In a scathing report published by the Competition Commission recently, the agricultural industry was called out for enabling monopolies and hindering small farmers from entering the sector and the commercial space.
The report, published in November this year, was the commission’s first economic concentration and participation tracker report and highlighted the dominance of firms across several key sectors in South Africa. It called on highly concentrated industries, including agriculture, to create space for newcomers to participate in the economy and to remove unnecessary red tape and barriers to entry.
Food For Mzansi spoke to Competition Commissioner Tembinkosi Bonakele to zoom in on Mzansi’s farming sector, which he deems to be concentrated, unable to open the market for small businesses, and conducive to monopolisation.
Tiisetso Manoko: The report stated that large farms, which constitute just 6.5% of all farms in the country, accounted for 67% of the sector’s income in 2017/18. Why should this change?
Tembinkosi Bonakele: We think there should be space for smaller commercial farmers to participate more broadly in agriculture, which we see in other countries globally.
South Africa also has a comparative advantage in many agricultural areas and broader participation may expand the economy.
This will enable agriculture to support the livelihoods of more people and generate more employment. This is essential in the context of our high unemployment rate.
There has been a decline in the number of grain farmers between 2015 and 2019. What factors contribute to the decline in new entrants to the grain subsector, which has been singled out in the report?
We think that the market structure is one contributing factor to the decline in the number of farm units. It is certainly not the only factor, but it does contribute to the trend.
In essence, the high concentration in the supply of farm inputs is likely to mean higher and discriminatory prices where smaller farmers pay more than larger ones.
On the agro-processing side, smaller farmers may not secure as favourable prices for their outputs. The result is that there is a squeeze on the profitability of smaller farmers that either means they must grow to be sustainable, or exit.
Will the agricultural sector be able to transform?
The agricultural sector needs to transform. Furthermore, the success of the land reform programme, which would start to transform agriculture, depends on ensuring the agricultural sector can support smaller commercial farmers.
It is for this reason that the report highlights the agricultural market issues.
While deregulation helped open the ostrich market, for instance, the industry is extremely concentrated today. What could be the challenge for new farmers to enter the space?
These markets were deregulated but, in most cases, the former cooperative that ran the market was simply privatised as a local monopoly.
This was the case for grain storage (regional monopolies) and rooibos also, with ostrich no different.
The former cooperative inherited all the infrastructure, such as abattoirs and tanneries in the case of ostrich, but also the relationships with the farmers who often were shareholders in the privatised cooperative.
The challenge for new entrants is to put in infrastructure and to build relationships.
What needs to happen for small businesses to crack the market and share some of it with the big names?
Several measures are probably needed as set out in the recommendations section of the summary report. These include the commission making use of the new powers under the amendments to the Competition Act to address unfair treatment of small to medium enterprises and historically disadvantaged institutions, and removing barriers to expansion.
We also recommend greater coordination across government [spheres] to ensure that action by other departments or agencies serves to support competition and not simply entrench the incumbents.
Lastly, we recommend greater funding support for small to medium enterprises, including concessionary funding that is not just aimed at entry but also expansion, including scaling successful firms to challenge incumbents.
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