Will prices come down now?

[Arthur]

So lets say the Rand/Dollar rate improves radically over the next 3 months, we see a drop in interest rates as speculated and the petrol price drops by maybe another R1.00.

Well, it's not so easy.

Let me give you an example from my own business, which is a local distributor for imported product.

I have a 60-day nett account with my supplier in the USA. Payments on my July and August purchases were due at the beginning of November. In July and August my purchases were invoiced at an average of R7.65 to the USD (Rand Sell Rate, not buy rate). My distributor discount averages around 17.2%, depending on whom I sell to locally, so this is my gross profit margin. When July and August's account fell due in early November I paid at R10.12 to the USD, which means that all my sales in July and August were at a serious loss - and that's before any expenses. In other words, everything I sold for two months was at a 16% gross loss even though my customers paid at the then ruling Rand/Dollar rate.

Is it possible for me to recoup those losses? No. Because I'm not a sole agent, I have a competitor who also distributes for the same vendor. I have to price at the current rate and hope the Rand holds steady. Yes, I can always buy forward, but that is very expensive and will add significant cost, and because my competitor prices at daily ruling rate, I have to match his price or go out of business (hence my comment that South Africans generally buy on price alone).

So the nett effect is that for at least two months this year I did not earn a single cent, and in fact made a large gross loss and an even larger nett loss.

I'm not askling for sympathy, but mention this only to illustrate that the issue of reducing prices as soon as the Rand strengthens just aint that easy. In an ideal world I would be able to add a portion of July and August losses into today's prices, or keep prices higher for a few months after the Rand improves, but in my particular case that can't happen. Many other businesses are in the same position, but many others who rely on imported goods with long-term supplier contracts are in a pipeline that allows at least partial recovery of losses because they can sustain higher prices for longer.

Of course I have to raise prices with currency as soon as the currency changes, so the increase effect is immediate. Sensible business management would mean I should sustain higher prices for quite a bit longer after currency improves, if only to try to recover some of the losses for July and August. In my case I can't do this, but I wish I could. And it wouldn't be wrong. In fact, it would be right and proper and fair and decent, even if my customers thought I was 'gouging', which I wouldn't be.

Things are usually not as simple as they at first seem.

 

[krycor]

Something i always wondered about petrol price changes is.. how/why is it possible that they can change the price before effectively old stock runs out? up or down their prices change even tho the station maybe sitting empty or full. Do the station owners pay based on station capacity or based on product sold?

 

[killadoob]

I think its regulated so its not the station buying the fuel, they are given the fuel to sell i would imagine. Although that is a very good question. Another question is how much does a garage make litre they sell?

 

[Arko2]

Why

If you look at Petrol Prices in Europe, they change on a daily basis.
But here it is always on the first Wednesday monthly. So first the Profit
or not?

 

[daveza]

Win some lose some.

Petrol stations with fuel in their tanks lose when the price comes down and gain when the price goes up.

 

[OhGats]

You stand 2 chances: Fat and thin.
Prices will not come down, not while there is a fast buck to be made in sunny SA.

 

[boramk]

Will prices come down now?

No.

 

[boramk]

So lets say the Rand/Dollar rate improves radically over the next 3 months

No.

 

[Kim_Webchick]

They say that food prices take at least 5 to 7 months before they come down, I just wish that they would food is terribly high

 

[disabled]

I suppose that it is unlikely for prices to fall, at least substantially. On the other hand if you look at the measly prices producers are paid for their produce and the prices we pay at retailers it is quite shocking. Some farmers only get about R1.50 per liter of milk

Prices of all veggie produce and dairy produce will never come down just because of this! we are organic veggie farmers who supply to major outlets, believe me we not making it and after 5 yrs packing it in, there are 100's of dairy/veggie farmers who have and are packing it in because the overheads are far greater than their profit! not to mention the bad elements i.e. theft. weather etc. Not too sure about cattle farmers

WE have had 2 price increases in 5 yrs Go figure it out!

so we have a choice...

1. Toytoy for better prices from the outlets OR
2. Sell our farms

The later works best!!! LOL

 

[daveza]

http://www.iol.co.za/index.php?set_id=1&click_id=13&art_id=vn20081204120714850C618793

Iraj Abedian, CEO of Pan-African Capital Holdings, said that it was not accurate to claim that the petrol price is the chief determinant of food prices.

"It takes time for distributors and manufacturers to become convinced that price reductions are permanent, and pass them on to consumers.

Ina Wilken, spokesperson for the South African National Consumer Union, was adamant that consumers deserved to benefit tangibly from the decrease in the price of petrol.

"We're always given the excuse that transport costs drive high food costs. Now it's time to put some of the proceeds of petrol savings into shoppers' back pockets," Wilken said.

"It is the third fuel decrease in 2008. By now we should have seen reductions in food prices

+1 on the last sentence.

 

[APoc184]

http://www.iol.co.za/index.php?set_id=1&click_id=13&art_id=vn20081204120714850C618793



+1 on the last sentence.

+100000

This was exactly my point with the OP.

I understand that suppliers cant change prices every month because they are not sure of the costs, but they are very quick to raise prices when petrol does go up.

 

[APoc184]

WE have had 2 price increases in 5 yrs Go figure it out!

so we have a choice...

1. Toytoy for better prices from the outlets OR
2. Sell our farms

The later works best!!! LOL

You do not sound worried at all about selling and starting over. Or is that a nervous giggle?

 

[LCBXX]

I have never seen prices come down for anything that went up "due to the petrol price". It's is called "Raking in the profits"

 

[APoc184]

Further price drops expected

Just adding more or should I say less fuel to the fire.

Surely a drop of 40% in the fuel price over the last 4 months must have a huge effect on prices????

 

[boramk]

FFS guys, we live in SA, its never going to happen!

Prices just won't be going up for a while

 

[APoc184]

FFS guys, we live in SA, its never going to happen!

Prices just won't be going up for a while

Surely we are allowed to daydream....

 

[APoc184]

Conspiracy theories

And the big question of course, is why prices of goods and services always go up with a fuel price increases but never ever seem to come down when the fuel price drops? Is big business just keeping quiet about the relatively high prices of diesel compared with petrol and just jacking prices up and then not bringing them down with the hope that no-one will notice?

I think we will be seeing more and more of these articles and queries if nothing is done about prices.

Maybe we can also have one each day, like the SEACOM posts.....

 

[semiautomatix]

Woolworths and Pick 'n Pay have been quite adamant that they will pass savings onto the consumer. I guess in light of the global financial crisis we shall have to wait and see.

 

[2CentsWorth]

It makes sense that imported stuff will not come down because of financial crisis. Exchange rates etc..

But surely lots of food products are produced locally. If those prices will come down remains to be seen.

Take a chocolate for example. Produced in South Africa. Prices went up by minimum 30%. Now will that come down now? I dont think so. Supplier will rather bank the profit and throw some money at charity...

Just bear in mind that any cost price reductions due to production reduction costs (thanks to the fuel price) will take longer to filter through than a few weeks.

To use your example: a chocolate has many different facets in its production line, and the costs of these in general are not hinged on the fuel price. Here's a brief overview:

Many ingredients of a chocolate bar are imported. South Africa produces sugar and many other products but cocoa and many preservatives are imported. Flavourants may also be imported. So, given the current state of the rand, importing now costs more than when the rand was at R7 -> $ levels.

Even though the fuel cost for transporting these may be significant, there is an overall food supply shortage all over the world - which has driven food price inflation higher over the last 8 quarters. Currently there is an undersupply of sugar to the world food markets as the ethanol from sugar industry has grown significantly in the last 36 months. This is significant as South Africa is a regional exporter of sugar and sugar by products. Also, as Zimbabwe's export production has reduced to nothing, other regional suppliers of sugar and maize has had to pick up the slack, obviously meaning an overall cost of supply in all these products. Maize, for example, is a vital source of many by products - including glucose - often used in chocolates.

When factories buy these ingredients & products, they tend to buy several months in advance to ensure production remains constant and uninterrupted. Therefore, the chocolate bar you're eating now may have been made several months ago - if no a year or two ago, when the oil price was still high. So the current fuel price advantage may take some time to filter through the manufacturing price all the way to the retailer.


However - the retailers often seem to site the fuel price for their constant increases, and unfortunately they're getting away with it. Just like the taxi industry doesn't reduce prices when the fuel price comes down, so neither does most of the retail industry. But given the current global economic crisis, I don't think it's something we can expect.