa. These regulations were aimed at mitigating the impact of the pandemic on the economy. One of these regulations targeted the CG&R sector in South Africa – the Consumer and Client Protection and National Disaster Management Regulations and Guidelines (Consumer Protection Regulations), which came into force on 19 March 2020. On 6th April 2022 the National State of Disaster was lifted in South Africa and with this most regulations and guidelines made under the Disaster Management Act were repealed including regulations on consumer protection.
At the start of the pandemic in March 2020, government and consumer fears that businesses might seek to charge higher prices for certain goods due to supply shortages caused by COVID-19, prompted the Minister to enact regulations prohibiting “excessive pricing” by dominant firms. companies in the sector. The Competition Act prohibits a dominant firm from charging excessive prices to the detriment of consumers or customers. Under these regulations, authorities reviewed substantial price increases for certain goods or services, where the increase did not match or be equivalent to the increase in the cost of providing that good or service; or where the increase has inflated the markup or net markup on that good or service above the average markup or markup on that good or service in the three-month period prior to March 1, 2020. applied to a number of goods and services, including medical and household cleaning equipment. Notably, essential foods have also been included on the list: cooking oils, wheat flour, rice, corn flour, pasta, sugar, shelf stable milk, canned and frozen vegetables, canned, frozen and fresh meat, chicken or fish and bottled water. .
After the enactment of these regulations, there were numerous reports of excessive price increases, including for basic necessities. The Competition Commission investigated more than 1,199 reports, ultimately leading to successful lawsuits against two companies for overpricing surgical masks. Although the courts held that these cases should be prosecuted under the Act (due to the fact that the regulations did not apply retroactively), the test set out in the regulations was used to establish that the price increases n had no reasonable connection to rising input costs and, therefore, price gouging. Despite the fact that these regulations have now been repealed, companies in the CGR sector must continue to take great care to ensure that price increases of essential foodstuffs can be justified, especially during supply or demand shocks. . Authorities have not needed to rely on these regulations to investigate or prosecute such behavior, and such prosecutions have not been limited to companies that are dominant under normal market conditions.
Issue price volatility for essential food items was also addressed in the Competition Commission’s latest essential food price monitoring report, in which certain fruits, meats and cooking oils were listed. such as items that have been subject to recent volatile price increases. It was noted that these price increases had the most detrimental impact on the poorest communities. However, not all increases in the prices of essential foodstuffs are due to the pandemic. Shifting weather patterns (from drought to heavy rain), fluctuating oil prices, severe supply chain bottlenecks and enormous geopolitical challenges have all led to a decrease in supply and a subsequent increase in prices. The Commission noted that the decrease in the supply of essential food items was mainly due to local events. The Commission said it would closely monitor the price of essential foodstuffs in the future, including the price of imported foodstuffs, to ensure that no anti-competitive behavior occurs and that rising prices essential foodstuffs can be justified.
Volatility in the prices of essential foodstuffs is a growing concern across the continent. As economies across Africa grow, competition law has remained one of the main drivers of effective market participation, consumer protection and fair trade practices. The global pandemic has introduced new challenges for competition authorities in Africa and abroad, with each authority seeking the most optimal enforcement method for their national or regional jurisdiction. These efforts were aimed at curbing the persistence of unwarranted price increases, anti-competitive cooperation among competitors, and other harmful business practices aimed at undermining competition. In addition to urgent responses to the unprecedented impacts of the global COVID-19 crisis, competition authorities in African countries and regions have continued to introduce new laws and amend existing legislation as a sign of increasing priority. given to competition law enforcement on the continent. .
While facing serious supply chain issues, suppliers and retailers in the essential CG&R food sector must carefully consider any price increase and ensure that it can be justified. Due to the current geopolitical, economic and environmental challenges, the focus on the pricing of essential food products should remain a priority area for competition authorities across the continent.
By Lerisha Naidu, Partner and Head of Antitrust and Competition Practice, Sphesihle Nxumalo, Partner, and Jarryd Hartley, Candidate Lawyer, Baker McKenzie Johannesburg
