Food Price Monitoring Committee Report: National Agriculture Marketing Council briefing

Meeting report

AGRICULTURE AND LAND AFFAIRS PORTFOLIO COMMITTEE
21 June 2005
FOOD PRICE MONITORING COMMITTEE REPORT: NATIONAL AGRICULTURE MARKETING COUNCIL BRIEFING

Chairperson:

Food Price Monitoring Committee: Final report
National Agricultural Marketing Council PowerPoint presentation on Price Monitoring Committee Report Committee Report on visit to Germiston, Gauteng
Commission on Restitution of Land Rights Annual Report 2004/2005 PowerPoint Presentation

SUMMARY
The National Agriculture Marketing Council (NAMC) briefed the Committee on the final report of the Food Price Monitoring Committee. Officials outlined their terms of reference and monitoring task, food price trends, the SA Futures Exchange (SAFEX) market, a supply chain analysis, key findings, and recommendations. Food prices had generally been decreasing over the last two years, and the ‘food basket’ had thus become cheaper. Part of the reason for the decrease was the positive effect of monitoring. Real milk prices however had significantly increased over the last four years. Reason for concern was that rural areas generally encountered higher food prices than urban areas. The Monitoring Committee was investigating this problem.

The Committee asked questions around government interventions, regulation of the market, and the co-operation of the NAMC with important agriculture forums. Members expressed concern about the inadequate coverage of rural areas, the protection of consumers, logistic problems, and the entry of black farmers into the agriculture industry. The Committee did not adopt the report, as Members requested further discussion and the opportunity to voice recommendations.

MINUTES

National Agriculture Marketing Council briefing
Professor M Karaan, NAMC Chairperson, briefed the Committee on the final report of their Food Price Monitoring Committee. He outlined the terms of reference of the Committee, their monitoring task, price trends, the SA Futures Exchange (SAFEX) market, a supply chain analysis, their key findings, and recommendations. The Committee reported quarterly to the Minister. There had been a trend towards lower food prices since 2004. Part of the reason was the positive effect of food price monitoring. The supply chain analysis provided a clearer understanding of costs and the market structure. Investigations had shown little evidence that the market structure would provide opportunity for predatory pricing. The greatest challenge was that food prices were generally higher in rural than in urban areas.

Discussion
Mr B Radebe (ANC) expressed concern that even though the Food Price Monitoring Committee had been mainly appointed to protect the vulnerable people in rural areas, their report had shown that these people were not adequately covered. He asked whether this was a sign of market failure.

Professor Karaan replied that at the beginning of their existence, the Food Price Monitoring Committee had mainly focused on retail prices in supermarkets. Later on, the Committee had started to do spot-checks, which had revealed that prices were significantly higher in rural areas. These spot-checks were however not statistically significant. The NAMC felt that more work was needed in this area, pointing out that they would co-ordinate with provinces and the Department of Agriculture to ensure the direct monitoring of food prices at the retail level. They were addressing the problem of inadequate coverage of poor consumers in rural areas.

Mr Radebe expressed concern that people in rural areas, where basic commodities like maize were produced, ended up paying higher prices for these products than people in urban areas.

Professor Karaan answered that these were logistic problems. Commodities produced in the Free State province, for instance, would be more expensive in the province’s rural areas than in Cape Town or Johannesburg. The movement of product was centralised, and there was no direct line between production and retailer in a specific area. Even though small-scale milling had been significantly increased in rural areas, it was still a low proportion of the milling industry. Small-scale milling had contributed to lower prices of maize in rural areas. The technical problem faced was that many small-scale millers did not fortify their maize, which reduced the food quality. Regulation ensuring that they would follow these procedures had to be introduced.

Mr Radebe commented that regarding the report, real milk prices had significantly increased over the last four years. At the same time however, there had been an outcry among farmers about low prices in the milk industry. He asked whether this was another sign of market failure, and whether regulation was needed in this industry.

Professor Karaan replied that the retail prices of milk had increased while prices had remained the same at producer level, which meant that the margin had increased. The reason for the increase in milk prices was related to the structure of this industry. A few large firms exerted significant influence over the retail price of milk.

Mr Radebe said that the issue of the strategic grain reserve had to be looked into, taking into account that market forces were not reliable.

Professor Karaan replied that the Food Price Monitoring Committee felt that strategic grain reserves would have a limited impact on high costs.

Mr S Holomisa (ANC) asked for clarity on the difference between the timeframes used in the report and the presentation. The former included information until December 2003, while the latter was until June 2004. He then queried whether the SAFEX market had been manipulated, and if so how the Committee could address this problem. He asked for more information on the government’s action for household food security mentioned in the recommendations of the presentation, and whether government ‘action’ meant government ‘intervention’. He asked how the Food Price Monitoring Committee ensured that poor people in rural areas were protected.

Professor Karaan replied that that he was unsure about the discrepancy in the timeframes between the presentation and the report, pointing out that he would report back the Committee. The Committee had concluded that SAFEX had not been manipulated. The problem was that some companies had taken speculative positions on the SAFEX market while having access to insufficient information. He agreed that the expression ‘government intervention’ was probably more appropriate that ‘government action’. The recommendations for government direct interventions for household food security included price controls of certain basic commodities; direct grants to the poor; social welfare; integration into the social security system; closer integration with agriculture; provision of farm inputs and credits to small emerging farmers in rural areas; reinvestment in agriculture and related infrastructure, and lobbying for a more liberated global environment, but against certain export subsidies.

Mr Radebe voiced concern that prices at farm level were low and static, but were high at retail level. This situation was untenable, as it adversely affected the poor. He asked about the actions taken to rectify this situation.

Professor Karaan replied that information about the real price movements had to be made public. Dairy companies had to give their co-operation. Relevant industrial bodies such as the SA Milk Producers Organisation and Milk South Africa had to contend with companies that exerted influence on price movements, and how this problem could be addressed. The problem lay not only within the dairy industry, but also with retail prices. Discussion was needed with both the industry and relevant retailers.

Dr A Van Niekerk (DA) asked whether more market interventions were needed in the future, and what kind of interventions that would be.

Mr S Abram (ANC) commented that a balance had to be found between the public’s affordability of basic food commodities, and the employment of previously disadvantaged people in the agriculture industry. Growing broilers depended on maize prices, because maize was the major component in the feeding process. Frozen chicken was frequently imported from Brazil at low prices that South Africa was unable to compete with. Direct government action was needed, particularly regarding import control of commodities produced locally. Such imports could hamper South Africans from entering this particular market. The agriculture industry was risky and required many resources. Many farmers were withdrawing from the dairy industry in South Africa because it was not profitable. He asked what steps could be taken so that more previously disadvantaged South Africans could enter this industry. The dairy industry was very labour intensive. Some of the large companies were manipulating the industry. Intervention was thus urgently needed. He finally asked for more information on prices in the red meat industry.

Professor Karaan replied that the NAMC had two key priorities regarding entry problems for black farmers. First, they had to introduce marketing schemes for black farmers. Secondly, they had to protect consumers and monitor food prices, while making sure that consumers were adequately informed about prices. The report had started this process, and ensured that vulnerable people did not become more vulnerable because of lack of information.

Regarding the red meat industry, Professor Karaan said that about 70% of the feedlots belonged to one company. There was collusive behaviour with regard to price fixing. He expressed concern about the levies in the red meat industry, pointing out that on average only 10% was used for transformation purposes, and not the required 20%. The problem was that costs were passed on to the consumers. Due to the current low prices of maize, many farmers were keeping their stock back, feeding their maize to their animals, and setting up informal feedlots on their farms. The NAMC predicted therefore a problem in red meat prices in December 2005 due to over-supply. They had suggested to the Feedlots Association to reserve a certain capacity in their feedlots for black farmers. Auction systems in remote rural areas, preferential procurement, and government financing the transactions could foster the integrating of black farmers into the industry.

The priority of the NAMC was to discuss these marketing schemes with the industry and black farmers, and to investigate the government interventions needed. Attention had to be paid that the rising costs were not passed on to the consumers. He then commented that the strategically important cotton industry was in a serious crisis because of cheap imports of cotton or textiles. South African industries had to be better protected, and long-term effects of opening industries had to be investigated.

Dr E Schoeman (ANC) commented that besides interventions and regulations, increased competition had also to be considered. People in rural areas had to be encouraged in different ways, for instance through exemption from various restrictions. Small-scale millers should also be supported.

Professor Karaan replied that the current economy was oligopolistic, and agreed that competition had to be increased. Small-scale millers had to receive direct support regarding food quality and liability, and the role of Small and Medium Enterprises (SMEs) had to be increased.

Mr J Bici (UDP) queried why only one representative of the NAMC was present in this meeting. He further asked whether the Committee was able to exert power.

Professor Karaan replied that another member of the NAMC had been intended to assist him during this meeting, but he had fallen ill. They had only received notification about this meeting on 15 June. The Chairperson of the Food Price Monitoring Committee who had initially been thought to give this presentation was abroad presently. The Food Price Monitoring Committee did not have any powers, but Professor Karaan hoped that it would receive power in the foreseeable future. The NAMC felt that food price monitoring had to continue. Collaboration with relevant stakeholders and information exchange was crucial in the monitoring process.

Dr Van Niekerk asked whether there was effective interaction with the Inter-Governmental Committee on Trade and Industry.

Professor Karaan replied that the NAMC did not have adequate representation in the Inter-Governmental Committee on Trade and Economic Co-operation (ITEC) and that they had no influence on decisions regarding the agricultural sector. The NAMC hoped to get stronger representation in the Committee. The Department of Agriculture was represented, while the Department of Trade and Industry did not have adequate representation either. There was a co-ordination and communication problem in the agriculture field.

The Chairperson commented that Members had raised concerns about consumer protection and policy issues. She asked whether the Committee wanted to adopt the report.

Mr Radebe said that further discussion was needed, and Members should be given the opportunity to voice recommendations, particularly around policy issues. Mr Abram added that several comments made by Professor Karaan required further in-depth discussion.

Dr Van Niekerk suggested that the report could be adopted, and the Committee should focus on how the NAMC could be strengthened, and recommend to the Minister that the NAMC could be stronger represented in the agriculture forum.

Dr Schoeman stressed that the Food Price Monitoring Committee should continually update the Committee.

The Chairperson concluded that the Committee would not yet adopt the report. An informed discussion, including Members’ recommendations, would take place at a later stage.

Committee Clerk’s Minutes
The Chairperson said that the Committee had undertaken a visit to Gauteng on 27 May 2005 to meet the Gauteng Land Claims Restitution Committee.

Mr Radebe commented that the request of the Gauteng Land Claims Restitution Committee to reopen the lodgement of restitution claims, be discussed in the National Land Summit this year.

Mr Nel remarked that the media briefing that stated they would go back to Parliament and deliberate as a full Portfolio Committee at the request of the Gauteng Land Restitution Committee was not a decision that could be made by the Committee alone.

Members unanimously adopted the Clerk’s minutes.

Agricultural Research Council
Mr Nel remarked that they had not finalised their questions around the Agricultural Research Council (ARC) to be posed to the Minister. This discussion had been scheduled for today. He suggested that Members send their questions to the Committee Clerk who would then distribute them to everyone in preparation for the next meeting. The Chairperson agreed.

Mr Niekerk expressed concern that the questions could only be posed to the Minister in August, as the position of the ARC was deteriorating. He suggested submitting the questions to the Minister in the interim, and asking the Minister to respond as soon as possible.

Mr Radebe suggested that not only questions around the ARC should be forward to the Committee Clerk, but also on other issues Members required clarity. The Chairperson agreed.

The meeting was adjourned.