The Competition Commission and the fresh produce market inquiry

On March 25 the SA Competition Commission published for public comment its draft fresh produce market inquiry terms of reference. This revealed the commission’s continuing focus on its prioritisation framework, which has existed since 2008.

In terms of this framework, the food and agro-processing industry was identified as having the potential to unlock opportunities to drive inclusive economic growth and enhance consumer welfare in SA. In addition, the commission, in embarking upon a study on concentration levels in SA, identified that a negligible proportion of farms in the country account for a large percentage of the revenue. The commission is generally looking to address patterns of concentration and participation in the SA economy.

In this context the commission will launch its market inquiry into the SA fresh produce market, identifying the main fruits produced and consumed in SA as apples, bananas, oranges (and other citrus), pears, avocados and grapes, with the main vegetables being potatoes, onions, tomatoes, carrots and cabbage.

But the scope of the market inquiry does not relate to the interaction between retailers and end-consumers in relation to these fruits and vegetables. Nor does it relate to the sale and distribution of processed fruit and vegetable products by food processors. Instead, the commission is concerned with the upstream levels of the value chain, which include segments such as:

• The supply of inputs such as seeds, fertilisers, agrochemicals (fungicides, pesticides, and so on), farm and irrigation equipment; and 
• The production for fresh consumption by small- and large-scale commercial growers who supply wholesalers, intermediaries, export companies, processors and retailers.

The purpose of the market inquiry is to examine whether there are any features in the market’s value chain that will lessen, prevent or distort competition, with a particular focus on the following themes:

• Efficiency in the value chain — assessing factors including concentration at various levels and the impact on efficiency as well as channels to market and their impact on prices.
• Market dynamics and the impact of key inputs for growers — the commission notes that many of the significant inputs are imported or priced based on international benchmarks, which can lead to significant costs for growers.
• Small and historically disadvantaged persons (HDP) growers and participation — the commission seeks to understand barriers to entry that affect small and HDP growers, and their access to fresh produce markets or retailers through contract farming.
• Barriers to entry in relation to the regulatory environment — the commission seeks to understand broader regulatory requirements within the industry, including any red tape that may hinder effective participation.  

Upon completing a market inquiry, the commission can furnish recommendations for a change of policy, legislation and regulations to the minister of trade, industry & competition, as well as recommendations to other regulatory authorities in respect of competition issues.

The themes identified above relate to examining cost efficiencies and price formulation, with a view to investigating the impact on consumers as well as investigating barriers to economic inclusion and effective participation.

Where the commission identifies anticompetitive features of the market as a finding of the inquiry, it may take any action (including imposing structural remedies, such as divestitures) to remedy, mitigate or prevent an alleged adverse effect on competition and make a recommendation to the Competition Tribunal for it to make an appropriate order in relation to such adverse effect on competition.  Furthermore, it may also initiate specific complaints against market participants that the inquiry finds may be contravening competition laws.

This development demonstrates that the framework, read with the Economic Concentration Report, are points of reference in relation to the commission’s enforcement activity and advocacy efforts. These reference points appear to be gaining traction through the different market inquiries and investigations initiated by the SA authority that fall within the overall framework. 

Businesses should therefore consider the impact that both the framework and the report will have on their businesses. Businesses operating in SA should ensure they are fully compliant with all competition laws and regulations and that they continually consider the overriding focus of the competition authority on inclusive economic growth and consumer welfare in SA.

• Naidu is partner and head of the competition & anti-trust practice, and Nxumalo an associate, at Baker & McKenzie Johannesburg.