South Africa's competition watchdog has identified entry barriers, distorted competition, and price mark-ups in the fresh produce market, according to a provisional report released on Tuesday, 18 June, following an inquiry.

A worker arranges fruits in a supermarket in Midrand, South Africa, August 28, 2019. REUTERS/Siphiwe Sibeko/File Photo

Last year the Competition Commission launched the Fresh Produce Market inquiry in order to examine whether any features in the fresh produce value chain impede, restrict or distort competition in the market.

Detailing the findings of the preliminary report, Deputy Commissioner Hardin Ratshisusu said the inquiry found some instances of high mark-ups by retailers which have been sustained over a period of time, which the Commission found to be an indicator of a lack of competition.

The inquiry also noted that there is still slow progress in integrating historically disadvantaged small-to-medium enterprise farmers into various retailers' supply chains.

Contribution of the agricultural sector

The agricultural sector contributes approximately 2.5% of South Africa's gross domestic product, while the market size of the domestic fresh produce market is estimated at over R53bn ($2.93bn) annually.

Ratshisusu said prices of fresh produce "are not transparent enough such that they allow consumers to reasonably compare prices in-store and across retailers," because prices are not at per kilogram but per unit basis.

In the agrochemical sector, the inquiry found that some firms engage in practices or conduct that may distort competition, such as the use of territorial allocation in their distribution agreements with retailers.

Concerns in the seeds Industry

In the seeds industry, the inquiry found instances where a firm appears to be involved in charging farmers "what could be characterised as exploitative prices."

To address distortion in the market, the inquiry identified recommendations and remedial actions.

On variety for potato seeds, it recommended that Simba, owned by PepsiCo Inc should make available its potato variety FL2006 gene material to the Agricultural Research Council for preservation and so that it is available to any member of the public.

PepsiCo patents its potato seed variety used to make its popular Simba potato chips.

Support for new entrants and local industry

Some recommendations included a new fund to assist new entrants selling fresh fruits and vegetables in shopping centres, measures to support the local fertiliser industry and that Bayer remove the territorial clauses from its distribution agreements with appointed distributors.

It also proposed that African Rainbow Capital should divest its shareholding in either Subtropico or RSA Group, which both specialise in sales and marketing of fresh produce on behalf of producers.

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