Ensuring realistic prices

The debate over food prices continues to hold centre stage. This is understandable, given that poor families in South Africa spend roughly a third of their household incomes on food, according to Statistics SA.

In her 6 May editorial, Farmer’s Weekly editor, Denene Erasmus, writes that food should not be cheap but affordable.

‘Cheap’ implies undesirables such as exploitative production practices, while ‘affordable’ takes into account the real value of food produced with care and at great expense from scarce resources.

Denene quotes agriculture minister Senzeni Zokwana as saying that the “situation should not be unduly exploited for maximum profits”. We all agree, I’m sure.

This is where the fresh produce commission markets come into their own, because they reflect the daily price of fruit and veg based on supply and demand. Regardless of whether the price is high or low, the market for that day gives a realistic price.

Price taker vs price maker
Excessively high prices on the market attract much negative publicity and farmers are often unfairly blamed for them. But these prices don’t last forever. In fact, prices sometimes even dip below farmer’s production costs. In both cases, they are realistic as they reflect the supply and demand situation for that day.

The key for a farmer is to look at the average at the end of a given period; that will be his realistic income. Of course, a farmer can become a ‘price maker’ on a fresh produce commission market at any time if his quality is the best and supply is consistent. We see this happening every day.

Keep prices realistic – let the market decide
The challenge for the consumer is another matter entirely. Will the retailer adapt prices so that the consumer can also benefit when the prices are down? No doubt some will, but others will charge exorbitant prices to maximise profits.

The last thing anybody wants is for food to become so expensive that it instigates public unrest.

This can be avoided by following the minister’s plea and allowing the market to keep prices realistic.