Although the size of the market is relatively big, the share of black -owned farms or market agents, or even small-scale farmers in general, is negligible, so says the Competition Commission in its Fresh Produce Market Inquiry (FPMI) provisional report.
The Inquiry was initiated on March 23, because the Commission has reason to believe that there exist market features which impede, distort or restrict competition in the markets for fresh produce in South Africa.
The objective of the FPMI is to investigate any adverse effects on competition which may be present in the fresh produce value chain.
In order to do so, it was essential that the Commission understands the state of competition within the industry, the market features affecting price outcomes, and the challenges currently faced by farmers, especially black, small-scale and emerging farmers. More broadly, the importance of the sector to both the economy and employment, and the nutrition and welfare of its citizens, lent further weight to the need for the FPMI.
The Inquiry has made provisional findings on aspects or features that could impede, restrict or distort competition in the fresh produce market, particularly with respect to national fresh produce markets, role of market agents in national fresh produce markets, concentration of market agents, pricing of certain inputs (mainly some fertilisers and some 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.
There are also overarching concerns of slow transformation in the sector, particularly as there is limited participation of black farmers or market agents in the value chain.
In the context of market size of the domestic fresh produce market in South Africa, currently estimated at over R53 billion annually (circa R21 billion for fresh produce sold through national fresh produce markets and circa R32 billion through formal retail), it is important that the markets should be competitive and provide market access opportunities. It is worth noting that the market size estimate of the fresh produce markets excludes sales from farm to informal channels that are not through national fresh produce markets or formal retail. Although the size of the market is relatively big, the share of black -owned farms or market agents, or even small-scale farmers in general, is negligible.
The Inquiry has therefore identified 29 practical and reasonable provisional remedial actions and recommendations that could address distortions in the fresh produce market. There has been, where feasible, engagements with most of the potentially affected stakeholders on preliminary findings and recommendations, prior to the conclusion of the provisional report. The process is now open for further and wider engagements with stakeholders.
The inquiry identified factors such as market access, access to finance, and access to water as major barriers to entry facing small-scale and HDP farmers.
The FPMI noted a multitude of quality and food safety-related standards which apply to farmers of fresh produce. These standards range from legislated, to voluntary to mandatory requirements set by retailers. Some of these standards (which are widely applied by large farmers) are difficult and expensive to comply with and raise concerns around market access for, particularly, SME and HDP farmers.
The FPMI compared the various standards, with an emphasis on a set of requirements called Good Agricultural Practice (or GAP standards), which have wide-ranging application in South Africa. There are various levels of GAP (from entry level to Global GAP) which generally set requirements that are broader than food safety or the quality of produce. GAP standards include requirements around the environment, workers’ health, traceability and production processes.
The FPMI noted that the formal retailers apply the top two tiers of the GAP standards, namely the Intermediate Level (with 128 requirements) and Global GAP (with 190 requirements) as supply requirements.
The FPMI makes a provisional finding that the mandatory use of Global GAP, in particular, distorts competition for SME and HDP farmers by raising and enforcing barriers to entry. This finding does not mean that the FPMI is against the application of high food safety standards and good agricultural practices, but rather that the use of such standards should be applied judiciously and with SME and HDP farmers in mind.
Concerning access to finance by SME farmers.
The FPMI noted the circumstances surrounding the financial challenges of the Land Bank and how the gap in agricultural funding is being filled by the commercial banks. The FPMI’s analysis of the funding provided by the Land Bank to farmers for the 6-year period between 2017 until 2022, revealed a significant decline in both the number of loans provided as well as the total value of funding. However, the FPMI also noted that the commercial banks have played a pivotal role in providing credit to the agricultural sector.
Here, the FPMI makes a provisional finding that the decline in the funding provided by the Land Bank is negatively affecting farmers, and that the delays in the implementation of the Blended Finance Scheme disproportionately affects SME and HDP farmers. These farmers are more likely in need of a grant which, in some instances, acts as their contribution (or deposit) when seeking to secure a loan. The FPMI noted how a different financing model can contribute to easier access to finance. Here the blended finance schemes are of particular importance.
Provisional recommendation says that DALRRD, Land Bank and commercial banks should work jointly to fast track and accelerate the implementation of the blended finance scheme. The blended finance scheme should cater for costs for agricultural project’s feasibility studies including water licencing and acquisition of land.
Regarding access to water, the FPMI noted the tension between water as a scarce resource in South Africa (thus requiring strict regulation) and the resultant difficulty in accessing water resources. The FPMI considered the regulatory requirements and process to obtain a water license. Of note is the requirement that a technical assessment study must be included in certain applications. The FPMI noted how such a requirement makes it more difficult for SME and HDP farmers to secure water licenses due to the cost of these assessments.
The Department of Water and Sanitation (“DWS”) requires such reports to ensure a responsible and safe allocation of water resources. The FPMI also noted that smaller farmers may be disproportionately affected by slow licensing processes, which highlights the importance of a level regulatory playing field.
The FPMI has however noted positive steps by the DWS to process a completed application within 90 days (in terms of promulgated regulations). However, delays may also be experienced during the pre- application process, which in part pertains to the requirement of submitting a technical feasibility report(s).
Here, the Provisional recommendation is for DWS to continue its efforts to fast track the licensing regime, including during the pre-application phase.
