South Africa

The Fresh Produce Market Inquiry has released its final report, which identifies features within the fresh produce value chain that impede, restrict and distort competition.

The inquiry, initiated by the Competition Commission, follows rigorous analysis and extensive stakeholder engagement aimed at assessing competition within South Africa's fresh produce market.

The inquiry began on 31 March 2023 and assessed the fresh produce value chain across three main themes, including the efficiency of the value chain, concentrating on fresh produce market facilities; market dynamics of key inputs and their impact on producers, and barriers to entry, expansion and participation.

At a media briefing on Monday where the report was launched, Deputy Commissioner and chair of the inquiry, Hardin Ratshisusu, noted that the fresh produce market – valued at some R53 billion annually (excluding informal sales channels and exports) – presents “significant opportunity for growth and inclusion”. 

“However, the share of participation by historically disadvantaged farmers and market agents remains low. 

“This underrepresentation is a stark reminder of the sector’s historical inequities and the urgent need for meaningful participation in the economy and transformation in South Africa,” he said.

The inquiry, on the main, focused on five fruits, namely, apples, citrus (notably oranges and soft citrus), bananas, pears and table grapes, along with six vegetables, including potatoes, onions, carrots, cabbage, tomatoes and spinach. These products are staples in South African households.

Ratshisusu outlined the following six concerns related to competition in the fresh produce sector:

• Inefficient municipal fresh produce markets;
• Inefficiencies in the value chain;
• The conduct of fresh produce market agents;
• High input costs (particularly for certain fertilisers and seeds);
• Regulatory obstacles, and 
• Systemic barriers to entry for small-scale, emerging and historically disadvantaged farmers.

Ratshisusu said in order to disrupt the status quo, dynamism is required in the form of new and diverse lower cost models of retailing, which will allow greater pass through of farmgate and supplier prices.

“Localised competition, particularly from SMMEs and HDP [historically disadvantaged persons] independent retailers with diverse models, including through greater procurement from National Fresh Produce Markets (NFPM), is required for more dynamic competition in fresh produce retail. 

“This, in turn, requires efficiently functioning NFPMs and effective policies to support alternative retail models,” Ratshisusu said.

Honing in on historically disadvantaged farmers, Ratshisusu said the inquiry found that these farmers are hitting hard ground when it comes to accessing formal retail channels and national fresh produce markets.

“[To] enhance the participation of SMMEs and HDPs and to improve their ability to innovate and upgrade in grocery retail value chains in South Africa, and to create a fairer and more level playing field, the inquiry is of the view that the feasibility of a mandatory code of conduct be investigated further. 

“There are valuable lessons to be learnt and applied to the South African context based on the experience of international best practice,” he said.

Consumer bite

Troublingly for the consumer, the inquiry found that with regard to retailer pricing of certain fresh produce, “supermarket sales and pricing revealed instances of high mark-ups of total revenue over what suppliers are paid for some of the selected products in the periods analysed”.

“However, net margins - after the high costs of supermarket chain operations are accounted for - are slim. This indicates concerns in the value chain, where high rents may be extracted at the supermarket level of the value chain. 

“The implication is that under the current models of modern food retailing, supermarket chains are not efficiently transmitting prices obtained from farmers to consumers for these produce categories. This suggests that competition in the formal retailing of fresh produce is not as healthy as it could be,” Ratshisusu said.

Moving forward

Ratshisusu explained that to resolve the challenges in the fresh produce market and related distortions to competition in the sector, the inquiry has identified a set of 31 “practical and reasonable remedies”.

“These measures, which include recommendations for policy reform, market restructuring, and targeted support for small-scale, emerging and historically disadvantaged farmers, are intended to promote competition, lower barriers to entry, and create a more inclusive and competitive fresh produce value chain,” he said.

The full report, including recommendations and remedies, is available on the commission’s website at https://www.compcom.co.za/fresh-produce-market-inquiry-final-report-launch.

On the importance of the inquiry, Ratshisusu told the media that the report is “more than a document, as it provides rich insights into the domestic fresh produce market and, more importantly, a path towards economic inclusion”. 

“It reflects the need to address entrenched challenges and create a market that works for all, from the smallest farmer to the largest retailer, and ultimately for the consumer.

“Market inquiries are an important strategic focus area of the Competition Commission to tackle high market concentration and barriers to entry in markets to achieve economic inclusion and transformation. 

“This report therefore signifies the Commission’s resolve, in a transparent, objective and evidence-based manner, to fostering competitive markets that promote economic growth, economic transformation and contribute to the broader socio-economic objectives of the country,” Ratshisusu said. – SAnews.gov.za

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