Competition Commission to investigate fresh produce markets

The Competition Commission will be investigating fresh produce markets in South Africa to establish if any features in the fresh produce value chain lessens, prevents or distorts their competitiveness.

The terms of reference for the inquiry were published in the Government Gazette on Friday for public comment by 25 April.

The commission says the inquiry is essential to understand the state of competition in the industry, the market features affecting price outcomes and the challenges farmers, especially small-scale and emerging farmers currently have to deal with.

The sector is also important for the economy as well as employment and the nutrition and welfare of its citizens also makes this inquiry imperative.

The commission says the inquiry’s main objectives are also in line with and in support the objectives of section 2 of the Competition Act to:

• promote the efficiency, adaptability and development of the economy
• provide competitive prices and product choices for consumers
• promote employment and advance the social and economic welfare of South Africans
• expand opportunities for South African participation in world markets and recognise the role of foreign competition in the country
• ensure that small and medium-sized enterprises have an equitable opportunity to participate in the economy
• promote a greater spread of ownership, in particular to increase the ownership stakes of historically disadvantaged people
• detect and tackle conditions in the market for particular goods or services or any behaviour that tends to impede, restrict or distort competition.

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Terms of reference for fresh produce markets

The terms of reference sets out the scope as and expected timeline for the inquiry and could be amended, as necessary.

The commission will publish a report when the inquiry is completed and submit it to the minister of trade, industry and competition.

The commission prioritised the food and agro-processing sector in its prioritisation framework since 2008 because it is a source of staple food and can create significant employment opportunities to drive inclusive growth in the local economy.

The commission says essential foods are critical for the socio-economic well-being of a nation and in particular to its poorest consumers who spend a significant portion of their income on it. The inquiry will include unprocessed products, such as fruit and vegetables.

The main fruits produced and consumed locally include apples, bananas, oranges and other citrus, pears, avocados and grapes, while the main vegetables include potatoes, onions, tomatoes, carrots and cabbage.

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Value chain in fresh produce markets

The value chain starts with the input level and includes seeds, fertilizers, agrochemicals (herbicides, fungicides and pesticides), farm equipment and irrigation equipment.

The next key segment is production, where commercial production supplies various players including wholesalers, intermediaries, exporter companies, processors and retailers.

The next level involves wholesalers and intermediaries.

At the intermediary level, the processing activities add value to raw products to increase shelf life.

The bulk of fresh produce production in South Africa is sold fresh, while rejected fruit and vegetables are sent to processing facilities.

The final stage consists of distribution and marketing and fresh produce markets provide an outlet where large buyers can source fruits and vegetables and where farmers are able to sell their produce.

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

The interaction between retailers and end consumers will not be considered, as this was covered by the Grocery and Retail Market Inquiry.

The sale and distribution of processed products from food processors will also be excluded.

The inquiry will only focus on the largest and most important fresh produce items. The investigation will cover four themes:

• the efficiency of value chain
• market dynamics and impact of key inputs for growers
• participation of small and HDP growers and participation
• barriers to entry regarding the regulatory environment.

ALSO READ: Food pricing report shows drop in number of farmers

Previous studies by the Competition Commission

The commission published a study of the levels of concentration in the South African economy in November.

The study was done to assess patterns of concentration and participation in the local economy and revealed that while large farms make up only 6.5% of all farms in the country, they accounted for 67% of total income in 2017/18.

The study also indicated a significant reduction in the number of farming units over the course of over two decades. In 1993 there were just under 58 000 farming units and just over 40 000 in 2017, a decrease of 31%, with the biggest decreases in KwaZulu-Natal, Mpumalanga and Limpopo.

There was a drop of 65% drop in the number of potato farmers between 1993 and 2008 and a gradual decline since then to 532 farmers in 2017, as well as high and/or worsening levels of concentration in potato seeds by seed company Wesgrow.

The Essential Food Pricing Monitoring Report the commission published in August also highlighted the sharp decline in the number of commercial farms indicates the difficulties of smaller farmers to reach the necessary economies of scale to decrease costs and maintain profitability.

These studies show that the cost of fresh produce has been increasing above inflation and its investigation of a large number of complaints of price gouging conduct during the pandemic were mostly about basic food and fresh produce.

All submissions will be reviewed before commission will publish the final terms of reference. The inquiry will start 20 days after the final terms of reference are published and the final report will be completed within 18 months. Written submissions can be sent to ccsa@compcom.co.za.