Fresh Produce Market Inquiry identifies competition problems

The Fresh Produce Market Inquiry conducted by the Competition Commission identifies suppliers of fertiliser, agrichemicals and seeds as part of the problem surrounding competition in the South African market.

The Competition Commission initiated the Inquiry in terms of the Competition Act as it had reason to believe that there may be features in the fresh produce market that could impede, restrict or distort competition, with specific focus on significant fresh produce.

The Inquiry focused on five fruits: apples, citrus (particularly oranges and soft citrus), bananas, pears and table grapes, as well as six vegetables: potatoes, onions, carrots, cabbage, tomatoes and spinach, where the problem lay.

The Inquiry conducted its assessment according to three themes that cover the entire fresh produce value chain:

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

Before starting on the Inquiry, the Commission had extensive consultations with stakeholders on the scope of the Inquiry through the publication of the draft terms of reference and subsequent engagements.

After 14 months of evidence gathering, public hearings and in-camera hearings into the fresh produce industry in South Africa, the Inquiry made provisional findings on aspects or features that could impede, restrict or distort competition in the market.

ALSO READ: Competition Commission starts fresh produce market inquiry

What the Fresh Produce Market Inquiry investigated

This included national fresh produce markets, the role of market agents in these markets, concentration of market agents, pricing of certain inputs (fertilisers and seeds), regulatory constraints, barriers to entry (market access and access to finance) in the fresh produce value chain, access to formal retail space and pricing of fresh produce with a detailed analysis on potatoes, onions and tomatoes.

The Inquiry also also identified overarching concerns of slow transformation in the sector, particularly as there is limited participation of black farmers or market agents in the value chain.

The market size of the domestic market in South Africa is currently estimated at over R53 billion annually, with about R21 billion for fresh produce sold at national fresh produce markets and about R32 billion at formal retail.

Hardin Ratshisusu, chairperson of the Inquiry and deputy commissioner of the Competition Commission, said the Inquiry found that the state of infrastructure at the national fresh produce markets is concerning.

The Inquiry also found inconsistencies in the markets which is a particular concern especially for smallholders and HDP/SME farmers, who may be required to comply with different sets of rules across various areas, making it difficult for farmers to compete.

“Some questionable practices of the market agents were also uncovered. These practices have the likely effect of distorting market outcomes. To resolve instances of practices such as stock reservation and credit sales, the industry regulator together with the markets must play an active oversight role,” Ratshisusu says.

ALSO READ: Competition Commission to investigate steel market

What the Fresh Produce Market Inquiry found about retail pricing

Regarding retail prices for fresh produce, the Inquiry found instances of high mark-ups which could also be a good indicator of lack of competition.

When investigating the input level of the value chain, the Inquiry assessed markets for fertilisers, agrochemicals and seeds. Ratshisusu says South Africa relies extensively on imports of these key products, which exposes the country to global risks like Covid-19 period and the war in Ukraine.

In the seeds industry, the Inquiry found instances of companies charging farmers exploitative prices as the inquiry noted that price increases for certain seeds popped up where these firms have high market share.

Ratshisusu also highlighted the problem with seed potatoes where early termination of seed variety is used before expiry of its plant breeders’ rights to ensure that competitors do not get hold of it after expiry.

The Inquiry found many problems regarding barriers to entry in the value chain, especially at the farming level. “Access to finance remains one of the most important elements to successfully participate in farming. However, the Inquiry found interdependence between access to finance and access to water.”

ALSO READ: Competition Commission starts Inquiry into media and digital platforms

Practical and reasonable actions to fix problems

The Inquiry identified 29 practical and reasonable actions, with eight remedial actions and 21 recommendations that could address distortions in the fresh produce market. These include that:

• Municipalities, in collaboration with SALGA, should change the operating and governance models for fresh produce markets
• Fresh produce markets must be corporatised
• Public-private partnerships with municipalities must be used
• Municipalities should ring-fence profits earned from the market to fund capital expenditure
• Fresh produce markets must set targets to increase annual sales of small-scale and HDP farmers
• Municipalities should, within three years, harmonise the bylaws regarding trading hours, passing of risk from farmer to buyer, market agent rules, use of cold storage and ripening facilities, dispute resolution and appeal processes and rules around conflict of interest
• HDP and SME market agents must get access to the mostly traded fresh produce at the markets
• Fresh produce markets must put in place a programme for introduction of new HDP market agents and ensure that the agents have access to highly-traded produce, namely potatoes, onions, tomatoes and bananas.
• Large established farmers must put in place a programme for introduction of new HDP market agents and ensure that the HDP market agents have access to highly-traded produce

Stakeholders have four weeks – until 16 July – to provide comments on the Provisional Report, its provisional findings and provisional remedial actions and recommendations.