Johan Teessen -- Special award
Hollard Insure and Farmingportal.co.za and Agri News Net - Young Agri Writers awards - 2024
The Frosty Truth About Why Your Veggies Cost More
The Frosty Truth About Why Your Veggies Cost More
Introduction
This article examines how black frost led to a rise in potato and pepper prices and explains why consumers are still experiencing the impact of these elevated prices, even though it has been over seven weeks since the severe cold affected the vegetable supply in Limpopo.
Potato & Pepper Prices
From early June to late October, South Africa relies heavily on its northernmost province, Limpopo, to supply fresh fruits and vegetables, especially as September approaches. On July 7, the northwestern part of Limpopo experienced temperatures as low as -5°C, which is considered extremely cold for this region. This cold snap, accompanied by black frost, had a significant impact on potatoes, peppers, tomatoes, and pumpkins. However, this article will focus specifically on peppers and potatoes.
|
|
|
|
Examining the Pepper Market Price Trend for 2023/24 (Graph 1), we observe that from the second week of January 2024 (January 8) to the 29th week (July 15), the average pepper price fluctuated between R9/kg and R15/kg. In week 30, the price surged to R23/kg, a 53% increase, before falling to R17/kg by week 34. The Pepper Variety Market Price Trend for 2023/24 (Graph 2) shows a similar price spike in week 29, but red peppers were affected more severely and for a longer period compared to yellow and green peppers. By week 34, red pepper prices remained R20/kg higher than those of green and yellow peppers.
Turning to the Potato Market Price Trend for 2023/24 (Graph 3), we see that from week 40 in 2023 (October 2), the potato average prices peaked at R127/10kg and then declined until week 12 in 2024 (March 18), when they stabilized between R64/10kg and R50/10kg. In week 29 of 2024 (July 15), the price spiked again due to the impact of black frost. Following this spike, potato prices exhibited a slight downward trend until week 34 (August 19). The Potato Variety Price Trend for 2023/24 (Graph 4) closely mirrors the trend in Graph 3, unlike the more pronounced differences observed in the pepper price trends.
The significant price increases for both peppers and potatoes are primarily due to extensive damage caused by the frost, resulting in reduced market volumes and consumer concerns about potential shortages of these vegetables.
Sticky Price Theory
The sticky price theory is an economic concept that is often overlooked but influences every product sold. So, what exactly is the sticky price theory? Let’s consider the recent price increases for peppers and potatoes as an example. Supermarkets like Spar, Checkers, and Pick n Pay typically rely on dedicated suppliers for their products, but they also purchase fresh produce from markets like Johannesburg Market when their regular suppliers are unable to meet demand or have supply issues. This exposes them to sudden price fluctuations, as illustrated earlier.
In the example provided, we see that prices tend to spike and then either stabilize at that higher level, as with potatoes, or drop quickly, as with peppers. The sticky price theory suggests that supermarkets will increase prices when their costs rise to protect their profitability but will only reduce prices gradually, even if the costs return to normal. This means that supermarkets maintain higher price levels as long as possible before making small downward adjustments. They continue at the new price level until reduced demand compels them to lower prices further.
As a result, a price spike can cause prices to remain elevated longer than what would be expected based on market conditions where prices are typically determined by quality, volume, and demand.
Conclusion
In conclusion, consumers often question why supermarket prices are so high compared to the lower price’s farmers receive or those seen at markets. The simple explanation is that the sticky price theory is at play. This theory affects not just supermarkets but also restaurants and all other retail outlets. So, the next time you wonder why peppers or potatoes are so expensive at supermarkets, remember that if market prices decline, supermarkets will lower their prices too—but this process will take significantly longer.
Agriculture Economist | Market Research & Analyzing | AMT
