National Agricultural Marketing Council Food Price Monitoring Report: Food Cost Review 2005

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Meeting report

AGRICULTURE AND LAND AFFAIRS PORTFOLIO COMMITTEE
5 September 2006
NATIONAL AGRICULTURAL MARKETING COUNCIL FOOD PRICE MONITORING FINAL REPORT: PRESENTATION

Chairperson: 
Ms D G Nhlengethwa (ANC)

Documents handed out:
Food Price Monitoring Report: Food Cost Review 2005 (NAMC)
The South African Food Cost Review 2005, July 2006 (NAMC and Department of Agriculture)

SUMMARY
The National Agricultural Marketing Council gave a presentation on the Food Price Monitoring Report: Food Cost Review 2005. Members expressed great concern about inadequacies in the current Marketing of Agricultural Products Act. The Council was seeking additional powers to implement its recommendations on food price monitoring. The Chairperson called for another briefing to deal with this issue and other matters.  The Council agreed to this.

MINUTES
The Chairperson welcomed the Members, presenters and the Deputy Minister of Agriculture and Land Affairs, Dr D du Toit, tendered apologies on behalf of Members unable to attend, asked that the adoption of the minutes of the previous meeting be deferred to the next meeting, and apologised for the smallness of the room allocated for the meeting and the lack of sound recording facilities.

National Agricultural Marketing Council (NAMC) presentation
Mr Simphiwe Ngqanqweni, Senior Researcher, introduced his colleagues: Mr Ronald Ramabulana, Chief Executive Officer,  Professor Mohammad Karaan, Chair, and Ms Dora Ndaba, Vice-Chair, He gave information about the Council, its work and publications of which the Report being presented was the latest. No audiovisual facilities were available. Under the Marketing of Agricultural Products Act (MAPA), 1996 (Act No. 47 of 1996) the Council was established as a statutory body to advise the Agriculture Minister on agricultural marketing. Following the Cabinet’s approval in October 2002 for the establishment of a food price monitoring mechanism in accordance with the Act, the Minister appointed the Food Pricing Monitoring Committee (FPMC) in January 2003. A central part of the terms of reference of the FPMC related to the analysis of the price formation mechanism in supply chains of basic foodstuffs.

Having conducted extensive casual and empirical research, the FPMC found that some South African food supply chains contained several asymmetries with respect to price transmissions, and that, for example, lower food price inflation following “cooling off” of prices after high initial spikes was not necessarily translated into cheaper food. This was against a background where many households in South Africa were poor and had been especially affected by the sharp increases in basic food commodity prices (notably maize) in 2001-2002. Approximately 14 million South Africans (according to Stats SA) were vulnerable to food insecurity. Among the FPMC’s key findings were that for milk, peanut butter, margarine and onions price increases were far above the current rate of food price inflation, that poor households experienced higher inflation rates than richer households, that prices of processed goods in rural stores were generally higher than in urban stores, that the subsequent leveling off of prices had not been fully realised by consumers, and that there was evidence that some processors and retailers took advantage of the situation to dictate prices – this issue would be the subject of further research by the Council’s Markets and Economic Research Centre.

The FPMC’s key recommendations included strategic grain reserves, direct government programmes notwithstanding that South Africa was a market economy, increased competition, improved agricultural information systems, and that the Council continue food price monitoring. The Council’s findings would inform the work of the Competition Commission. 

Discussion
Mr S Abram (ANC) asked what legislation was in place to correct the problem of consumer prices remaining high when producers’ costs had decreased. To what end was the Council continuing to monitor food prices? Who would be ultimately responsible for putting things right? What did the presenters mean by “quite well” with regard to urban food price monitoring? Could the presenters specify the challenges to rural food price monitoring? Since their brief began in 2003, that they were only now addressing these challenges was unacceptable. Given that South Africa was a market economy, it had to be noted that the dairy industry was capital intensive. Many people had entered that field. Comparing prices of products on sale and prices paid to farmers, could the Council tell why dairy farmers were giving up their farms? Were they being “squeezed out” of business, and did the main processors like Clover, Nestlé and Parmalat have their own agenda of obtaining products far more cheaply overseas and dumping them onto the local market? Such companies were doing their utmost to maximise their own profits thereby squeezing out local farmers, resulting in cumulative job losses among farm workers and workers in the industries related to the dairy industry.

Dr du Toit, Deputy Minister of Agriculture and Land Affairs, said that long-life milk was not subject to a tariff on imports and asked why this gap had not been not closed. Long-life milk was marketed aggressively.

Ms B M Ntuli (ANC) asked the presenters to elaborate on which particular products there had been unjustified sharp price increases, and what advice they would give to the policy-makers to correct that situation. Rural people were especially poor and many lived on only R300 per month. Since the Committee was concerned with bettering people’s lives, what could be done to stabilise the price of staple foods?

Mr D M Dlali (ANC) asked, with regard to higher prices in rural stores than in urban stores, which provinces were especially affected? He reaffirmed Mr Abram’s question regarding the Report’s recommendation: what happened after continued food price monitoring? He further asked what the Council proposed to do to protect those whom it was supposed to protect, because the poorest of the poor, were not being protected, and said that the Council should specify the challenges to rural food price monitoring and asked what it would suggest should be done to address them.

The presenters responded that the Council would embark on research to identify specific culprits with regard to unjustified prices and monopolistic practices and forward its findings to the Competition Commission.

Ms Ntuli asked what follow-up action would be taken after the Competition Commission had taken a company to court. Was there anything that Members of this Portfolio Committee, as policy makers, could do to remedy the situation? What advice was the Council giving to the Committee?

The presenters responded that the Council could only advise. The Council was engaged in a review of the Marketing Act (Act no. 47 of 1996) in order to acquire implementation and punitive powers. Monitoring and the publication of the Council’s findings was having a positive effect in curbing prices, but what the Council could do was to publish more widely and to identify particular food stuffs and commodities like maize or bread and come to an agreement with the retail industry to set parameters within which prices could move, even to the extent of subsidising certain food stuffs if necessary. The presenters appealed to the Committee to give the Council the necessary powers to implement its findings. Data collection was one of the challenges facing the FPMC.

A Member expressed concern about the Council’s capacity in collecting firsthand data, and asked how districts for the purpose of monitoring were defined.

The presenters admitted practical problems: the Council did buy some data from data providers who collected it by scanning bar codes and did not distinguish between data from rural and urban areas. The Council sought to supplement this data by its own data collection from a sample of 27 areas. The Member was right to say that the Council had insufficient capacity; it had only three or four researchers at a national level. Stats SA had assisted the Council in setting up a system. The provinces had provided help. The Council set itself targets of high accuracy and statistical significance in its data and published findings, and was improving its systems as monitoring continued.   The dairy industry was the best example in this country of collusive behaviour. The firms that bought locally tried to pay the highest prices to farmers. The firms that imported sought to pay the lowest prices, so that they could import from overseas. This was especially so with long-life milk imported by a South African company from Ecuador. The current Marketing Act was deficient in a number of respects, especially in regard to international trade administration and the Council sought powers with regard to regulation of international trade in food products and was sufficiently confident in its relations with the food industry to believe that it could exercise such powers. Also the Act did not empower black farmers, as the old acts (1937 and 1968) had empowered white farmers.

A Member observed that there was a culture of stalling and not amending existing Acts. He felt the Committee should be practical and ensure that poor people, who were meant to benefit, did in reality benefit.

Mr Abram requested the Council to give the Committee a memorandum pointing out all the gaps in current legislation and asked what could be learned or adapted from previous legislation so that the Committee could work on the matter immediately and draft the necessary policies and legislation.

The presenters agreed that they would provide a list of relevant previous legislation and their opinion by the end of September.

A Member called for more active interaction between the Council and Members of Parliament.

The Chairperson agreed and advised the Council to make use of constituency offices.

Ms Ntuli said that a time frame, not just findings, were now, after much delay, required. The main questions were when and how?

The Deputy Minister said that co-operatives were needed to assist emerging farmers; single farmers were not strong enough and needed to stand together.

A Member said that it was not sufficient to wait for the market to correct itself, since capitalism depended on high profit margins.

The Deputy Minister said that the support system for farmers that had been in place under the previous regime should be redesigned and adapted to present conditions.

Mr Dlali said that they were now in the second decade of democracy, but asked when they would actually govern. The present situation was a wake up call. People were dying.

Ms Ntuli said that it was necessary to return to the drawing board. There were loopholes in the relevant Acts that Parliament had created and it was necessary to correct these mistakes,  and banks had “created a monster”.  There was a danger that our children would be slaves in the land of our birth. “My heart is bleeding.” It was necessary to provide the tools to fight in order to solve the problems. “Let us be politicians not sweethearts.”
 
Mr Abram expressed his support for Ms Ntuli’s view, and referred to the incidence of suicide amongst desperate farmers in India. He appealed to the Deputy Minister, pleading that the Department acknowledge the problems, and answer letters and telephone calls from farmers and others. Such farmers could ill afford the cost of even a R5 telephone call. He asked why there were unspent funds when there were so many people in need.

The Deputy Minister said that as regards land banks, the Department was now in the hands of the Treasury. Details could not be provided at this time.

The Chairperson called for another briefing.  The Council’s presenters undertook to provide this.

The meeting was adjourned.

 

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