Competition Commission starts fresh produce market inquiry

The Competition Commission has formally launched its Fresh Produce Market Inquiry following the publication of the final terms of reference for the inquiry. For the purposes of the inquiry, the commission will focus on five kinds of fruits and six kinds of vegetables.

The purpose of the inquiry is to examine whether any features in the fresh produce value chain impede, restrict or distort competition in the market. The commission identified these three themes that cover the entire fresh produce value chain:

• Efficiency of the value chain, with an emphasis on the dynamics around fresh produce market facilities
• Market dynamics of key inputs and its impact on producers
• Barriers to entry, expansion and participation.

Also, for the purposes of this inquiry, the investigation will focus on selected fruits and vegetables that represent the fresh produce value chain and account for at least 70% of the production and sale of these products throughout South Africa.

The five fruits are apples, citrus fruit, bananas, pears and table grapes and the six vegetables are potatoes, onions, carrots, cabbage, tomatoes and spinach.

“The food and agro-processing sector has been a priority for the commission since 2008 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,” Doris Tshepe, the commissioner, says.

Therefore, the commission will conduct an inquiry into the fresh produce value chain to understand its functioning and the features, or combination of features, that may be impeding competition and participation, she explains.

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Focus on each level of value chain

The market inquiry will focus on particular issues at each layer of the value chain, including the sale of fresh produce by the farmer to the customer and include the retailer, processor or export market.

 “The main objective of the inquiry is to identify features, or combination of features, that inhibit or distort competition and participation in the fresh produce value chain,” Hardin Ratshisusu, deputy commissioner, who will chair the inquiry, says.

“Where there are competition and/or public interest issues, the inquiry will provide recommendations to foster competition and ensure equitable and meaningful participation in the value chain for the benefit of all stakeholders as well as consumers in the economy.”

According to the terms of reference, the commission prioritised the food and agro-processing sector in its Prioritisation Framework since 2008 as the sector is a source of staple food and has the potential to create significant employment opportunities, thereby serving as a driver of inclusive growth in the South African economy.

Essential foods are also critical to the socio-economic wellbeing of a nation and in particular to its poorest consumers who spend a significant portion of their income on essential foods. The Covid-19 pandemic again demonstrated that nutrition and affordable healthy foods are important for household health, as well as maintaining a country’s food security.

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Levels of concentration study

The commission published a study In November 2021 on the levels of concentration in the South African economy to assess patterns of concentration and participation in the South African economy. It revealed that, while large farms make up just 6.5% of all farms in South Africa, they accounted for 67% of total income in 2017/18.

The study also showed a significant reduction in the number of farming units over two decades. In 1993 there were almost 58 000 farming units and just over 40 000 in 2017, representing a decrease of 31%.

The commission’s research into essential food prices also consistently highlighted the sharp decline in the number of commercial farms that may be an indication of the difficulties smaller farmers face in reaching the necessary economies of scale to decrease costs and maintain profitability.

The commission’s Essential Food Pricing Monitoring Report of August 2021 highlighted that “the need for scale in commercial farming is partly tied to the adverse market structure facing small market players for inputs and outputs as both these layers of the value chain are concentrated with larger players able to exert market power on smaller players.

“Such dynamics can negatively affect the transformation of the sector as potential new entrants (including emerging black farmers) struggle to become established and sustainable without entering at scale.”

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Information shows price increases above inflation

The information gathered by the Commission from existing research also indicates that the cost of fresh produce has largely been increasing above inflation levels. Existing studies show broad concern over price levels and volatility of pricing for fresh produce in South Africa.

These studies also show that high prices of fresh produce have a disproportionate effect on the poor and low-income earners in the country and the commission says a fuller understanding of the main drivers of the apparent high prices of fresh produce in South Africa is a critical area that this inquiry may address. 

The inquiry will officially start on 31 March 2023 and run for 18 months. Anyone who wants to submit comments can find the Statement of Issues (SOI), guidelines for participation and the administrative timetable on the commission’s website at https://www.compcom.co.za/fresh-produce-market-inquiry/.