South Africa: Examining Competition In South Africa's Fresh Produce Market: Competition Commission Sets Final Terms Of Reference

On 14 February 2023, the Competition Commission (the "Commission") published its Final Terms of Reference ("ToR") to establish a market inquiry into the fresh produce market of South Africa following the receipt of comments from the public on the draft term of reference published on 25 March 2022.

The establishment of the Fresh Produce Market Inquiry (the "FPMI") follows various investigations, studies and engagements with stakeholders which have highlighted various challenges in the fresh produce market. Fresh produce in the context of the FPMI refers to the main fruits and vegetables produced and consumed in South Africa, including, apples, bananas, oranges (and other citrus), stone fruit, pears, avocados, grapes, nuts, potatoes, onions, sweetcorn, carrots, and cabbage.

Broadly, the Commission's rationale for the FPMI is to examine whether there are any features in the fresh produce value chain which may impede, restrict or distort competition in the market and if such adverse effects of competition are as a result of the present conditions at play.

The Commission observed that it has several concerns relating to, inter alia, the cost of fresh produce increasing significantly, and the challenges faced by fresh produce farmers. The aim of the FPMI is, therefore, to understand the state of competition within the industry, the market features affecting price outcomes and the challenges faced by farmers, particularly small-scale and emerging farmers.

The Commission has identified the following three broad themes which may have the ability to either impede, distort or restrict competition in the fresh produce market:

1.Efficiency of the value chain, with an emphasis on the dynamics around fresh produce market facilities

This particular theme will analyse the competition dynamics at play in the national fresh produce market ("NFPMs") which comprises the physical infrastructures and accompanying services where the wholesale of fresh produce takes place between producers and buyers, and how other contracting means affect competition in the market. The FPMI will focus on the following in respect of competition and efficiency of the value chain insofar as NFPM platforms are the route to market, inter alia, price setting mechanisms, role of agents, efficiencies of NFPMs, liquidity of NFPMs and agent fee determination at NFPMs.

In respect of other platforms as routes to market (i.e., retailers, wholesalers and processors) the FPMI will focus on competition for national and local direct sales, agent, logistics and wholesaler fees and retailer margins and markups and how they are determined.

2.Market dynamics of key inputs and its impact on producers

Under this theme, the Commission will focus its analysis on the upper end of the value chain to see if there are any price discrimination, buyer power and exclusivity arrangements in place which could result in the key inputs (such as seeds, fertilisers and agrochemicals – locally manufactured and imported) being highly concentrated. The FPMI will focus on the following in respect of the market dynamics and impact of key inputs for growers, inter alia, costs of key inputs for farmers and its impact on overall producer costs and pricing, main drivers of costs increase, any price discrimination and the role of cooperatives (or former cooperatives) in the provision of competing inputs such as seed varieties, and public sector support.

3.Barriers to entry, expansion and participation

The focus of the Commission under this theme will be to assess any factors which could prove to be barriers to entry into the market, expansion and participation, particularly for small, medium and micro enterprises ("SMMEs") and historically disadvantaged persons ("HDPs"). More particularly, focus will be on market access, discriminatory practices, access to financial support and challenges relating access to water.

From a timeline and process perspective, the FPMI must commence at least 20 business days after publication of the ToR – i.e., on a date to be determined by the Commission that occurs after 14 March 2023. The Commission has 18 months from that date within which to complete the inquiry (although that date can be extended in certain circumstances).

As per the nature of market inquiries, the Commission has the power to invite anyone it deems necessary to participate in the inquiry and request or even subpoena information from such parties.

Once the Commission publishes its final findings and recommendations, interested parties who may be materially affected by the determinations of the Commission will have the right to appeal against such determinations to the Competition Tribunal.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.