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A fresh produce market inquiry has recommended South Africa’s largest property owners make a minimum allocation of space available in their malls to smaller emerging challenger retailers and players from disadvantaged backgrounds in a bid to counter the dominance of the ‘big four’ retailers.
It also wants the Department of Trade, Industry and Competition (DTIC) to set up a fund to assist new entrants in the fruit and vegetable market.
These were some of the recommendations made by the Competition Commission’s high-level inquiry into the state of the fresh produce market launched 14 months ago. At the time, the commission said it believed there were market features that distorted or restricted competition.
The scope of the inquiry focused on five fruits, namely apples, citrus, bananas, pears and table grapes, and six vegetables, namely potatoes, onions, carrots, cabbage, tomatoes and spinach.
Speaking at the launch of the Competition Commission’s provisional fresh produce market inquiry report on Tuesday in Pretoria, inquiry chair Hardin Ratshisusu said they found the fresh produce market was “highly concentrated”, with the top four retailers, Shoprite, SPAR, Pick n Pay and Woolworths, “commanding a substantial share of the market”.
No real remedy yet
Ratshisusu noted that even with the elimination of controversial exclusivity clauses in shopping centre lease agreements following a previous grocery retail market inquiry, there had not been “any meaningful entry in the retail space” of new retailers, particularly previously disadvantaged individuals.
“There is a need to enhance competition in this market which will likely lead to more price competition between retailers. We have a recommendation, that the DTIC must set up a fund to assist new entrants in the retailing of fresh fruits and vegetables in shopping centres.”
Exclusive lease agreements signed with landlords and other property developers had previously historically allowed large national retailers to operate exclusively in shopping centres and restrict other smaller independents, including historically disadvantaged individuals and rivals, from entering the same properties.
A four-year probe by the Competition Commission’s grocery retail market inquiry culminated in the issuing of a report in November 2019 that found the practice was prevalent, anti-competitive and harmful to both consumers and smaller retailers.
Ratshisusu said the fresh produce market inquiry also directed some “some remedial action” at the South African Property Owners’ Association (Sapoa) and its members, as well as other big retail property players.
He said Sapoa, which is SA’s largest commercial property association, and “large owners of the retail property” should “commit to making available a minimum allocation of retail space to enable effective entry of new entrants including HDPs (historically disadvantaged persons) and SMEs (small and medium enterprises), as well as emerging challenger retailers for fresh produce in the shopping centres and malls”.
Ratshisusu said the inquiry had already begun engaging with Sapoa about this.
Asked by News24 about more details of the specifications of these allocations, Ratshisusu and inquiry technical director Ruan Mare said there were no specific prescriptions for property owners.
However, Ratshisusu said Food Lover’s Market, which it noted had also battled to find space in shopping centres because of the dominance of the big four, had indicated during the inquiry that about 2 000m2 of space was probably required to run an operation like its own.
The inquiry also found that there were some instances of “high markups” for fresh produce in the retail market over a sustained period of time, which was a “good indicator of lack of competition”, noted Ratshisusu.
He said that following preliminary engagements with retailers, the inquiry was continuing to analyse the data and would be consulting with them again after the publication of this provisional report.
Ratshisusu said this was mainly because the retailers concerned had “raised some issues with the data that was analysed”, pointing out that this was data provided by the retailers themselves.
“For due process, the inquiry has resolved that these retailers will have to be engaged even following the publication of this provisional report.”
He said the inquiry further found that the prices of fresh produce were “not transparent enough” to allow consumers to reasonably compare prices in-store and across retailers.
This was because the pricing of fresh produce was not done on a per kilogram basis but on a per unit basis.
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This lack of transparency in unit pricing “distorts competition” in that consumers are “less able to compare pricing between the retailers”.
Not convincing
Ratshisusu said it was important this was remedied, adding that its recommendation was that Shoprite, Woolworths, Spar, Pick ‘n Pay and Food Lover’s Market should ensure that the per kilogram and per gramme pricing is visible in their supermarkets, along with the per unit pricing.
He noted the retailers were opposed to this on the basis that it would be too costly for them to implement but that the inquiry was not “convinced by that argument”.
Further down the food supply chain, the inquiry also made an interesting finding relating to access to seeds/varieties after the expiration of plant breeders’ rights.
This was specifically considered in relation to potatoes and Simba chips, which are owned by PepsiCo. It noted an “apparent strategy” by Simba to “discontinue use of a closed variety before expiry of its plant breeders’ right”. This specific variety of potato is called FL2006.
“It seemingly replaces that variety with its new (fully protected) variety. This entrenchment strategy means that access to a variety (which will imminently be open) may be limited through the removal of the genetic material.”
This, in the inquiry’s view, “distorts competition” as it prevents competitors or new entrants from using that specific variety that it has discontinued.
The inquiry said Simba denied that it stopped a variety before the expiry of plant breeder rights but that it “remains unconvinced”.
This was, in particular, because “as it stands, there is no access to this cultivar even if farmers may try to obtain it”.
Its remedy was that Simba makes available to the Agricultural Research Council the FL2006 variety’s gene material for preservation to ensure it is “available to any member of the public”.
Ratshisusu said all stakeholders had four weeks from the publication of the provisional report to respond and provide comments on the provisional report, its provisional findings and provisional remedial actions and recommendations.
