Food pricing report shows drop in number of farmers

The Competition Commission’s latest Essential Food Pricing Monitoring Report has shown a drop in the number of farmers.

In 2007 South Africa had 3,899 dairy farmers, but only 1,053 in January this year. This alarming drop has raised concerns about market power across the value chain with farmers, especially small farmers, having to deal with low operating margins.

The report focuses on tracking the impact of the Covid-19 pandemic and the resulting food market crisis. The new report is the fifth and apart from the drop in farmer numbers, also indicates an increase in concentration across the food value chain.

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Concerns about food market functioning

According to the report, the commission has identified various concerns in the functioning of the country’s food markets and commercial value chains in the industry. Some of these concerns include:

• the wide farm-to-retail spread in essential food pricing
• large price differences between regions for basic fresh produce
• growing margins at processor and retailer level
• the general trend of price inflation since the start of the pandemic for some fresh produce due to global supply chain issues and exchange rate effects.

“The agricultural value chain in South Africa is highly industrialised and characterised by the super commercialisation of production through large-scale farming, as well as concentrated upstream inputs and concentrated processing, which has implications for small-scale farming and participation in the agricultural markets,” the commission says.

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Challenges and opportunities for small farmers

It is especially hard for small and emerging farmers, who have to deal with several challenges, including as poor yields and low productivity, as well as barriers to scaling from smaller to larger growers, such as access to finance, infrastructure and routes to market, which could provide the necessary scale to become more efficient.

According to the commission, there has been a global trend in recent years and especially since the start of the pandemic to localise farming and shorten supply chains, with consumers increasingly ‘buying local’ for reasons such as climate change, environmental concerns, food safety and quality considerations.

This trend towards local farming inevitably favours small-scale farming.

“The localisation of farming and shorter supply chains can generate more opportunities for smaller farmers, as shorter supply chains forgo the high transport and high intermediation costs involved in longer value chains.

“This has the potential to improve small farmer participation in the value chain and contribute to address issues such as rural poverty and the lack of access to affordable and healthy food,” says James Hodge, chief economist at the Competition Commission.

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Essential food pricing

Research for the latest report has indicated clear increases in pricing for products such as potatoes, tomatoes and cooking oil, but there has been no apparent link to the progression of the pandemic. There was also no panic buying during the third wave that could drive price changes in essential food pricing.

According to Hodge it seems that the increased frequency of extreme weather in the country and globally is the reason for high food price inflation over the past 18 months.

The commission received complaints of price gouging of essential food such as cooking oil, meat, rice and sugar in areas affected by the riots and looting in KwaZulu Natal and Gauteng. In response to the accompanying supply chain disruption of essential goods, the commission released block exemptions on 15 July 2021 to permit certain types of conduct to alleviate the disruption of food supply chains.

This enabled coordination around the production, distribution and retail of essential goods to ensure food security in affected areas.

“In the context of the pandemic and the economic crisis, the on-going monitoring of essential food product prices is critically important to the welfare of citizens, particularly poorer consumers. The pandemic and recent rioting and looting have also shown that long food supply chains can be disrupted in the modern era,” Hodge says.

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Global concerns

He points out that there have also been questions around the structure of agriculture globally, specifically around industrial agriculture and the need to promote smaller, localised agriculture which also links up with the climate change agenda.

Therefore the Competition commission also investigated the specific challenges small-scale farmers in South Africa face by considering examples of small-scale farming development initiatives such as U Can Grow Earth and Izindaba Zokudla.

There are opportunities for small-scale and urban farming operations by capitalising on shortened value chains from local production, re-using food waste and the production of organic, traceable food produce, but small-scale farmers need training and development, as well as securing off-take agreements.