RESEARCH 08

QUESTION 1

Research Title: "Exploring the Persistence of High Food Prices in South Africa: A
Study of Market Dynamics and External Influences"

Research Problem Description: The primary research problem is the persistent

high prices of essential food items in South Africa, despite significant declines in
global commodity prices. This phenomenon, termed as 'sticky' food prices, appears
to be influenced by several factors, including high profit margins among retailers and
producers, lack of competition, additional costs incurred due to load shedding, lag
effects in pricing adjustments, and external economic pressures such as high fuel
prices and a weak rand. These elements contribute to a disconnect between global
price trends and local consumer prices, impacting the affordability of basic food
items for South African consumers.

Five Research Questions:

1. How do the profit margins of South African food retailers and producers
compare with those in other countries, and what factors contribute to
these differences?

 This question aims to understand the extent to which profit margins in

South Africa are higher than in other countries and the reasons behind
such differences, including market dynamics and operational costs.

2. What role does load shedding play in influencing the pricing strategies
of food retailers and producers in South Africa?

 This question seeks to explore the impact of load shedding on

operational costs and how these costs are passed on to consumers in
the form of higher food prices.

3. How does the timing of procurement and pricing decisions by producers

affect the retail prices of food commodities like maize and bread?

 The objective here is to investigate the lag effect between the

procurement of raw materials by producers at certain prices and the
time it takes for these costs to reflect in retail pricing.
 4. What impact do external economic factors, such as fuel prices and
currency valuation, have on food price inflation in South Africa?

 This question is designed to assess how broader economic conditions,

like fuel costs and the strength of the rand, contribute to the pricing of
food items.

5. To what extent does the competitive landscape in the South African

food retail sector affect consumer prices, and are there any signs of
market inefficiencies or lack of competition?

 This question focuses on exploring the level of competition in the

sector and its influence on price-setting practices, looking for evidence
of monopolistic or oligopolistic tendencies and their impact on prices.

These research questions aim to provide a comprehensive understanding of the

multiple factors contributing to the persistent issue of high food prices in South
Africa, enabling policymakers, businesses, and other stakeholders to develop more
effective strategies to address this challenge.

QUESTION 2

For the study focusing on "Exploring the Persistence of High Food Prices in South
Africa: A Study of Market Dynamics and External Influences," the positivist paradigm
is most suitable. Positivism, rooted in the belief that knowledge is derived from
empirical evidence gathered through observation and experience, aligns well with
the study's objective of understanding and quantifying specific factors contributing to
the high food prices in South Africa.

Justification for Choosing Positivism:

1. Empirical Nature of the Research Problem: The issue of high food prices in
South Africa is observable and quantifiable. Positivism emphasizes the
collection and analysis of quantitative data, which is critical in this study for
examining profit margins, price trends, operational costs, and economic
indicators like fuel prices and currency valuation. This paradigm allows for a
systematic, objective analysis of these measurable factors.
 2. Objectivity and Reliability: Positivism advocates for a scientific approach to
research, prioritizing objectivity and reliability. Given the study’s focus on
economic and market dynamics, a positivist approach ensures that
conclusions are based on factual, unbiased data rather than subjective
interpretations. This is crucial in understanding the complex interplay of
market forces and external influences impacting food prices.

3. Cause-and-Effect Relationships: The study aims to identify cause-and-

effect relationships, such as how load shedding or fuel prices influence food
prices. Positivism is well-suited for this, as it seeks to uncover patterns and
regularities in data. For example, the case study notes that load shedding has
led to increased operational costs for retailers and producers, which have
been passed on to consumers. A positivist approach can quantitatively assess
the extent of this impact.

4. Testing of Hypotheses: Positivism is conducive to hypothesis testing, which

is integral to this study. Hypotheses such as "higher operational costs due to
load shedding contribute significantly to increased food prices" or "the lack of
competition in the retail sector leads to higher profit margins" can be
empirically tested using statistical methods.

Evidence from Theory and the Case Study:

 The case study provides data on profit margins, the impact of load shedding
on operational costs, and the lag effect in pricing adjustments, all of which can
be empirically analyzed.

 The comparison of profit margins between South African retailers and those in
countries like the UK and Ireland is a quintessential positivist approach,
relying on quantitative data to draw conclusions.

 The case study’s mention of specific economic factors like fuel prices and the
weak rand, and their effects on food prices, aligns with the positivist emphasis
on observable, measurable phenomena.

 The emphasis on ensuring no collusion in the market and relying on a

capitalist system for correct pricing suggests a reliance on empirical data and
observable market behaviors, which is at the core of positivism.
In conclusion, the positivist paradigm is most appropriate for this study due to its
emphasis on empirical evidence, objective analysis, and the ability to identify and
quantify the relationships between various economic and market factors influencing
food prices in South Africa. This approach ensures that the study's findings are
based on reliable data and can contribute effectively to policy and business
strategies aimed at addressing the issue of high food prices.