What is it that government can do about high – and escalating – food prices, I wonder. The trade unions and the left political wing, generally, strongly support government intervention by means of regulation. Those who favour free markets argue for more competition. This, they claim, brings prices down. Consider this, however. Eskom is to all intents and purposes a government entity and it has requested an increase in the price of electricity which amounts in toto to 60%. Whether NERSA will sanction this remains to be seem, but I would put money on them doing so, either all at once, or as a staggered arrangement which Eskom proposed as an alternative. It seems to me that government has been preparing the way for this increase to be approved. Within the private sector, the number of successful prosecutions by the Competition Commission for collusion and price-fixing seems to have increased recently, quite refuting the free market contention that competition brings price reduction.

It is clearer by the day that the root causes for these price hikes, daunting as they are, are not to be found in South Africa. The world as a whole is feeling the pinch and I’m not sure whether there is a cogent explanation of this phenomenon. It seems that the factors at play are not directly related to production costs, but to interference in the food chain by other influences, such as speculators in oil, for example, or the move towards bio-fuel production which has upset the normal values relating to food crops. If I were a person who believed in conspiracies, I’m sure I could find a cartel of ruthless and greedy millionaires who are enriching themselves at the expense of the world population.

There are some possible interventions, however, which government could consider. The price of sunflower oil, for example, that has to be imported owing to a shortage in the local supply, has at least doubled in recent times. There is a ten percent duty on the import of such oil, and, when it is processed, into many different forms, and sold at a higher price in the supermarket, VAT of fourteen percent is payable. Since the duties are not fixed amounts, such as they are in the case of petrol, but percentages, it means that government is earning at least twice as much as before from the import duty on oil. The income from VAT, similarly, has risen. Is it justified, one may ask, that the national coffers should benefit in this way while consumers suffer and, supposedly, enjoy the sympathy of government? Are we too blinkered, or just too inflexible, to adjust duties so that they, at least, do not add to the burden of inflation?

Perhaps any change of a temporary nature is impossible to consider for reasons of practicality. I suspect, however, that one would get short shrift from the tax collectors and the Minister of Finance if the opportunity to swell the tax revenue were compromised in any way.

Andrew Layman: PCB CEO

This article appeared in the Public Eye on the 15 May 2008