Harm to informal food trade is harm to entire SME food industry
Focusing exclusively on the relationship between supermarket chains and SMEs leaves SMEs beholden to the whims and demands of the giants
In April 2020, SA moved into unprecedented territory when the Covid-19 pandemic that had been ravaging populations across the globe finally hit home. Overnight, businesses were shuttered, employees furloughed and the economic wellbeing of millions brought into question.
In the following months, the SA economy shed more than two-million jobs and an already high unemployment rate shot even higher. While the devastation unleashed on the economy affected all levels of the working class, it was those considered most vulnerable who were hit hardest.
The food sector mirrored the rest of SA’s economy, with the haves fairing far better than the have nots. While independent grocers questioned their futures Woolworths, Spar, Pick n Pay, Shoprite and Checkers did so well that Shoprite, the nation's largest food retailer, saw its 12-month profits grow 6.4%. At the same time, Woolworths’ food sales peaked in March and April and continued through June with above average growth.
Pick n Pay also saw growth in the core food sector, recording a 4.2% sales volume increase while at the same time opening 42 new stores. Spar recorded an 8.8% increase in earnings due to strong demand in the grocery sector. While the have nots suffered, the haves increased sales and market share while independent retailers and small and medium enterprise (SME) food producers and processors who supplied them were left behind.
In direct contrast to the supermarket giants, the little shops suffered. As the pandemic hit, government moved to close spaza shops and other informal traders, devastating the township economy, where 500,000 people (40% of the township informal economy) earned their living from the street food trade. Not surprisingly, that affected 70% of township households that sourced their food from the traders who were suddenly shut out of the food trade industry.
Harm to the informal food trade has a knock-on effect, resulting in negative effects throughout the agri-food industry, but on SME food producers and processors specifically. SMEs are considered those enterprises that have fewer than 250 employees. In distinguishing between small and medium sized enterprises, small enterprises are defined as those with fewer than 50 employees. These businesses are traditionally associated with owner operators.
More importantly, government has identified SMEs as a key to economic growth, an essential part of the plan to increase employment. In SA most food production and food processing companies fall into this classification.
Nationally, the food retail industry is dominated by a small handful of supermarket giants. Unfortunately for the nation’s SME food production and food processors, the large supermarket chains are not their main source of income. Unable to compete with the stringent and costly requirements demanded by the supermarket giants, SMEs rely on alternative avenues to market.
The demands of the supermarket chains vary, but all suppliers must meet cost, quality, volume and consistency requirements as well as meet legal and private standards. To meet these standards SME food producers and processors must invest in infrastructure. However, due to the size of their operations they do not have the resources to do so. Some of the needed infrastructure investment would include bar coding infrastructure, packing houses, logistics and cold chain facilities, credit facilities, standard certifications and sanitary and phytosanitary protocols.
While it is true that safety standards should never be compromised, these are not the only demands that are placed on SME food producers and processors and bear a financial cost. In addition, the supermarket giants have a long list of discounts, rebates, fees and allowances charged to suppliers who sell in their stores.
The unfortunate reality in SA is that while there are 30,000 commercial farms, 20% of them (6,000 farms) produce 80% of SA’s food. The remaining 24,000 farms, most which would fall into the SME category, are unable to produce sufficient quantity or quality to supply the supermarket giants and must take advantage of alternative avenues to market. Selling to independent wholesalers, buyer groups, cash and carrys, independent retailers, informal spaza shops, street vendors, schools and directly to consumers within local communities is their sources of revenue.
The Johannesburg Fresh Produce Market (JFPM), a key lifeline for many SME food producers, sells 60% of its produce to townships, yet as the lockdown hit this key route to market was significantly curtailed.
And this is not the only threat to their market. Supermarket chains, often owned by banks, brokers and mutual funds, have little interest in the food they sell, or the locality where the food is sold. They sell where they can generate profit. As a result, the supermarket chains are spreading from their traditional locations within shopping malls to rural communities and townships, placing SME food producer and processor alternative avenues to market under threat.
To be fair, almost all of the supermarket chain stores have in some way attempted to support SME food producers and food processors. However, their efforts have had limited positive effects. Most early interventions were focused on compliance and originated from corporate social responsibility (CSR) budgets. Later iterations of this support were more intentional and operated with increased funding and a longer-term focus, but they too ran into significant difficulties that limited their impact.
Research exploring how to support SME food producers and food processors frequently focuses on the role of the supermarket chains and their need to support and include smaller suppliers. The research tends to focus on the power imbalance between the SMEs and the supermarket chains, with a focus on the need for supermarket chains to build SMEs so they can sell back to the supermarket chains.
However, focusing exclusively on the relationship between supermarket chains and SMEs reinforces the status quo and leaves SMEs beholden to the whims and demands of the giants. Another viable way must be sought. South Africans need to support SME food producers and food processors by supporting independent grocers and convenience stores for our daily grocery needs.
• Harder is co-founder of Hoodgoods
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