SOUTH AFRICA – The Competition Commission of South Africa has launched a public market inquiry into the fresh produce market to examine whether there are any features in its value chain which lessen, prevent or distort competitiveness.
Other than gaining insight on the state of competition in the industry, the commission seeks to understand the market features affecting price outcomes and the challenges currently faced by farmers, especially small-scale and emerging farmers.
The terms of reference of the Fresh Produce Market Inquiry were published in the Government Gazette on March 25, with the public and/or any interested party invited to make comment on the proposed terms of reference on/before 22 April 2022.
Agriculture plays a significant role in the South African economy as it contributes to food production, job creation, raw material supply to agro-industrial and manufacturing sectors, as well as export-driven foreign exchange income.
“The commission has prioritised the food and agro-processing sector since 2008 owing to the sector being a source of staple food and the potential of the sector to create significant employment opportunities, thereby serving as a driver of inclusive growth in the South African economy,” it says.
Focus points of inquiry
The commission has identified four broad themes, which cover the features that may impede, restrict or distort competition and market outcomes.
The first is the efficiency of the value chain, which is focused on determining how the value chain and differing levels of concentration at various levels and route to market impact prices and efficiency with a focus on the fresh produce market.
Further, the market dynamics and impact of key inputs for growers theme will include seeds, fertilisers, agrochemicals, including herbicides, fungicides and pesticides, and farm equipment.
Many of these inputs are imported or priced based on international bases and can lead to significant cost effects at the grower.
This theme is focused on the upper-end of the production value chain, the commission adds.
Another theme will look at small and historically disadvantaged persons growers and participation, centred on the lower-end of the production value chain.
“Specifically, the inquiry will consider the barriers to entry specifically facing small and historically disadvantaged persons growers and issues around access to fresh produce markets or retailers through contract farming,” the commission says.
The final theme is barriers to entry in relation to the regulatory environment, which will focus on the broader regulatory environment which prevails in the fresh produce industry.
The Fresh Produce Market Inquiry will focus on particular issues at each layer of the value chain. Specifically, the scope of the inquiry will cover aspects from the sale of fresh produce by the farmer to the customer, whether the retailer, processor or export market.
However, the sale and distribution of processed products by food processors will be excluded from the inquiry.
In addition, the interaction of retailers and end consumers will also not be considered, as this was previously covered by the Grocery and Retail Market Inquiry.
Commission ordered cease of tenancy exclusivity by retailers
The grocery and retail inquiry was initiated in November 2015 to deepen understand a sector dominated by Shoprite Holdings and its upmarket chain Checkers, Pick n Pay Stores, Spar Group and Woolworths Holdings.
Following the probe, the commission found that exclusive leases and tenant mix clauses negotiated by the major supermarket chains in shopping malls across the country denied opportunities for specialist, emerging chains and small, medium and micro-enterprises (SMME) in areas where the majority of consumers do their weekly and monthly shopping.
Some exclusive leases between landlords and the big four retail chains are between 20 and 40 years long, shutting out the entry of small businesses into malls for decades.
The inquiry found that more than 70% of shopping malls, which account for about half of all grocery sales nationally, are subject to exclusive lease agreements.
After the investigations, the commission recommended that national retailers immediately cease enforcing exclusivity clauses against specialist and SMME stores in shopping malls and all grocery retailers in non-urban areas where there are fewer alternative malls within three years from 2019.