/ 19 June 2024

Call for reform and pricing transparency in South Africa’s fresh produce markets

Joburg Fresh Priduce Market 5347 Dv (1)
About 5 000 farmers supply fresh produce to the Joburg market. (Delwyn Verasamy/M&G)

South Africa’s fresh produce markets need a shake-up to improve competitiveness and inclusivity of black farmers and market agents, while supermarkets slapping high mark-ups on fruit and vegetables must be transparent about pricing.

These were among the eight remedial actions and 21 recommendations proposed in the Competition Commission’s Fresh Produce Market Inquiry’s (FPMI) provisional report released in Pretoria on Tuesday, following the commission’s inquiry into the competitiveness of the sector.

The inquiry aimed to find out whether there are adverse effects in the fresh produce value chain “that may impede, restrict or distort competition”.

It focused on issues such as the structure and condition of markets, the shareholder ownership of market agents that dominate 90% of the country’s big four fresh produce markets in Johannesburg, Durban, Cape Town and Tshwane, and the sale of fresh produce by farmers to customers, including retailers, processors and export markets.

The commission identified three themes: efficiency of the value chain, with an emphasis on the dynamics around fresh produce market facilities, market dynamics of key inputs and the effect on producers, and barriers to entry, expansion and participation.

The inquiry focused on apples, citrus (particularly oranges and soft citrus), bananas, pears, table grapes, potatoes, onions, carrots, cabbage, tomatoes and spinach.

FPMI chairperson Hardin Ratshisusu said the commission had received nine comments from industry associations, processors, civil society, wholesalers and aggregators and had held discussions with 15 stakeholders across the value chain, including government departments, retailers, regulators and industry bodies.

The inquiry also assessed the level and extent of small and medium enterprises (SME) and historically disadvantaged people’s (HDP’s) participation in the markets.

Ratshisusu said the market size of the domestic fresh produce market is estimated to be more than R53 billion in turnover annually. Of this, R21 billion is sold through national fresh produce markets, and about R32 billion is through formal retailers. This figure excludes exports, direct sales and farm gate sales.

He said the inquiry found that the infrastructure of national fresh produce markets has deteriorated. 

“The inquiry also found that although NFPMs [national fresh produce markets] generate enough revenue to sustain themselves, profits generated are not ring-fenced to cater for current and future capital expenditure.”

Although the inquiry focused on only the top four national markets, the findings were applicable across all of the country’s markets, Ratshisusu said.

“The inquiry also found inconsistencies in the NFPM’s bylaws … this is a particular concern, especially for smallholder and SME or HDP farmers who may be required to comply with a different set of rules across various NFMPs. Difference in trading hours, for example, may imply that certain farmers are not able to access their ideal markets and be forced to sell through markets closer to them,” he said, which could lead to distorted competition between farmers. 

It also found that SME farmers, particularly HDP farmers, find it difficult to sell their produce in the national fresh produce markets. Despite being the least costly route to market, it has been estimated that less than 1% of gross value of sales in national freight produce markets come from small holder farmers.

Ratshisusu said HDP or SME market agents find it difficult to grow in the market space where entry is limited and the survival rate is low.

There are also concerns regarding structural linkages between market agents, which limits competition between market agencies. “Some questionable practices of the market agents were also uncovered.”

In addition there was a problem with the Agricultural Produce Agents Council, because the registrar has to report to a council composed of market agents that it is supposed to regulate.

Supermarkets hike prices

Regarding the retail prices for fresh produce, the inquiry found instances of high mark-ups. 

High markups that retailers are able to sustain over a period of time could be a good indicator of lack of competition,” Ratshisusu said.

But the inquiry is continuing to analyse the data and further talks with retailers will take place after the publication of the provisional report, “because the retailers concerned raised some issues with the data that was analysed.” 

The inquiry also found that the pricing of fresh produce by Woolworths, Shoprite, Spar, Food Lovers Market and Pick n Pay is “not transparent enough such that they allow for consumers to reasonably compare prices in store and across retailers”.

“This is because pricing of fresh produce is not on a per kilogramme basis, but on a per unit basis,” he said.

“Retailers should ensure that in addition to unit prices displayed on various fresh produce, that they should also be per kilogramme or gram pricing displayed below the unit prices in their stores.”

He said retailers were opposed to this pricing proposal, claiming it would be costly to adopt.

Ratshisusu said the inquiry also found that since the commission’s grocery retail market inquiry that banned the use of exclusive leases, no new retailers have entered the market to challenge the top four retailers in shopping centres and they continue to “account for a substantial share of the national grocery retail market”.

The inquiry also assessed the markets for fertilisers, agrochemicals and seeds and found that farmers rely extensively on imports, exposing the agricultural sector to global risks. This has been observed during the Covid-19 period, as well as the events in Ukraine.

“Nonetheless, the inquiry found that some firms in the sector engage in practices or conduct that may distort competition. This centres mostly around the use of territorial allocation in their distribution agreements with retailers,” he said.

“In the seeds industry, the inquiry found instances where a firm appears to be involved in charging farmers what could be characterised as exploitative prices,” he said.

He added that “access issues” had also been uncovered regarding potatoes. The inquiry alleged that Simba had ensured the early termination of a particular cultivar of potatoes, before expiry of its plant breeder rights, to ensure competitors would not be able to get the seed.

Among the provisional recommendations were:

·   Municipalities and the South African Local Government Association should corporatise markets as state-owned entities in line with the Municipal Finance Management Act, or create public private partnerships to run the markets.

·   All markets must set a minimum target to increase annual sales of small-scale and HDP farmers by 10% annually.

·   Bylaws, including opening times, must be harmonised across all markets and pass the risk from the farmer to the buyer.

·   Markets must put in place a programme for the introduction of new HDP market agents and ensure they have access to highly traded products such as potatoes, onions, tomatoes and bananas.

·   Simba should make its potato variety FL2006 gene material available to the Agricultural Research Council for preservation.

·   Starke Ayres should reduce the mark-ups of cabbage, spinach and tomato seeds to the average of the mark-up of its entire seeds category.

The commission aims to publish its final report of the 18-month inquiry in October.