The hidden value of price ranges in African food markets

The hidden value of price ranges in African food markets

Where in supermarkets a price for a kilogram of meat or tomatoes is already given as determined by internal pricing policies, African mass markets present a range of prices for the same commodity. Besides giving room for consumers to negotiate, price ranges are the best way of accounting for economic losses.  For instance, when the potato price range is USD3 – USD8/15kg pocket, it means the potential price is USD8 and USD3 is the lowest price.  The difference between the potential price and the lowest is the economic loss because the same quantity of inputs including labour is used to produce high-quality and low-quality commodities.

Commodities fetch their own price

Early in the morning when the African market opens, each commodity tries to fetch its own price in line with demand and supply.  For instance, tomatoes can start at USD10/box but as consumers and more supplies flow in, an equilibrium price search can see the price settling at USD6/box. However, the same units of measurement can go for USD5 – USD10, with the major contributor to price ranges being quality and production practices like on-farm grading which may cause some damages.  Again, some commodities can be damaged along the way to the markets due to inappropriate transport.

Mass markets do not reject commodities but offer low prices

It is rare for commodities to be rejected or thrown away in mass markets. Rejection can be in the form of offering a lower price for low-quality commodities but there is always a buyer for something. This is how physical losses are translated into give away prices which constitute economic loss. Where the potential price for a commodity is USD10/crate but it is given away for USD5/crate, it means the farmer has incurred 50% loss in potential revenue. 

Transforming physical losses into monetary terms is the best way mass markets express losses. Some consumers can buy wilted leafy vegetables for converting into dried vegetables while those who buy green mealies that has over-stayed in the market can go and dry it into maize grain which then comes back into the market for a different purpose.

How can food losses be better assessed in mass food markets?

The best way of assessing food losses in African mass markets is combining physical losses and revenue losses which are expressed in price ranges. Normally, the smaller the price range, the better the quality of the overall commodity in the market. The wider the price ranges, the lower the quality.  It may be misleading to focus only on physical losses during times of gluts and conclude that losses are high. During shortages, losses tend to be low because there are few challenges in handling few volumes of commodities.

Mass markets becoming independent economies

One of the key invisible trends across Africa is the fast pace at which SME-driven mass markets are becoming independent economies that mostly trade in cash. That is why every farmer is going to mass markets for cash, shunning wholesalers, processors and other markets with cumbersome payment methods. In addition, mass markets are becoming brokers for farmers and markets in other cities. This is because it is difficult for individual farmers to conduct one on one negotiations with supermarkets or any other formal markets. That can be done by mass markets and traders. Meanwhile, in countries like Zimbabwe, gluts and over supplies are caused by the fact that farmers are flocking to mass markets even if they (farmers) receive 30% less than potential profit. Consequently, the demand for cash in mass markets is forcing prices down.

charles@knowledgetransafrica.com  / charles@emkambo.co.zw / info@knowledgetransafrica.com

Website: www.emkambo.co.zw / www.knowledgetransafrica.com

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