ZAKHELE MTHEMBU: A clear case of over-reach

The Competition Commission has aroused the ire of mainstream economists and analysts with its latest Essential Food Pricing Monitoring Report, covering 2021 to 2022, in which it accuses the maize, meat and poultry markets of “excessive pricing”. Even the halls of academia through the likes of Prof Johan Kirsten of Stellenbosch University shook in disagreement.  

Proponents of the free market such as this writer have been writing about how unsound it is to posit that greed and other bogeyman reasons encourage price increases. It’s unsound because there are other more rational explanations for such phenomena.  

Prices are influenced primarily by supply and demand. Thus, investigating what may have caused a shortage in the supply chain would be more rational and reasonable than a knee-jerk allegation that big, bad business people are out to gouge consumers.  

Factors such as the war in Ukraine, drought in South America and the strength or weakness of the rand are more reasonable explanations for price increases. Ukraine is a major producer of maize, and its supplies have been reduced substantially by war. Yet, demand for the crop is still at levels before supply was interrupted. Price increases are rational in a situation such as this where supply decreases while demand remains steady.

Irrational and irrational 

Beyond the rational explanations, legally it is irrational and thus unjust to conclude that a price is “excessive”, given the subjectivity of value and the  purchasing power among individuals. What is excessive to A may be reasonable or even cheap to B, and so on.  

Acting on this subjective determination means the power of law is used to the advantage of some and to the disadvantage of others since we have established that “excessive” can never be objective. If a potential customer thinks a price is excessive they can decide not to buy the goods in question, seek an alternative, or produce the goods themselves. That’s how the free market operates. The ease and ability of obtaining an alternative, or the ability to enter the market oneself, is what competition authorities should be concerned about; not how much businesses that are voluntarily patronised are charging for their products.  

The legal basis of the commission conducting the Essential Food Pricing Monitoring Report is also questionable. According to Section 21 of the Competition Act, investigations into “excessive pricing” for “essential foods” aren’t part of the commission’s functions.   

The powers to conduct a market inquiry under Chapter 4A are expansive and discretionary to a large degree, since they are contingent on what the commission believes to be impeding competition as laid out in section 43A and 43B (1)(a) of the Act. If the report was an inquiry like, say, the Fresh Produce Market Inquiry under way, it then that would have a stronger legal basis.

Opinion, not fact 

The monitoring report is seemingly an opinion released by a regulator that appears to accuse firms of nefarious intent and motivation with scant legal basis.  

The accusation of excessive pricing is seemingly made outside of a Section 43B market inquiry that would have necessitated firms being investigated, dominance being established through Section 7 and then a conclusion of abuse of that dominance by charging an excessive price, as per Section 8 of the Competition Act.  

There is a prima facie case of regulatory overreach and overzealousness on the part of the commission. The intent behind the Essential Food Pricing Monitoring Report is arguably noble in seeking to monitor the prices of what are deemed essential foods. Yet this is not the mandate of the commission, unless it commits itself to conducting a formal inquiry and referring a charge of excessive pricing to the tribunal.  

The conclusions of the commission’s report are unreasonable, as has been outlined by several economists. The more important issue, though, is whether the powers the commission uses are justified in law or not. Those powers and their exercise are what should be substantively questioned, as well as their benefit or lack thereof to the health of our economy and SA’s prosperity in general. 

• Mthembu is a legal researcher at the Free Market Foundation. He writes in his personal capacity.