Why S. African food chain subsidizes bread prices
Why would a businessman willingly provide consumers a subsidy for bread?
''Enlightened self-interest,'' explains Raymond Ackerman, chairman of South Africa's largest food retailing chain.
Mr. Ackerman's Pick 'n Pay food stores have declined to go along with a sharp increase in the price of bread this month. Pick 'n Pay will sell bread at below cost until a $1 million subsidy fund is depleted.
The way Ackerman sees it, the government's hike in the price of bread is ''a wrong move and a dangerous move.'' He is concerned about its potential for stirring social unrest among South Africa's economically disadvantaged black population, particularly since it comes on top of rising unemployment and the highest rate of inflation in 60 years.
A small indicator of the social impact of the higher bread price was seen last week when about 40 people, mostly Coloreds (persons of mixed race descent), staged a protest near Cape Town. One placard carried the message: ''We are hungry. Bring prices down.'' Some 22 protesters were arrested.
On Oct. 1 the price of white bread in South Africa jumped from 42 cents to 53 cents, brown bread increased from 29 cents to 35 cents. The increases come on top of a rise a month ago in the general sales tax, which went from 5 percent to 6 percent. The extra tax excluded bread, but raised prices of most other consumer goods.
The Housewives' League of South Africa, a consumer group, has reacted with a nationwide campaign against the price hike. It calls for ''immediate'' price reduction and advocates reducing the cost of making bread rather than reducing the subsidy.
Pick 'n Pay is setting aside about $1 million to subsidize bread prices. Ackerman says his stores were already selling bread at a loss and will continue to sell at pre-October prices of 38 cents a white loaf and 25 cents for brown.
The $1 million subsidy will allow the food chain to sell about 16 million loaves of bread at the current price. Normally, that would amount to about nine months of sales, but with its bread prices so much lower than its competitors, Pick 'n Pay stores may find that rapid sales will eat up the subsidy sooner.
''It is not economically good to subsidize commodities,'' says Ackerman, a firm believer in the principle of free enterprise. ''But in a country like ours where there is still an enormous gap between rich and poor and between black and white, it is important for private enterprise and the government to show that they care about people.''
He says subsidies are justifiable in South Africa, where most people are ''not enfranchised'' and have few of the economic freedoms associated with free-market economy.
The South African government has supported bread prices for years. But in March it decided to reduce its subsidy. This change, coupled with a government decision to raise the price of wheat by 14 percent, set the stage for this month's bread price hike.
The new policy reduces subsidies on white bread from 12 percent to 5 percent, and on brown bread from 34 percent to 20 percent. However, the value of the government subsidy rose from about $140 million last year to an expected $170 million this fiscal year.
Ackerman calculates it would cost the government about $30 million to raise subsidies enough to roll back the October increases. He tried to talk his fellow food retailers into contributing toward reducing the price of bread, but failed and decided to go it alone.
The government regards its present level of subsidy as generous and says it is not economically wise to keep bread subsidies at the high levels of the past.