Anyone who has lived abroad will know how blessed SA is in having a great variety of locally grown, relatively affordable fruits and vegetables. They may know too that this is one area of SA life in which there are physical markets in which supply and demand set prices daily and transparently.
Given how important fruit and vegetables are for the health of the nation and the livelihoods of farmers, retailers and the whole fresh produce supply chain, it matters a great deal that the sector is efficient, competitive and accessible.
But while this week’s report from the competition commission on its extensive, almost two-year-long study of the fresh produce market is a valuable overview of the market, it is not clear how appropriate or useful are its recommendations. And they will raise fresh questions about the remit of the commission, which has again gone well beyond competition issues to recommend, among other things, changes to municipal institutions and funding models, as well as import substitution policies for inputs such as fertiliser.
The commission’s fresh produce market inquiry had a particular focus on the national fresh produce markets in cities, through which farmers sell to traders and retailers daily. These markets do about R21bn of trade annually, accounting for about half of SA’s fresh produce market, with more than 80% of this via the markets in the four largest metros. The fresh produce markets are crucial to “price discovery”, setting fruit and veg prices daily not only for those who participate in them directly but also providing benchmarks for retailers that have their own supply and distribution networks.
Another specific focus — one which has come to dominate much of the commission’s work — was on small and medium enterprises, specifically black or historically disadvantaged SMEs, as well as on emerging black farmers.
Volumes through the fresh produce markets have declined in recent years as their efficiency and infrastructure have deteriorated. The commission has done well to highlight that and to point to the need for better maintenance and more investment. But the problem is not primarily about competition. It is about the dysfunctional state of the large metros and smaller municipalities.
The commission calls for operational and governance reforms at the markets. It calls too for municipalities to ring-fence and reinvest the profits from these markets. These might be good suggestions. But they do rather push the limits of competition regulation, as agricultural economist Wandile Sihlobo suggests.
Even more misplaced are the inquiry’s recommendations on what to do about the low participation of small black fresh produce traders or small-scale black farmers. Forcing quotas on markets as the inquiry recommends would itself be uncompetitive, as Sihlobo points out. It could also undermine exactly the efficient price discovery that is so important for the market.
Nor is this primarily a competition problem: the main barriers to entry for small black traders are municipal red tape, lack of crime prevention and inadequate municipal infrastructure. Likewise, most barriers to entry for small black farmers are problems that go back to the government, rather than market failures.
The commission’s fresh produce market inquiry is a valuable resource and overview of the industry. It points to some important areas for remedial action. But it is local and national governments that are in need of remedy. How much the commission can influence that is the question.
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