Agropreneur and agricultural economist Mahlogedi Thindisa argues that South Africa’s fresh produce value chain is hindered by barriers to entry, production constraints, and a burdensome regulatory framework. He says the Agriculture and Agro-processing Master Plan (AAMP) is the primary solution to these challenges.
The Competition Commission (“the commission”) released the Fresh Produce Market Inquiry provisional report (FPMI) on 18 June 2024. The commission investigated any adverse effects on competition that may exist in the fresh produce value chain. The commission is a creature of statute under the Competition Act 89 of 1998 (“the act”).
The act empowers the commission to investigate and evaluate restrictive business practices, abuse of dominant positions, mergers, and to undertake market inquiries. The FPMI focused on five fruit types, namely apples, citrus, bananas, pears, and table grapes. Additionally, it covered six vegetables: potatoes, onions, carrots, cabbage, tomatoes, and spinach. Access to markets is the lifeblood of agribusinesses.
National Fresh Produce Markets (NFPM) connect farmers to a variety of buyers. Market agents located within the ecosystem serve as aggregators and intermediaries of fresh produce at the NFPM. Hence, market agents represent farmers by selling fresh produce.
The FPMI provisional report amplified investigations and recommendations by the National Agricultural Marketing Council (NAMC) under Section 7 of the Marketing of Agricultural Products Act, Act 47 of 1996 (MAP Act). NAMC published a report in 2006 on NFPM following comprehensive and rigorous investigations.
Similar recommendations to the FPMI provisional report were issued with respect to governance, operations, and the regulatory framework. While the FPMI and the MAP Act Section 7 committee reports focused on the fresh produce value chain, their findings may be generalised across the agro-food value chains.
The AAMP provides the platform to implement remedial actions per the FPMI provisional report. The AAMP was signed on 12 May 2022.
The theory of social compact that underpins the AAMP posits social compacts as agreements among social actors. The AAMP is implemented through respective value chain round tables (VCRTs) and production schemes that are industry-specific and focused. Both implementation models provide a solid basis to follow through on the remedial actions articulated in the FPMI report.
Remedial actions
The FPMI provisional report lists twenty-nine remedial actions. These recommendations may be broadly categorised as follows: (i) barriers to entry related to factors of production; (ii) production-related constraints; (iii) binding marketing and logistical challenges; and (iv) a burdensome and unresponsive regulatory framework related to the marketing of fresh produce.
Unsurprisingly, interventions outlined in the AAMP align with the remedial actions in the FPMI provisional report, such as access to land, finance, water, and infrastructure.
Economic theory postulates that factors of production include land, capital, and labour. These factors are unproductive without the availability and access to water. Both the AAMP and the FPMI provisional report identified access to land as a barrier to entry.
As per the interventions of the AAMP, a total of 246k hectares were acquired through the Proactive Land Acquisition Strategy (PLAS) during the previous Medium Term Expenditure Framework (MTEF) period. The MTEF is a State expenditure framework linked to a cycle of administration.
Additionally, 30k hectares were acquired and directly transferred to farm dwellers and labour tenants to guarantee the security of tenure. Furthermore, the transfer of title deeds to qualifying farmers is underway. Title deeds serve as collateral to unlock finance for production purposes.
The FPMI provisional report and the AAMP identify access to finance as a significant barrier to entry for farmers. Based on the interventions in the AAMP, the one-size-fits-all approach to funding was culled, at least within state funding instruments. On a larger scale, the department of agriculture has partnered with the Industrial Development Corporation (“IDC”) and Land Bank to commercialise development farmers through a blended finance scheme.
The state is also in a strategic partnership with various commercial banks to unlock private-sector funding. To date, more than R3.1 billion has been invested through blended finance, benefiting 183 commercial farmers, with R1.2 billion being state grants to de-risk respective applications. At the smallholder level, farmers who do not qualify for loans are financed through the Comprehensive Agricultural Support Programme (Casp).
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Over R6 billion was disbursed to qualifying farmers over the previous MTEF period. At the subsistence level, farmers were supported through the Presidential Employment Stimulus Initiative (Pesi). Over 250k vouchers were issued to rural households as incentives to bring fallow land back into production.
Farmers used these vouchers to access production inputs such as seeds, fertilisers, and agrochemicals. The Pesi system allowed farmers to take control of: (i) what to buy; (ii) when to buy; and (iii) where to buy, ensuring that farming activities align with market requirements and technical aspects. The Micro Agricultural Financial Institutions of South Africa (Mafisa) is another instrument targeting subsistence farmers. The Agro-energy Fund is available to all categories of farmers, capped at R1.5 million on a sliding scale.
Production-related challenges
The FPMI provisional report highlights a positive relationship between market access and agribusiness skills. Over the previous MTEF period, about R1 million was spent on training 9k rural youth in business and technical skills via the National Rural Youth Services Corps. AgriSETA has also partnered with the private sector to expand the cohort of skilled and productive workers. Employment statistics serve as a success measure for the AAMP.
The FPMI provisional report and the AAMP describe the delays and frustrations faced by farmers in applying for water use authorisations. The department of water and sanitation (DWS) is the responsible and competent authority for access to water use for economic development. As part of the implementation of the AAMP interventions, the DWS has taken steps to improve efficiencies in the licensing system. Accordingly, it takes 90 days at most to finalise an application, subject to the submission of all relevant and required documents by applicants.
The high cost of production is among the production-related challenges reflected in the FPMI provisional report and the AAMP. The simultaneous and adverse impacts of (i) climate change; (ii) geopolitical conflict; (iii) intermittent energy supply; and (iv) outbreaks of epidemics have escalated the costs of fertilisers, agrochemicals, and potent seeds. In mitigation, the AAMP recognises the need to improve the efficiency and effectiveness of localising the production capacity and distribution of fertilisers and agrochemicals.
The geopolitical conflict provides a business opportunity for Foskor to expand the local manufacturing capacity of mono-ammonia phosphates and urea.
Binding marketing and logistical constraints are listed by both the FPMI provisional report and the AAMP as significant barriers to market access. Notably, Operation Vulindlela, under the Presidency, has resulted in significant positive shifts to improve efficiencies at various ports, enhancing export competitiveness.
Master plan is the key
Additionally, a pipeline of infrastructure projects valued at more than R2 trillion is being unlocked. These include investments in road, rail, energy, telecommunication, water, and sanitation, which are critical to lowering the transaction costs faced by farmers and agribusinesses.
Burdensome legislative requirements are cited as limiting market access. The FPMI provisional report and the NAMC MAP Act Section 7 committee observed disparities in respective municipal bylaws governing NFPM, making it difficult for farmers to switch between various NFPM.
Ultimately, market access is curtailed. At the municipal level, the ownership and control of NFPM, as per the Municipal Systems Act, Act 32 of 2000, are at the heart of low infrastructure investment. At the sectoral level, the AAMP identifies the urgent need to review Act 36. The review process has been initiated and is underway, although amendments to legislation are often tedious and lengthy.
In conclusion, while the AAMP is not a panacea for all challenges confronting the sector, the assertions made by the Minister of Agriculture on 16th July 2024 during the budget vote 29 speech to accelerate the implementation of the AAMP are critical.
The AAMP is fundamental to ensuring a globally competitive sector, inclusive growth, increased investment, and the generation of sustainable jobs. The AAMP provides the platform to follow through on the remedial actions contained in the FPMI provisional report. Implementation of the AAMP is a work in progress.
- Mahlogedi LV Thindisa PhD is an agropreneur and agricultural economist. You can follow @lepapatla on X (Former Twitter). 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 Mzans
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