Fresh Produce Market Inquiry finds significant barriers to competition

The Competition Commission’s Fresh Produce Market Inquiry identified significant barriers to competition that include inefficiencies in municipal fresh produce markets, the conduct of market agents, high input costs, regulatory hurdles and systemic challenges for small-scale, emerging and historically disadvantaged farmers.

The Inquiry also highlighted the limited access these farmers have to formal retail channels and national markets, emphasising the need for transformation in the sector. The Competition Commission handed over the final report to the Minister of Trade, Industry and Competition, Parks Tau, on Monday.

The Competition Commission initiated the Inquiry on 31 March 2023 under the Competition Act to assess the fresh produce value chain across three main themes:

• Efficiency of the value chain, concentrating on fresh produce market facilities.
• Market dynamics of key inputs and their impact on producers.
• Barriers to entry, expansion and participation.

The Commission engaged extensively with stakeholders throughout the Inquiry process, beginning with consultations to define its scope before holding public hearings and farmer workshops. The Commission released a provisional report in June last year.

The Inquiry’s primary objective was to identify features in the fresh produce value chain that may impede, restrict or distort competition. It focused on five fruits, namely apples, citrus (oranges and soft citrus), bananas, pears and table grapes, as well as six vegetables, namely potatoes, onions, carrots, cabbage, tomatoes and spinach. These products are staples in South African households.

After the publication of the provisional report, the Inquiry received submissions and had further extensive engagements with affected stakeholders to discuss concerns and refine the Inquiry’s recommendations and remedial actions.

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Fresh Produce Market Inquiry shows limited access for small farmers

Hardin Ratshisusu, chairperson of the Inquiry, says it also highlighted the limited access of small and emerging farmers to formal retail channels, national fresh produce markets and concerns of slow transformation among fresh produce market agents.

In addition, the Inquiry noted that the fresh produce market in South Africa, valued at over R53 billion annually (excluding informal sales channels and exports), presents a significant opportunity for growth and inclusion.

However, Ratshisusu says, the share of participation by historically disadvantaged farmers and market agents remains low. “This under-representation is a stark reminder of the sector’s historical inequities and the urgent need for meaningful participation in the economy and transformation in South Africa.”

Investigating retailer pricing of the five fruits and six vegetables, the Inquiry’s analyses found that supermarket sales and pricing revealed instances of high mark-ups of total revenue over what suppliers are paid for some of the selected products in the periods analysed, although net margins — after the high costs of supermarket chain operations are accounted for – are slim.

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Fresh Produce Market Inquiry shows high-rent supermarkets pay

Ratshisusu says this indicates concerns in the value chain where high rents may be extracted at the supermarket level of the value chain. “The implication is that under the current models of modern food retailing, supermarket chains are not efficiently transmitting prices obtained from farmers to consumers for these produce categories. This suggests that competition in the formal retailing of fresh produce is not as healthy as it could be.”

He said in the final analysis and noting challenges in the fresh produce market and related distortions to competition, the Inquiry identified a set of 31 practical and reasonable remedies, including recommendations for policy reform, market restructuring and targeted support for small-scale, emerging and historically disadvantaged farmers.

These measures are intended to promote competition, lower barriers to entry and create a more inclusive and competitive fresh produce value chain. These remedial actions and recommendations cover municipal-owned national fresh produce markets, market agents or agencies, supermarket retailers, shopping centre property owners, agricultural seed suppliers, government, regulatory authorities and development finance institutions.

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Fresh Produce Market Inquiry recommendations

Some of the recommendations include:

• The corporatisation of national fresh produce market operations and the creation of public-private partnerships
• Municipalities must ringfence profits earned from the fresh produce market to fund capital expenditure
• A review of the legal framework where fresh produce markets currently operate and possible changes to improve the existing legal framework.
• Municipalities should harmonise the by-laws regarding trading hours, rules for fresh produce market agents and the use of cold storage and ripening facilities within three years.
• Enhanced and increased regulatory focus regarding market agent practices to promote transparency.
• Retailers must display pricing on a “per 100 gram” basis for the eleven prioritised fresh produce products, in addition to any other pricing display.

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Fresh Produce Market Inquiry shows path to economic inclusion

Ratshisusu says the Inquiry provides rich insights into the domestic fresh produce market and a path towards economic inclusion. “It reflects the need to address entrenched challenges and create a market that works for all, from the smallest farmer to the largest retailer, and ultimately for the consumer.

He says the Inquiry believes that its work will lead to impactful change by contributing to efficient national fresh produce markets in the service of all farmers and buyers. “In addition, by enabling the entry and effective participation of market agents who are historically disadvantaged through incubation and skills development, the Inquiry wants to reduce concentration levels and lower barriers to entry.”

By securing the development of seed farmers by large seed suppliers, the Inquiry aims to lower barriers to entry and enable inclusive participation. The Inquiry also wants to stimulate the entry of fresh produce retailers and ensure that pricing is more transparent, as well as a greater amount of healthy competition in the retail of fresh produce, with an ultimate outcome that will lower prices for these essential foods.