/ 17 October 2013

Supermarket push a boon for region

Supermarket Push A Boon For Region

In 2011, when Walmart entered South Africa through Massmart, we panicked. What would ­happen to our home-grown supermarkets and goods, our unionised supermarket staff? The government intervened to protect industries and workers and a number of conditions were imposed before the deal was cleared.

Big foreign companies entering our market cause us to fear the worst. It is odd, then, that we seldom shift the focus and ask what effect our retail giants have in the less developed countries where they operate. This week we celebrate World Food Day, so perhaps it is apposite that we consider the impact of South African supermarkets on food security north of the border.

The supermarket revolution in Africa, driven by rapid urbanisation, a population boom and ­economic growth, is set to change the way people on the continent shop, eat, work and live. Because of its various effects, it is difficult to judge exactly the effect the revolution will have on food security, which is itself a complex issue.

Food security is when people have access to enough safe and nutritious food to meet their needs and preferences. According to a World Food Programme (WFP) report from July, the household food security situation in Namibia, Zimbabwe, Zambia and Swaziland is worse than the five-year average (which includes the 2008 food crisis). Meanwhile, in Malawi the WFP predicts that 1.4-million people (9.5% of the population) will be food insecure during the next year. So food insecurity is a very real concern in the countries these supermarkets operate in.

By selling cheap, safe and diverse foods, the supermarkets improve food security. Furthermore, by investing in these economies, they stimulate job creation, improve infrastructure, bolster commercial agriculture and transfer skills to employees. The benefits of supermarkets to food security should not be overlooked.

However, there are a number of factors that complicate the picture: Are those foods imported? Are they grown locally on large, capital-intensive farms that edge out smallholder farmers and decrease employment in the sector? How do supermarkets affect informal traders? And what are the health implications of the processed foods they sell?

Ongoing support
The need to source locally is something the big supermarkets are well aware of. Shoprite Holdings' sustainability report states that the group's policy is to reduce dependence on international suppliers and to source from the host country where possible.

"Ongoing support is provided to local suppliers and farmers in a growing supplier base across all African markets with a strong focus on locally procured fruit, vegetables, meat and other perishable products."

Although perishable goods are procured locally, at least in markets with accommodating climates, processed products are still largely imported. This is significant as this is where greater economic value is added.

A 2011 study showed that 50% of Shoprite's inventory in Namibia and 99% of the fresh fruit and vegetables sold in its Angolan shops were imported from South Africa. Similarly, the study showed Pick n Pay sourced 70% of its produce from home.

The discrepancy between policy and practice, according to Bruce Fraye and Jonathan Crush of the universities of Waterloo and Cape Town, respectively, is due to supermarkets' centralised form of regional procurement. This makes it difficult for local suppliers to gain access to the shops and, when they do, the ­produce is mostly sourced from large-scale farms. In Zambia, for example, 80% of fresh fruit and vegetables is bought locally, but 90% of that is from large-scale farmers.

Studies around the globe indicate that the poverty-reducing effect of agricultural growth is negligible when that growth is restricted to large-scale commercial farmers. To reduce food insecurity and poverty and create equitable growth, support for smallholder farmers is seen as the way forward.

Even our local supermarkets have acknowledged the importance of supporting small suppliers. In its 2013 sustainability report, Pick n Pay stated that its "policy will seek to drive the development of the small- and medium-enterprise sector in South Africa, which can be leveraged to promote job creation and food security".

Intrinsic tension
Job creation is stimulated because smallholder farming is more labour- intensive than mechanised, large-scale farming, and food security is a product of both direct access to food grown on the land and income derived from selling the produce to the market.

When supermarkets choose suppliers, they look for those offering goods at the right price, quantity, quality and, importantly, ones they can trust to deliver. Smallholder farmers often have trouble meeting these criteria.

Smallholder farmers may even reduce the demand for supermarkets in smaller communities, thus there is an intrinsic tension in the relationship. As Gerhard Fritz, head of Shoprite's operations in the rest of Africa, puts it: "People look at us and want us to be the 'saviours of Africa' in terms of small-scale farmers. We can't. [If you have] 100 people growing onions, tomatoes and beans – it's a small community – they give their tomatoes to their family and friends and they also sell in the street. Whatever's left, Shoprite must buy. How do we do it? Firstly, who do we sell it to [if] the whole community's growing tomatoes?"

The entry of large supermarkets also affects informal traders, who serve the most food-insecure households, according to Jane Battersby of the African Food Security Urban Network. Informal traders offer services such as breaking up bulk purchases, offering credit to loyal customers during lean times, and helping customers to save on transport costs by being nearby. Some informal traders have adapted and now use supermarkets as wholesalers, but this leads to further ­concentration of the food system and less opportunity for small suppliers, all of which makes the food system more fragile.

Another food security concern raised by the expansion of supermarkets is the exporting of a ­system that promotes unhealthy food choices because of the relative cheapness of calorie-rich and nutritionally poor foods. Leonie Joubert's book The Hungry Season highlights this issue in South Africa, "where you increasingly find a malnourished individual living inside the skin of a fat or obese person".

Malnutrition can be costly to a developing country, reducing gross domestic product (GDP) by as much as 6% to 12%, according to the World Bank, and the Global Alliance for Improved Nutrition says it reduces GDP by as much as 3% in Africa and kills 3.5-million children annually. There doesn't seem to be any reason why the South African pattern of obesity ­coupled with the malnutrition phenomenon won't be replicated in countries our food retailers operate in.

At home, supermarkets are involved in initiatives to develop smallholder farmers as part of their corporate social responsibility ­programmes and broad-based black economic empowerment strategies. This growing awareness and emphasis on social responsibility is heartening and owes a lot to the King III Report on Corporate Governance and the JSE's social responsibility investment index.

South African corporations now believe they have to make the right noises regarding accountability, not just to shareholders but to stakeholders too. Public displays of ­concern, epitomised by sustainability reports, should not be dismissed as mere lip service. Political theorists have a phrase – "the civilising effect of hypocrisy" – that describes cases where speakers make virtuous pronouncements they do not necessarily mean in the public domain that compel them to act as if they do. Thus hypocrisy leads to positive action.

But these sustainability reports are largely silent about social responsibility investment initiatives in other African countries. Shoprite's sustainability report for 2013 makes no mention of food security at all.

When Walmart entered South Africa, we panicked. Would we have had greater peace of mind if we had known that Americans had been monitoring their ambitious multinational, concerned about our welfare?

As we are the home market of these multinationals and still account for the bulk of their business, we are better able than citizens in the host countries to affect their behaviour.

So what needs to happen?

Perhaps supermarkets should set targets for local procurement in their other African markets, make these targets known and report on their progress. They can also take the lessons learned from smallholder farmer support initiatives at home and apply them in these countries.

Meanwhile, Walmart's Massmart was the only retailer to make it on the JSE's social responsibility investment "best performers" list in 2012.

SA leads the scramble for continental markets

South Africa's supermarkets are on the march, eager to establish themselves before the likes of foreign competitors such as Walmart (through Massmart), Carrefour and Tesco push into the most exciting frontier in global retail.

McKinsey, an international research group, predicts that Africa's consumer industries will grow by more than $400-billion by 2020, because the number of households with discretionary incomes is expected to rise by 53%, from 85-million to 130-million, by then.

Shoprite has been the prescient pioneer in many ways. From its first, humble foray into Zambia in 1995, the group now has operations in 16 African countries outside South Africa, with 152 shops as of June this year (19 more than in the previous year, and with 20 more planned for the next).

Its chief executive, Whitey Basson, has said that he believes there is room for 800 Shoprites in Nigeria alone.

Pick n Pay has 104 shops in seven countries outside South Africa and last year said it planned to open in the Democratic Republic of Congo and Malawi.

Meanwhile, Massmart is in 12 countries and is likely to have ambitious plans if Walmart's ­history is any guide.

Woolworths has 60 shops in 12 countries outside South Africa and has opened seven new shops in the past year, with three planned for the next. These are mostly clothing shops (90%), with only shops in countries bordering South Africa having food sections because of the limitations of Woolworths's current distribution network. –