Big change for South African fresh food products planned

The Competition Commission’s Fresh Produce Market Inquiry claimed that inefficiencies in national fresh produce markets and high retailer markups, sometimes reaching 90%, drive up food prices.

To tackle this issue, the Competition Commission recommended that South Africa’s fresh produce markets corporatise these facilities, establish public-private partnerships (PPPs), and enhance retail competition.

Deputy Commissioner Hardin Ratshisusu explained on Newzroom Afrika that the commission has been observing price increases and fluctuations.

“This then caused us to have some questions about pricing outcomes in South Africa in fresh produce, in particular, because we have quite vibrant national fresh produce markets, and the expectation is that that system should yield better outcomes for consumers,” Ratshisusu said.

“What we have picked up is that our national fresh produce markets are not working as efficiently as they should.”

These inefficiencies are driving up the cost of produce in South Africa. Notably, for some products, the markup from farmer to retailer can be as high as 90%.

The commission also found that fresh market agents engage in practices that affect price discovery.

Ratshisusu explained that formal retail channels are costly, contributing to the high prices consumers pay.

“The competition, in our view, is not as healthy as it should be,” he said. Currently, consumers only have a handful of options when it comes to retailers, which points to a structural issue.

To address this, Ratshisusu noted that the market needs new entrants to increase competition and force established retailers to review their cost models.

“To deal with those issues, you need to stimulate entry in the retail channel so you don’t have to go to a shopping centre and only be exposed to one or two options, which is, unfortunately, the current reality.”

On The Money Show with Stephen Grootes, Ratshisusu explained the importance of national fresh produce markets.

“The national fresh produce markets are a very important channel for the farmer to reach consumers, either through formal retail or informal channels.” 

However, the inquiry revealed that markets lacking clear governance frameworks, as outlined in municipal laws, are facing challenges.

Specifically, there isn’t sufficient investment in these facilities, which makes them less effective as a route to market.

The commission found successful examples of corporatised and PPP models, such as the Johannesburg fresh produce market and the Cape Town market. 

These models demonstrated improved functionality and the potential for expansion, which could benefit the entire fresh produce sector.

“We are not proposing any privatisation,” Ratshisusu specified. “We are proposing models that some councils or municipalities have already adopted and we are seeing better outcomes when you look at those markets.” 

The Competition Commission also recommended that African Rainbow Capital (ARC), backed by billionaire Patrice Motsepe, divest its stakes in either the RSA Group or Subtropico, two major players in South Africa’s fresh produce market. 

Ratshisusu explained that ARC’s cross-shareholding in these companies, which collectively control between 50% and 90% of the market for key produce like apples, bananas, tomatoes, and potatoes, poses risks to competition.

“When you have a joint shareholder who has access to the business, who can appoint directors, we think it presents a risk.” 

“We have not found evidence of effective competition between these two very large market agents.”

The proposed remedy is for ARC to divest from one of the two companies to prevent the flow of competitively sensitive information in this highly concentrated market.

“The rule is not to prohibit cross-shareholding,” Ratshisusu emphasised. “But where the market is highly concentrated, and we do not see outcomes that resemble a competitive market, we then get concerned. And we ought to be concerned.”