Is the South African regulatory environment becoming less welcoming?

Is the South African regulatory environment becoming less welcoming?

News the South African offices of Unilever and Sime Darby were raided by competition authorities this week comes as a further evidence that the country's competition watchdog has set its sights on the food sector, Katy Askew suggests.

South African consumers are facing the double whammy of food inflation and a slowdown in real income growth on the back of weak employment and job creation figures.

According to Statistics South Africa, food price inflation stood at 4.3% in the country in January. From January 2013 to January 2014 the cost of the basic food basket increased by approximately ZAR15, or 3.3%, in nominal terms from ZAR460 to ZAR475.

The National Agricultural Marketing Council predicts that "significant price inflation" of 6% or more was experienced for the following products in the food basket: rice, white bread, cabbage, potatoes, tea, maize meal, margarine, instant coffee and milk.

This compares to a drop in the international price index published by the United Nations' Food and Agricultural Organization, the South African researchers stress.

"The FAO Food Price Index declined by 10.47% between January 2013 and January 2014. The decline in the food index is attributed to a decline in global prices of oil, sugar, cereal and meat products."

In a relatively poor country, consumers are having to spend an increasing proportion of their incomes on basic food stuffs.

This, resent research suggests, could be a contributory factor in the slowdown of overall retail sales growth in the market.

According to the Bureau of Market Research, year-on-year retail sales growth totalled 2.8% in the first half of 2013, well below forecasts of 4.5%.

"This can be attributed to low levels of consumer confidence, a poor economic outlook for South Africa in 2013 and a weakening of the South African rand which has increased the price of imported goods," the BMR concludes.

And, if consumers aren't spending, that is bad news for the overall health of the South African economy.

If recent comments coming from the South African Competition Commission are anything to go by, the body has set its sights on food prices in a bid to clamp down on any potential collusive behaviour in the market.

In a recent public statement, acting commissioner Tembinkosi Bonakele indicated the Commission has decided to "focus on food and agro processing" because this is "a sector that has a direct impact on consumers".

Now, high food prices in South Africa probably have much more to do with the depreciation of the rand than widespread collusive behaviour.

But the commission has found recent evidence of collusion in the market. Last month, the body concluded seafood firms Pioneer Fishing and Blue Continent Products were involved in anti-competitive practices between 2008 and 2010.

Within this context, the Commission announced it had launched search and seize raids at the offices of two multinationals: European FMCG giant Unilever and Malaysian oils-to-energy conglomerate Sime Darby.

Commenting on the move, the Commission said the operation formed part of a continuing investigation into "collusive conduct" in the markets for the manufacture and supply of edible oils and margarine to wholesale and retail customers.

Will they find evidence of collusion between Unilever and Sime Darby? At this stage, it is impossible to say. What the raids do suggest is that the South African authorities are clamping down on the food sector in the face of rising prices - meaning that the regulatory environment in the country could well be becoming more hostile.