About 5,000 farmers supply Johannesburg markets with fresh produce. (Delwyn Verasamy/M&G)
South Africa's fresh produce markets need reform to make them more competitive and inclusive for black farmers and market traders, while supermarkets that impose high markups on fruit and vegetables need to ensure pricing transparency.
These are some of the eight corrective actions and 21 recommendations proposed in the interim report of the Commission's Fresh Produce Markets Inquiry (FPMI), released in Pretoria on Tuesday, following the findings of the Competition Commission's investigation into the competitiveness of the sector.
The aim of the investigation was to examine whether there were any adverse effects on the fresh produce value chain that “may prevent, restrict or distort competition”.
The investigation focused on issues such as market structure and conditions, the ownership structure of market agents which account for 90% of the country's four largest wet markets in Johannesburg, Durban, Cape Town and Tshwane, and farmers' sales of fresh produce to customers such as retailers, processors and export markets.
The committee identified three themes: value chain efficiency with a focus on trends around fresh produce market facilities; market trends for key inputs and their impact on producers; and barriers to entry, expansion and participation.
The study focused on apples, citrus fruits (especially oranges and soft citrus fruits), bananas, pears, table grapes, potatoes, onions, carrots, cabbage, tomatoes and spinach.
FPMI chairman Hardin Latsisus said the committee had received nine comments from industry associations, processors, civil society organisations, wholesalers and aggregators, and had held consultations with 15 stakeholders across the value chain, including government agencies, retailers, regulators and industry associations.
The survey also assessed the level and extent of market participation of small and medium-sized enterprises (SMEs) and historically disadvantaged people (HDPs).
Latsis said the size of the national fresh produce market was estimated to be more than R53 billion in annual sales, of which R21 billion was sold through the national fresh produce market and about R32 billion through formal retailers – this figure does not include exports, direct sales or farm sales.
He said investigations had revealed that infrastructure in the country's wet food markets was deteriorating.
“In the survey, the NFPM [national fresh produce markets] Although companies are making enough profits to sustain themselves, the profits generated are not being set aside to fund current and future capital investments.”
Although the survey focused on only the top four markets in the country, Latsisis said the findings apply to all markets in the country.
“The investigation also found that there are inconsistencies in the bylaws of the NFMPs. This is of particular concern to smallholder, SME and HDP farmers who may have to follow different sets of rules in different NFMPs. For example, differences in trading hours could mean that certain farmers are unable to access their ideal market and are forced to sell at a closer market,” he said, which could lead to distortions of competition between farmers.
Small and medium-sized farmers, especially HDP farmers, also found it difficult to sell their produce in the country's fresh produce markets. Despite being the cheapest route to market, it is estimated that less than 1 percent of total sales in the country's freight produce markets are by small farmers.
Lacis said HDP and its small and medium-sized market agents find it difficult to grow in a market where entry is limited and survival rates are low.
There are also concerns about structural links between market agents that limit competition among them. “Several questionable practices of market agents have also been uncovered.”
Additionally, there were problems with the Agricultural Agents Council, as registrars have to report to a council of market agents that they regulate.
Supermarkets raise prices
With regard to retail prices of fresh produce, the study found cases of significant price increases.
“The high price marks that retailers are able to sustain over a period of time can be a good indicator of a lack of competition,” Latsisis said.
However, the committee is continuing to analyse the data and further consultations with retailers will take place after the publication of its interim report, “as the retailers concerned have raised a number of issues regarding the data analysed.”
The investigation also found that fresh food pricing by Woolworths, Shoprite, Spar, Food Lovers Market and Pick n Pay was “not transparent enough to enable consumers to reasonably compare prices within stores and between retailers”.
“This is because fresh produce is priced per unit and not per kilogram,” he said.
“Retailers should not only display unit prices on a range of fresh produce items, but also display the price per kilogram or gram underneath the unit price in-store.”
He said retailers oppose the pricing proposal because of implementation costs.
Latsis said since the commission's grocery retail market study, which banned the use of exclusive leases, no new retailers have entered the market to challenge the shopping centre's top four retailers, and the study also found that these retailers continue to “occupy a significant share of the national grocery retail market.”
The study also assessed markets for fertilizers, pesticides and seeds and found that farmers are highly dependent on imports, exposing the agricultural sector to global risks, as observed during the COVID-19 pandemic and also in the events in Ukraine.
“However, our investigations have found that some companies in the sector have engaged in practices and conduct that have the potential to distort competition, primarily centred around the use of territorial quotas in distribution agreements with retailers,” he said.
“In the seed industry, our investigations have uncovered cases where companies appear to be involved in charging farmers exploitative prices,” he said.
He added that “access issues” had also been uncovered with regard to potatoes, with the investigation finding that Simba had ensured the early termination of certain potato cultivars to prevent competitors from obtaining seeds before plant breeding rights expired.
The tentative recommendations included:
· The local government and the South African Municipal Association should either incorporate the market as a state-owned enterprise in accordance with the Local Government Finance Management Act or create a public-private partnership to run the market.
· All markets should set a minimum target of increasing annual sales of smallholder and HDP farmers by 10% each year.
· …
· The market should implement a programme to introduce new HDP market agents and provide them access to high volume traded products such as potatoes, onions, tomatoes and bananas.
· Simba should provide genetic material of potato variety FL2006 to the Agricultural Research Council for conservation.
· Stark Ayers should reduce its price increases for cabbage, spinach and tomato seed to the average of the price increases for the entire seed category.
The committee aims to publish a final report of its 18-month investigation in October.