Lifestyle

Food production and pricing under investigation in South Africa

The Competition Commission has formally launched its investigation into the fresh produce market in South Africa through the Fresh Produce Market Inquiry (FPMI).

The launch follows the publication of the final terms of reference for the FPMI in the Government Gazette in February.

Broadly, the FPMI aims to examine whether any features in the fresh produce value chain impede, restrict, or distort competition in the market, including the ultimate pricing of these foods on store shelves.

For the purposes of this inquiry, the FPMI will focus on selected fruits and vegetables that are representative of the fresh produce value chain.

The identified fruits and vegetables account for at least 70% of the production and sale of these products throughout South Africa. They are:

  • Five fruits – apples, citrus, bananas, pears, and table grapes.
  • Six vegetables – potatoes, onions, carrots, cabbage, tomatoes, and spinach.

“The food and agro-processing sector has been a priority for the commission since 2008 due to its significant contribution to the economy broadly and its potential to serve as a driver of inclusive growth in the South African economy,” the commission said.

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“It is for these reasons that the commission, through the FPMI, intends to conduct an inquiry into the fresh produce value chain, to understand its functioning and the features, or combination of features, that may be impeding competition and participation.

The market inquiry will focus on particular issues at each layer of the value chain included in the sale of fresh produce by a farmer to a customer – including retailers, processors, and the export market.

The commission has identified three themes that cover the entire fresh produce value chain. The themes are as follows:

  • Efficiency of the value chain, with an emphasis on the dynamics around fresh produce market facilities.
  • Market dynamics of key inputs and its impact on producers.
  • Barriers to entry, expansion, and participation.

“The main objective of the FPMI is to identify features, or combination of features, that inhibit or distort competition and participation in the fresh produce value chain.

“Where there are competition and/or public interest issues, the FPMI will provide recommendations to foster competition and ensure equitable and meaningful participation in the value chain for the benefit of all stakeholders as well as consumers in the economy,” it said.

Background

A study published by the commission in 2021 also found worrying trends around the concentration and participation of farmers in the South African economy which raised red flags.

“According to studies, there appears to be broad concern over price levels and volatility of pricing for fresh produce in South Africa. The studies show that high prices of fresh produce have a disproportionate effect on the poor and low-income earners who have to spend a greater portion of their income to purchase essential products,” the commission said.

“A fuller understanding of the main drivers of the apparent high prices of fresh produce in South Africa is a critical area that this inquiry may address.”

Regarding price gouging, the commission’s records show that of 1,254 excessive pricing investigations during Covid-19, 713 of them related to basic food and fresh produce.

“This shows the importance of fresh produce, but in the same breath, may show the potential for abusive conduct relating to essential food items where market circumstances change suddenly,” it said.

The commission said that the FPMI is essential to understand the state of competition in the industry, particularly as they relate to price outcomes.

South African consumers have been hit with ever-increasing food prices over the last few years, with the latest inflation figures from Stats SA showing that prices have hit a 14-year high.

According to Stats SA food and non-alcoholic beverages, inflation rose to 13.6% in February from 13.4% in January. Food price inflation has not eased along with global trends, largely due to local factors like load shedding and energy costs, which have hit all along the supply chain.

Read: Bad news for South Africa as prices climb even higher

Artmotion S.Africa

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