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Picture: CHRISTOPHER BOSWELL
Picture: CHRISTOPHER BOSWELL

Market concentration in SA’s primary fruit farming industry will be the focus of an inquiry by the Competition Commission.

The inquiry into the fresh produce market will examine whether there are any features in the value chain that “lessen, prevent or distort the competitiveness”, the commission said.

The inquiry will also investigate the market features affecting fresh produce prices and the challenges faced by farmers, especially small-scale and emerging farmers.

The sale of fresh produce by farmers to retailers, processors and into the export market will be considered, but the inquiry will not cover the interaction of retailers with end customers.

The commission said the retail market was covered by a previous investigation. However, industry stakeholders said that by excluding this crucial last step in the value chain, the information gathered through this inquiry would be incomplete for fresh produce prices. 

Retail costs add a significant share to the price consumers pay for fresh produce. The month-to-date price for a kilogram of apples on Monday at the Johannesburg Fresh Produce Market — a close indication of the price the farmer will receive — was about R8/kg while big retailers were selling apples at about R20/kg (as per prices for 1.5kg bags of apples).

The commission will also study the efficiency of the value chain to determine how the route to market affects prices.

One of the greatest efficiency constraints in the fresh produce value chain was not on farm level, or within the control of producers, said Fhumulani Ratshitanga, CEO of fruit industry representative body Fruit SA.

“Logistical challenges caused by poor road infrastructure have an impact on efficiency in the value chain,” she said.

The poor state of roads, especially in rural areas, often resulted in produce being damaged or delayed en route to the market. Ratshitanga said the issue of poor roads has been raised with the government before.

The commission will also consider the barriers to entry specifically facing small-scale growers and issues about access to fresh produce markets or retailers through contract farming.

Many of the challenges new entrants to the fruit industry face were already well understood, said Ratshitanga.

“This is a long-term industry with very high entry barriers relating to capital, technical and management expertise, as well as infrastructure relating to production, packaging and marketing. The establishment and production costs for certain types of fruit demonstrate this.”

Establishing 1ha for cultivating table grapes could cost as much as R600,000, and it ranged from R450,000 to R500,000 per hectare for citrus. The size of a commercially viable farming unit differs per fruit but could be anything from 30ha, she said.

On top of these high entry costs, a fruit producer would also have to wait up to five years before a new vineyard or orchard would start bearing a good yield.

She said new farmers needed access to “patient capital” that understood the long-term return nature of fruit production.

Potatoes SA CEO Willie Jacobs said in addition, small-scale fresh produce farmers lacked the economies of scale needed to justify investment in transport to take their product to market, and also did not have on-farm infrastructure such as packhouses. 

Without access to a packhouse, farmers missed out on the opportunity to add value to their produce through sorting and packaging. The lack of transport forced these farmers to accept the lower prices offered by buyers who purchase and collect directly from farms, said Jacobs.

Research done by the Bureau for Food and Agricultural Policy on the extent of market concentration in SA’s agriculture sector found there was a relatively low level of concentration, especially in the primary farming sector.

By comparing the income share of the top 20 enterprises in an industry to its total income, the bureau found that both agriculture and the agro-processing sectors were not the most concentrated industries in the economy.

The primary farm sector had the lowest level of concentration among all sectors, with a mere 12% of income being produced by the 20 largest firms, compared with industries such as mining, fisheries and forestry where the top 20 firms commanded between 70% and 80% of total income.

The public can submit comment on the proposed terms of reference for the inquiry by April 22.

erasmusd@businesslive.co.za

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