COMPETITION COMMISSION FRESH PRODUCE MARKET INQUIRY

The Competition Commission has focussed on the food and agro-processing sector due to its significant contribution to the economy broadly and its potential to serve as a driver of inclusive growth in the South African economy.  It is for these reasons that the Commission, through the Fresh Produce Market Inquiry, is conducting an inquiry into the fresh produce value chain, in order to understand its functioning and the features, or combination of features, which may be impeding competition and participation.

 

The Southern Africa Food Lab was requested to assist the Commission with hosting a series of workshops and key informant interviews with small and emerging farmers.  The aim of these workshops was to engage with small-scale farmers on various aspects of their experiences in the fresh produce sector, including challenges related to market access, input procurement, unfair treatment in sales, access to finance, and water access.

 

In October 2023, the Lab held two workshops with groups of small-scale farmers in the iLembe District Municipality and the eThekwini Metropolitan Municipality of KwaZulu-Natal Province; as well as key informant interviews with four individual small-scale farmers and with one black-owned fruit packaging company in the Western Cape.

 

The fresh produce market inquiry has recommended SA’s largest property owners make a minimum allocation of space available in their malls to smaller emerging challenger retailers and players from disadvantaged backgrounds, in a bid to counter the dominance of the ‘big four’ retailers.

Even with the elimination of controversial exclusivity clauses in shopping centre lease agreements following a previous grocery retail market inquiry, there had not been “any meaningful entry in the retail space” of new retailers, particularly previously disadvantaged individuals. Enhanced competition in this market will likely lead to more price competition between retailers. As such, the Commission wants the Department of Trade, Industry and Competition (dtic) to set up a fund to assist new entrants in the fruit and vegetables market.

 

These were some of the recommendations made by the Competition Commission’s high-level inquiry into the state of the fresh produce market launched 14 months ago. At the time, the commission said it believed there were market features that distorted or restricted competition.

 

The scope of the inquiry focused on five fruits, namely apple, citrus, bananas, pears and table grapes; and six vegetables, namely potatoes, onions, carrots, cabbage, tomatoes and spinach.

 

The inquiry found that there were some instances of “high markups” for fresh produce in the retail market over a sustained period of time, which was a “good indicator of lack of competition. The prices of fresh produce were “not transparent enough” to allow consumers to reasonably compare prices in-store and across retailers. This was because the pricing of fresh produce was not done on a per kilogram basis but on a per unit basis. This lack of transparency in unit pricing “distorts competition” in that consumers are “less able to compare pricing between the retailers”.

 

The inquiry recommended that the Department of Trade, Industry and Competition (dtic) set up a fund to help entrants into the market to challenge the established retailers and also called on property owners to reserve space in malls and shopping complexes for fresh produce entrants in a bid to balance out the monopoly.

The inquiry raised concern that infrastructure across all fresh produce markets in the country was poor and no funds for recapitalisation were set aside for maintenance and development even though they were sustainable.

 

The commission assessed the infrastructure of the main four markets in Joburg, Tshwane, Cape Town and Durban.

 

It recommended that the SA Local Government Association take a leading role in the corporation of the marketing entities, implementation of the Municipal Finance Management Act and the three-year review of bye-laws.

 

The inquiry noted that smallholder farmers were systematically cut out of the market with an about 1% contribution to the sales as they lacked access to the market, funds, retail shelves and water rights. It recommended 29 practical actions and eight remedies to address the barriers to entry and participation of small farmers.

The inquiry said the seed market was littered with firms charging exploitative prices where the firms had a high market share. It cited Simba Pepsico as being particularly responsible for the practice of early termination of the variety that it had growers rights to ensure that it was no longer available in the market. Starke Ayres was cited as having particularly high mark-ups on its seed varieties, and the commission recommended that the company reduce its mark-ups to the market average.

The inquiry is continuing to analyse the data and engagements will continue.

 

Learn more through the Competition Commission’s website here. 

PROJECTS PARTNER:

THE COMPETITION COMMISSION

 

The Competition Commission is a statutory body constituted in terms of the Competition Act, No 89 of 1998 by the Government of South Africa empowered to investigate, control and evaluate restrictive business practices, abuse of dominant positions and mergers in order to achieve equity and efficiency in the South African economy.