‘Fix the basics, save fresh produce markets’

Policy is and always will be crucial to any agri economy. However, there are limits to what policy can achieve when the basic pillars of the value chain are not effectively supported, writes Jaco Oosthuizen, CEO of the RSA Group. He discusses fresh produce markets in Food For Mzansi’s Election Thought Leader series: Agriculture at the dawn of political change.

As Agbiz’s Wandile Siholobo recently reported, farm employment rose 6% year-on-year in the first quarter of 2024. In a country with one of the highest unemployment rates in the world, this is a significant number. It is just one of many statistics that cast light on agriculture’s place as one of the most stable and reliable economic sectors in South Africa.

With the 2024 elections now only a few days away, many fresh produce stakeholders are wondering how the policy environment may or may not evolve. Within this context, the Competition Commission is also set to release findings and recommendations from its long running Fresh Produce Market Enquiry (FPMI), reinforcing the focus on potential policy developments.

However, a pure policy-level focus risks losing sight of a far more immediate challenge to South Africa’s fresh produce industry: securing the strength of our unique, and extremely powerful, open market system.

State of fresh produce markets

It’s crucial to highlight the fact that South Africa, unlike most other countries in the world, does not offer any subsidies or incentives to farmers. Compare this to the EU, which in 2019 spent €38.2 billion on direct payments to farmers and €13.8 billion on rural development, with a further €2.4 billion supporting the market for agricultural products. Similarly, Sky News recently published an article about the agriculture crisis in the UK, quoting a farmer for whom “subsidies make up 40% of his income”.

Not only does our fresh produce system operate at no cost to a national government facing significant budgetary challenges, but our national fresh produce markets (NFPM) are major revenue generators for the local municipalities that manage them and earn a 5% commission on all produce sold. And yet, our NFPMs are in a very poor state of repair, and commission revenue is not being reinvested in their maintenance or effective management. This paradigm is both well-documented and a cause of major national concern.

The fact that an open market system and unsubsidised value chain function so effectively in these circumstances should create a lot of pause for thought. South African farmers, big and small, are using the power of daily price discovery and the interplay of supply and demand forces to keep the country fed.

Fresh produce markets prove to be ‘national treasures’

At the same time, we are disregarding the strategic imperative to take care of the system that is taking care of us so well. The key to the success of our system is that it is highly regulated, with many guardrails in place to ensure product quality and an even and equitable operating environment. When management standards and crucial infrastructure degrade these guardrails weaken, and the entire system is put at risk.

It’s the basics that matter

There is little doubt that the new government will want to deliver on worthy goals such as more sales from new-era farmers, better empowerment sourcing figures from major retailers and more historically disadvantaged persons (HDP) activity across the industry. However, it is execution of the basics, rather than new policies, that holds the key to supporting and strengthening an enabling market ecosystem for all participants.

The reality we currently face is one of steadily increasing operational friction, driven by factors like management and maintenance failures at the NFPMs; the poor state of the country’s ports; the terrible state of our roads and the associated soaring cost of transport; and extreme struggles with reliable power and water supply.

Crucially, smaller players – producers and buyers alike – are disproportionately impacted by this friction. The fact that the cost of doing business is soaring due to operational friction does not mean there are no commensurate returns for agribusinesses. There are. However, the agriculture business cycle is long, and success is often only achieved after five years, at minimum.

While every producer obviously seeks profit and sustainability, the reality is that farmers have to be able to navigate many break-even and loss-making years. This takes experience, good luck with the variables and financial muscle. Generally speaking, sustainable returns are most accessible for operations able to cope with fast-rising capital requirements. By definition, small and emerging businesses are least likely to cope, and the most likely to fall by the wayside.

Well-placed to drive economic growth

Of course, policy matters a great deal, and South African fresh produce policy challenges are by no means restricted to the issues which tend to get media headlines, such as fresh food prices, or looming EU citrus phytosanitary regulations. Equally important is the way South Africa is developing its agri-trade relationships with other African countries.

We have to be careful that these are equitable in future years, and that trade borders remain open in both directions. Also important is the urgent need for a policy that forces local municipalities to reinvest the commission revenue they receive from NFPMs in the effective management and maintenance of the markets themselves.

Then there’s “Project Rebirth” – an extensive 2008 initiative that established clear minimum standards for NFPMs, which were never successfully implemented due to the lack of a legislative framework obligating market management to adhere to them. Private-public partnerships (PPP) are another important point of opportunity.

Private sector players have the capital and willingness to invest equitably, but, despite clearly articulating the importance of PPPs at the policy level, the government has remained inert in practical terms.

Ultimately, however, policy can only be effective when the basics are executed well, and target-centric policies are unlikely to mitigate the risk of barriers to entry rising steadily due to infrastructure and management failures.

In summary, the most urgent South African fresh produce industry challenges will only be met by effective execution of the basics. If our NFPMs are well managed and maintained, and if our roads, ports, and electricity and water supply issues are resolved, South African fresh produce will be well placed to not only continue providing food for the nation but also to drive compelling economic growth and employment opportunities – all at zero cost to the state.

Jaco Oosthuizen is the CEO of the RSA Group. The views and opinions expressed in this article are those of the author and do not necessarily reflect the views or positions of Food For Mzansi.

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