Mangudya is right, price of bread should fall

22 Jun, 2022 - 00:06 0 Views
Mangudya is right, price of bread should fall Dr Mangudya

The Herald

AMONG other horrors of the recent spate of price increases, usually the result of pegging prices to the black market exchange rate and sometimes that rate results from the manipulation of some suppliers, we have seen escalating rises in the prices of basic foods.

Bread is one example and with that product there also appear to be other factors, including the oddity that the three major national bakers do not compete on price despite having their ovens in different towns, using different size trucks for delivery and having different recipes and, according to consumers, different quality.

They also quite probably buy their flour from different millers, and there should be competition there as well, although one group does tend to dominate through several subsidiaries or associated companies, but apparently many millers also like the standard wholesale prices. 

But flour competition should not be a problem when it comes to maize flour – mealie meal. We do see more competition on pricing and even when it comes to wheat flour for home baking, there is a range of prices depending on brand. So we should be able to assume that millers are less inclined to price together.

On the baking side, we have seen supermarkets, with their own brands, and the small bakers moving in and taking up market share. 

These suppliers do not truck loaves around Zimbabwe, and so transport charges can be factored out, and usually bake where they sell. And they compete on price, this being one of their marketing points to try and get customers to choose them.

Obviously a supermarket selling its own brand is not going to cost for a loss, but they will concentrate on controlling costs because if they can get a customer to come in to buy a loaf of bread, and many customers do this, they can probably get that same customer to add a few other items to the basket. It is known as good business.

The Consumer Council of Zimbabwe has been pushing hard for consumers to shop around and to look at price rather than brand, at least trying new brands if the price is lower and then if quality is adequate to switch more permanently. 

Some supermarkets and supermarket chains push this search for the maximum range of brands and suppliers harder than others. They are not going to dictate to their customers that brand loyalty is desirable and whatever criteria their customers use when filling a basket, whether brand or price, they will try and have the product on the shelf. 

This has been a major help to newer and upcoming manufacturers who through innovation in seeking their own raw materials and designing products have managed to trim costs and so prices. 

Private enterprise, when there is wide-scale competition and no collusion, can be a boon. 

Of course among the small independent bakers there are some who produce some rather fancy loaves for specialised markets and those sell above the price of standard loaves. 

But that is again no problem as no one has to buy complex grain mixes or other specialities if they do not want to because bread is not in short supply and no one has a corner on supplies and so is able to use scarcity pricing.

One excuse for the high bread prices and what looks like pricing at black market exchange rates has been the difficulty of buying wheat, directly or indirectly through millers, at prices built around the interbank exchange rate and buying fuel, again in local currency at prices built around that rate.

That excuse is now disappearing. Governor of the Reserve Bank of Zimbabwe John Mangudya has said the bank is now prepared to give priority to allocations on the foreign exchange auctions arising from bids from bakers for wheat, flour and fuel. 

Presumably the bakers will still need to bid somewhere around a realistic price, but already it is now obvious that the auction price of currency is the same, or extremely close, to the prevailing interbank rate and the margin between the top bid and bottom accepted bid is now narrowing again around that interbank rate. 

This interbank rate is set by an open market run by the commercial banks and involving willing-buyers and willing-sellers, but interestingly without the manipulations in the black market and its appalling margins between buy and sell rates, this produces an exchange rate for buyers around 70 to 75 percent of the black market rate. 

Banks put in a margin of around 8 percent between what they pay the willing seller and what they charge the willing buyer and so the interbank market offers the willing sellers a decent price without gouging the buyers. 

So Dr Mangudya is correct. The price of bread should fall, both the price charged by those who truck their bread around the whole of Zimbabwe from a central large bakery and those who bake on the premises where they sell. Presumably millers can win from auctions as well.

We agree that wheat prices have been rising globally because of reduced exports from Ukraine and Russia, both major suppliers of wheat and the fertiliser used to grow it, and even as Zimbabwe moves into self-sufficiency we cannot cheat our own farmers. 

But if we can figure out how to cut or at least control their input costs, we can lock in pricing and decent profits for farmers.

But we also need to encourage all bakers, not just the supermarket bakers, to embrace the free market and to compete fully on both price as well as brand loyalty. 

Consumers should not be regarded as some sort of captive market to be the subject of diktat and the excuses of “global pricing” and “black market rates” without factoring in differences in management, especially good management, cost controls and innovative hunting of suppliers.

The Consumer Council of Zimbabwe has a strong point, of shopping around and at least looking at price as well as brand, and greater adoption of that principle will provide the consumer pressure needed for suppliers to concentrate more than they appear to do on costs, profit margins and competitive advantages.

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