News in South Africa 15th February:

1. Inquiry into food prices launched:

The Department of Trade and Industry and Competition has gazetted the terms of reference for a wide-reaching market inquiry related to the fresh produce market in South Africa, including prices.

Inquiry into food prices launched
Photo by Matheus Cenali

The inquiry, conducted by the Competition Commission, will investigate market conditions all along the fresh produce supply chain in the country, looking for any indications of uncompetitive behaviour or price fixing.

The process will commence 20 days after the gazette is published – thus at the start of March 2023.

The commission said that the Fresh Produce Market Inquiry (FPMI) will consider if adverse effects are present in the fresh produce value chain arising from any feature or combination of features that impedes, restricts or distorts competition.

It said that concerns around the fresh produce market were raised during the Covid-19 pandemic, with various reports and findings of uncompetitive and unfair pricing in the sector.

A study published by the commission in 2021 also found worrying trends around the concentration and participation of farmers in the South African economy which raised red flags.

“According to studies, there appears to be broad concern over price levels and volatility of pricing for fresh produce in South Africa. The studies show that high prices of fresh produce have a disproportionate effect on the poor and low-income earners who have to spend a greater portion of their income to purchase essential products,” the commission said.

“A fuller understanding of the main drivers of the apparent high prices of fresh produce in South Africa is a critical area that this inquiry may address.”

Regarding price gouging, the commission’s records show that of 1,254 excessive pricing investigations during Covid-19, 713 of them related to basic food and fresh produce.

2. US inflation remains elevated:

US consumer prices rose briskly at the start of the year, a sign of persistent inflationary pressures that could push the Federal Reserve to raise interest rates even higher than previously expected.

The overall consumer price index climbed 0.5% in January, the most in three months, and was bolstered by energy and shelter costs, according to data out Tuesday from the Bureau of Labor Statistics.

The measure was up 6.4% from a year earlier.

Excluding food and energy, the so-called core CPI advanced 0.4% last month and was up 5.6% from a year earlier.

Economists see the gauge as a better indicator of underlying inflation than the headline measure.

The median estimates in a Bloomberg survey of economists called for a 0.5% monthly advance in the CPI and a 0.4% gain in the core measure.

Both annual measures came in higher than expected.

US stock futures erased gains and Treasury yields rose after the report.

The figures, when paired with January’s blowout jobs report and signs of enduring consumer resilience, underscore the durability of the economy — and price pressures — despite aggressive Fed policy.

The data support officials’ recent assertions that they need to hike rates further and keep them elevated for some time, and possibly to a higher peak level than previously expected.

The path to stable prices will likely be both long and bumpy.

3. Consumers can only afford basics:

South African consumers have their backs against the wall, with more than a quarter of the respondents in a survey by global consulting company NielsenIQ indicating they only have enough money for food, shelter and basic goods.

The survey results come as no surprise to local economists, who say that the pressure on the disposable incomes of consumers have been building for some time, given rising interest rates and the soaring costs of food and fuel.

NielsenIQ’s 2023 Consumer Outlook Report showed on Thursday that apart from 26% of respondents saying they only had enough for food and other basics like shelter, 41% of South Africans felt they were in a worse financial position than a year ago, which was in line with the global average of 40%.

The landmark survey, which the consultancy said probes the current mindset of South African consumers, found that 43% of respondents already felt like they were living in a recession, with 74% indicating that increased costs of living were to blame for their recent financial struggles. Just under a third had also turned to online platforms to seek better deals, save on petrol and minimise shopping trips.

It also noted that transport costs were among the top categories that consumers planned to spend more on in 2023 (29%). The report also flagged that even with the additional burdens on family spending, consumers were still planning to spend as much on groceries and household items in 2023 as before (48%).

4. JSE competitor ZAR X stripped of licence:

South Africa’s financial regulator has cancelled ZAR X‘s exchange licence, saying there has been “prolonged noncompliance” by the trading platform.

“The cancellation of ZAR X’s licence follows its prolonged noncompliance with section 8(1)(a) of the Financial Markets Act,” wrote the Financial Sector Conduct Authority, adding that this part of the cct related to the liquidity and capital adequacy requirements of an exchange.

The regulator ordered ZAR X to immediately cease all business of an exchange and not trade any securities or accept new listings anymore. It also needs to facilitate the delisting of all securities on its platform within 14 days.

ZAR X launched in 2017 as an alternative foreign exchange to the JSE. It broke into the scene when competition against the JSE – which didn’t exist for over five decades – started coming from different angles. Equity Express Securities Exchange and African Rainbow Capital-backed A2X also respectively launched in September and October of that same year.  4 Africa Exchange (4AX) had launched a year earlier, although it only commenced operations in March 2017.

However ZAR X struggled to attract prominent listings like the other alternative exchanges. It only had seven listed securities in late 2021. Its website is no longer live to see if any of those companies left after its woes began.

When the government started providing tax incentives to people who wanted to invest in Section 12J Venture Capital Companies, ZAR X positioned itself as the go-to exchange.

But then, the SA Revenue Services pulled the plug on Section 12J incentives in June 2021. And ZAR X’s situation worsened around the same time.  

The FSCA suspended the exchange’s licence in August 2021, citing concerns about its liquidity and capital adequacy.

ZAR X said the FSCA’s latest decision was “disappointing” and was a significant setback to advancing financial inclusion and addressing the structural shortcomings present in SA’s capital markets.

5. More heavy rains threaten agriculture:

As farmers closed out 2022 and welcomed in 2023, there was an eerie sense that they had seen this all before.

A year ago, the government declared a national state of disaster in response to torrential rains that afflicted several parts of the country.

These were the heaviest rainfalls on record for many parts of South Africa. As we entered the first weeks of 2023, heavy rains again swamped large parts of the country, making this the fourth year in which rainfall far exceeded the average. This and other climatic issues such as veld fires have dominated the headlines over the past years.

All these issues have impacted food production, manufacturing and distribution, driving home the message that climate variability is a new reality for all stakeholders in the agricultural industry.

It’s as yet unknown what impact the recent excessive rainfall will have on profitability, but we know from past years that floods have delayed plantings and harvests, increased soil moisture above acceptable levels, and affected the grade or quality of certain crops.

Such climate variability has become the new normal for agricultural producers around the globe.

Marlene Louw of Absa Agribusiness notes that the agricultural industry is not only affected by climate variability but also has a key role to play in mitigating climate change.

She notes that numerous opportunities are emerging for agricultural producers within the broader climate advocacy agenda. Examples include differentiated pricing and services from financiers and insurers, for producers engaging in sustainable/green production practices. These challenges and opportunities however need to be navigated within a context of extremely elevated costs.

All information sourced from articles posted by: BusinessTech, Daily Investor, Fin24, News24, and Moneyweb.

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