The inquiry into South Africa's fresh produce market, initiated in March 2023, aimed to uncover the reasons behind the low participation of historically disadvantaged persons (HDPs) and to determine if price distortions were disadvantaging small-scale farmers while inflating consumer prices. A provisional report, released in June last year, paved the way for a final report after gathering stakeholder feedback.
The investigation into potential profiteering by retailers from the sale of fresh produce yielded inconclusive results. The report highlighted varying mark-ups across different produce and pack sizes by some retailers, alongside instances of negative net profit margins for others. This suggests a complex interplay of high mark-ups and low or negative net margins, indicating that the business model of the top five retailers incorporates supply chain costs that are ultimately borne by consumers, potentially leading to higher prices compared to other market routes. Distribution centers, which offer greater control over the cold chain, were identified as one of the routes incurring higher costs.
The Fresh Produce Market Inquiry (FPMI) confirmed that retailers tend to pay farmers higher prices than those obtainable at national fresh produce markets (NFPMs), challenging concerns over large supermarket chains exerting undue buyer power over farmers. Wandile Sihlobo, chief economist at Agbiz, commented on the findings, noting the absence of evidence for excessive buying power by large retailers and highlighting the protective role of fresh produce markets and the significance of local government support for these markets. He also pointed out that the lack of volume commitments from retailers and reasonable payment terms helps protect farmers from being unduly prejudiced by unforeseeable circumstances like inclement weather.
The inquiry also addressed the barriers to entry for new and small-scale farmers, particularly the challenges posed by certifications such as Global GAP. It suggested that retailers should assist these farmers financially to obtain such certifications, although retailers argued that they are already contributing significantly to supplier development funds. The recommendation for the Department of Trade, Industry, and Competition to establish a fund to support new entrants was made, alongside a call for retailers to maintain and expand their supplier development programs.
The Consumer Goods Council of South Africa, representing retailers, has yet to comment on the FPMI report, citing the need for further review.
Source: Farmer's Weekly