CompCom launches fresh produce investigation with one eye on food inflation

The Competition Commission has launched an investigation into the fresh produce market to assess whether any features of the value chain distort competition.

This follows a 2021 investigation into the fresh produce market which reported a 73% decline in producer numbers in the primary dairy sector between 2007 and 2021.

There are now slightly more than 1 000 dairy farmers in SA as opposed to nearly 4 000 in 2007.

Number of dairy farmers in South Africa

“The sharp decline in the number of commercial farms highlights the difficulties smaller farmers face in reaching the necessary economies of scale to decrease costs and maintain profitability,” says the report.

Reasons for new investigation

Sipho Ngwema, head of communications at the CompCom, says the latest investigation is motivated by several factors, including the potential for agriculture to stimulate the economy, the outcome of the CompCom’s concentration study in 2021, a number of complaints received in the fresh produce sector, and the general trend of high food inflation.

“The Commission is of the view that the Fresh Produce Market Inquiry is essential in order to understand the state of competition within the industry, the market features affecting price outcomes, and the challenges currently faced by farmers (especially small-scale and emerging farmers),” says the Commission in a statement.

“More broadly the importance of the sector to both the economy and employment, and the nutrition and welfare of its citizens gives further weight to the need for such an inquiry.”

The investigation will focus on the efficiency of the value chain, market dynamics and the impact of key inputs for growers, barriers to entry for small and emerging farmers, and barriers created by the regulatory environment.

‘Buy local’

There has been greater focus on localisation of agricultural production since the onset of the Covid-19 pandemic as countries prioritise self-sufficiency and food security.

‘Buy local’ initiatives are being promoted around the world, where consumers support local farmers’ markets and local businesses. Consumers are increasingly concerned with the origin, safety and wholesomeness of the food they buy, says the CompCom report, entitled Essential Food Price Monitoring.

‘Cartel conduct’

In 2017, the commission conducted raids on nine fresh produce market agents after complaints of cartel conduct were received. This conduct was seen as inimical to the development of black farmers.

One tactic complained of was the practice of dropping prices to squeeze out competitors, followed by rising prices once competition had been eliminated.

Various initiatives have been launched to assist small scale farmers to create economies of scale – such as the kind of bulk buying typically available to large commercial farms – but barriers still remained to the financial viability of emerging farmers.

Data from the CompCom shows onion prices more than doubled at the Joburg Fresh Produce Market during the first Covid wave, while potato prices nearly trebled post the first wave.

Wholesale tomato prices through the first, second and third waves

The July 2021 riots in KwaZulu-Natal and Gauteng created food supply disruptions with the commission receiving 75 complaints of price gouging in KwaZulu-Natal involving essential food products such as cooking oil, meat, rice, milk, and sugar.

Food price inflation

Figures from Statistics SA show the average cost of the national household food basket increased by 10% between September 2020 and August 2021.

The war in Ukraine will likely put that food inflation rate under even more pressure due to higher transport costs as a result of dramatically higher fuel prices.

“It may be necessary to build on changing the market structure and developing a model of agriculture that enables industrial agriculture while also supporting and including small-scale and local farming,” concludes the 2021 CompCom report. “This may also make the market more resilient to disruptions to global supply chains from climate change events.”

The Grain Handling Organisation of Southern Africa (GOSA) notes that SA agricultural producers’ record exports during 2021 exceeded the import value of agricultural products and food.

“Food and beverages worth R177.8 billion were exported in 2021. This is 5.2% more than in 2020 [and] means that goods worth R75.4 billion more [were] exported than imported,” says GOSA president Hein Rehr.

The estimated current maize crop of 14.6 million tonnes – and the annual consumption of 11.8 million tonnes – indicate that exports will take place again this year.

Given the war between Russia and Ukraine, South Africa may not experience any shortages in the short term, but the crisis is sure to have an impact on food price inflation as prices are already rising worldwide.

“Agriculture is still keeping South Africa’s doors open. With about 30 million people receiving their income from the state, 36 000 farmers and workers feed South Africa’s 58 million residents every day,” adds Rehr.

“The government of the day should classify food security – just like Eskom – as a national asset.”

Wandile Sihlobo, commenting in a research note in January, says the key data to watch domestically is meat, given its potential impact on food inflation as a result of lower slaughtering activity in 2021 over 2020.

“Another vital issue to remember is poultry import tariffs that came on last year; this year’s base effects will likely positively affect the consumer price inflation moderation path,” writes Sihlobo.

Read: Provisional anti-dumping duties imposed on chicken imports