Question

Wholesale and Retail of Food in South Africa 2020: Impact of COVID-19 on Consumer Shopping Patterns Competition has increased dramatically as the grocery market has matured. The lines between traditional retail and wholesale channels is blurred, and the larger players have substantial procurement, central warehousing and distribution divisions. The traditional wholesale and fresh produce markets are being eclipsed by the retail trade as larger farmers supply directly to supermarkets, and smaller and informal traders make more use of the leading grocery companies for their supply. Supermarkets have expanded into less central areas, local convenience stores and garage forecourt retailing. The coronavirus outbreak has had a significant effect on consumer shopping patterns, and analysts expect the rising demand for food and essential grocery products to provide a short-term boost to supermarket sales and revenues. While panic buying has subsided, overall demand for food remains elevated. There has also been a massive increase in demand for online shopping services.

1.Based on the information in the case study, identify any five factors affecting the demand in South Africa’s food sector

2.Suppose individual X opened a supermarket just before lockdown commenced and does not offer online shopping. With the aid of a graph, illustrate and explain the effect on the change in demand for groceries on equilibrium price and quantity of groceries post-lockdown, ceteris paribus.

3.Identify and explain the market structure to which the grocery market explained in the case study belongs.

Answer 1

Ans 1) Five factors that are affecting the demand in South Africa's Food Security after the pandemic Coronavirus has erupted are identified as follows: First is that the food industries aren't able to supply food products as demanded in the market and hence, demand isn't met by the sufficient availability of supply/stock of food products as there is shortage of labour supply, and whenever there isn't enough labour supply taking place, obviously there is food supply shortages also. And in the country like Sub-Saharan Africa, food supply is mainly labour-intensive (mainly, constituting informal labour and workers holding small pieces of land) which makes up more than 60% of the population and very less of the capital is used in the production of food commodities and when there isn't enough availability/supply of labour in the market, South Africa doesn't cope up to meet the demand of the public as workers and small farmers are strictly restricted by the Government not to move and travel from one place to another as well as chronic and negative health impacts by this virus scared each and every labour/worker and else to move out of their homes. And hence, this shortage of labour and food supply has a significant impact on the supply chains of and across South Africa. Secondly, imports and exports' restrictions is another major concern to look at. Many of the Governments have closed the borders of their countries in a fear to prevent the entry of this Coronavirus from somewhere outside. And this has negatively impacted the economy (as the local food supply chains have disrupted) but along with that prevented many farmers and traders from being able to trade the food products, both nationally and internationally. And this pandemic has now made harder for the farmers to support their daily working operations. As local food markets are considered as the backbone of the informal economy where people used to went in the markets and purchase whatever they wanted to purchase but now in towns, cities and whole of the nation, lockdown and the policies implemented by the Government regarding the closing of the markets and restricting people gathering at the markers couldn't prove to be dangerous and harmful for the traders only but on the other hand, for the public also. (and ofcourse, by saying this, we can conclude that closing of the markets and restrictions on the public to move to the markets have proved drastically dangerous for the nation also). Forth factor is the price fluctuations in the food products, that is also of the major concern. As there are major disruptions in food commodities and agricultural and farm produce supply chain, there are less or no chances to import products as well as the announcement of the closure of the markets to prevent public gathering, prices are tends to rise due to all of the above given reasons as the markets aren't able to meet the demand of the public as there is a shortage of food products. Country like Ghana has seen a drastic variation in the food prices (i.e. approximately 8% rise on the average cost of food products), which may prove to be harmful for the economy. Fifth factor, farmers income has also been negatively impacted and it has proved that many farms now may or would go out of the business soon if the situation isn't handled with immediate actions to control this pandemic Coronavirus.

Ans 2) Referring the explanation of the situation given in point 2 to this diagrammatical representation pasted below (as the picture);

In this case, a person X opened up the Supermarket, i.e., also known as Self-service Stores, just before the lockdown commenced and doesn't offer the online shopping now. This has impacted that Supermarket drastically and negatively, as the Govt. has put restrictions on the people to move out to the stores and has implemented policies to close markets to prevent them from pandemic Coronavirus and as the resultant, Supermarkets are affected drastically as there is no/less quantity of groceries demanded in the market by the public which has lead to the surplus of the food supply in the markets and that surplus can't be sold and hence, when there is not sufficient/enough demand in the market to meet the supply/stock available, prices are forced to be pulled down due to the fall in quantity demanded, and hence Supermarkets won't ask the farmers to produce more goods and food products until and unless already stocked products are sold. (Refer diagram)

Ans 3) This grocery market (which is a synonym for Supermarket, i.e., Self-service shops) comes under the Monopolistic Competition Market, which basically produces differentiated products (but here in this market, except for the differentiated commodities, this market structure is very similar to the pure competition and the firms even sell differentiated products but are the close-substitutes of each other), and in this market structure, there are low barriers or restrictions to enter such markets. Less profits than Monopoly are earned in this type of Market Structure.