Bread price increase unjustified: Biti
http://www.theindependent.co.zw/
Thursday, 09 September 2010 18:50
Finance minister Tendai Biti has described recent bread price increases as
unjustified, while the Competition and Tariff Commission (CTC) has begun
investigations into possible price fixing by bread industry players.
Bread producers two weeks ago announced at a press conference that they were
increasing prices in response to the decision by Russia – one of the world’s
biggest exporter of wheat – to limit exports of the cereal to avert domestic
shortfalls.
The National Bakers Association of Zimbabwe (NBA) agreed to increase bread
prices by 10%, with the price for a loaf increasing to between 90 US cents
and US$1, 10, sparking widespread condemnation.
But government and other players are questioning the producers’ decision to
make uniform increases, arguing that this could result in a bread cartel
whose influence could spread to other sectors of the economy if left
unchecked.
“We have traditionally imported wheat from South Africa, which was not in
any way affected by developments in Russia,” Biti told the Zimbabwe
Independent.
“If millers and bakers cite this scenario for their price reviews, they are
being dishonest… It is no longer the hyperinflationary era of 2008 where
you just dream of a new price the next day. Shareholders would be happy with
a 8%, 10% or 15% increase not over 70%,” Biti said, equating millers and
bakers’ behaviour to the black market foreign currency dealings phenomenon
that characterised the economy in 2008.
The CTC, which began investigations last week, said it was taking the matter
seriously.
“The media has been accusing us of doing nothing when in actual fact we are
still carrying out investigations as it is a serious matter. We will take
the approach we did with Zesa (on electricity tariffs),” said the CTC in a
response to inquiries from the Zimbabwe Independent. The National Incomes
and Pricing Commission (NIPC), the country’s prices regulator, has said it
has also opened investigations into possible collusion.
Zimbabwean businesses, market observers say, are quick to review prices
upwards whenever there is a movement on the international market, but adopt
a “see no evil, hear no evil standard when the opposite happens”.
The behaviour by bread producers had left the misleading impression that
bakers and millers in the country had similar production costs with Russia
and the rest of Europe and North Africa, they said.
“When the situation stabilises in Russia, people will expect the price to go
down and this should apply to all like-minded entrepreneurs,” said an
economist who did not want to be named, adding that the move to uniformly
increase bread prices raised fears about the return of industry cartels.
Recently, the CTC ordered state power firm Zesa Holdings to desist from
abusing its monopoly to overcharge consumers after widespread complaints
that Zesa was charging exorbitantly for an erratic service.
Since 1998 when the Competition Act (Chapter 14:28) came into effect, the
CTC involvement in regulating competition and unfair trade practices was
largely restricted to mergers and takeovers, an area that the ordinary
person had very little interest in.
Analysts say a standard loaf of bread, priced at US$1, 10, will effectively
cost US$2 because most retailers do not have coins to use for change,
forcing consumers to choose between a box of matches, sweets, bubble gums or
candles readily available at tills in lieu of the 90c change.
A cost build up study done by the Consumer Council of Zimbabwe last year
showed that bread was supposed to cost between 85 US cents and 95 US cents
but was priced at US$1 to avert the attendant headaches associated with
small denominations in the economy. Analysts say this makes the US$1,10
currently being charged after the price increases unjustifiable.
In neighbouring South Africa, where the bulk of local players source their
wheat from, a loaf of bread costs between 7-9 rands (an average of 90 US
cents).
In US dollar terms, a standard loaf in Namibia costs 85 US cents, Botswana
90 US cents and Zambia 89 US cents. In Mozambique, fatal bread riots only
ended on Wednesday after the government agreed to scrap a 25% increase that
would have resulted in the price of a bread roll, that country’s bread
staple, going up to 20 US cents.
Consumer Council of Zimbabwe CEO Rosemary Siyachitema told the Independent
on Tuesday that her organisation was working with the NIPC on research
regarding the pricing of bread and other basic commodities prices.
“It (research) is a long procedure. We are liaising with NIPC, they are the
ones with a statute that allows them to request invoices and receipts from
retailers and manufacturers,” Siyachitema said.
Consumers this week said it seems the deep-seated mistrust between
government, business and consumers has simply been inherited from the old
political and economic dispensation by the new one.
“We are seeing the return of super profits. Companies should not rip us off
but the bread issue shows that producers, who should in fact be competing,
are colluding to increase prices,” said Shuwai Makate, an accounts clerk
with a Mutare local clothing retail shop.
Biti in his mid-term fiscal policy in July this year branded sections of the
business community as “economic gangsters” who cling to the profiteering
mentality of old. The minister said this in the wake of price increases
which were beginning to filter through the market and negatively impacting
on the country’s efforts to rein in inflation.
Reserve Bank of Zimbabwe Governor Gideon Gono had earlier waded into the
argument, saying that “money illusions and psychological hangovers where
sellers of goods and services are taking time to appreciate the true value
of hard currencies, and hence escalate prices disproportionately” would
affect inflationary pressures.
The NBA and the Grain Millers Association are, however, digging in, telling
the Independent this week that it was wrong for the NIPC to demand a
reduction in prices without looking at the global picture.
“They (NIPC) said they are carrying out their investigations. But it is
common knowledge and there is enough evidence to prove that wheat prices on
the world market went up,” the NBA said.
Paul Nyakazeya/Benard Mpofu