Competition in the agricultural sector

Spurred by a combination of recent developments, including the competition authorities’ continuous monitoring of essential food items pursuant to the COVID-19 pandemic, the recent concentration study, and the initiation of a market inquiry in respect of the fresh produce market, a clear paradigm shift has emerged in which the competition authorities’ focus on the agricultural sector has been reignited, making it a sector of significant interest going forward.

25 May 2022 3 min read Agriculture, Aquaculture & Fishing Sector, and Competition Law Alert Article

At a glance

  • Renewed focus on agricultural sector: Recent developments have sparked a paradigm shift, with competition authorities showing increased interest in the agricultural sector in South Africa.
  • Monitoring of essential food prices: The Competition Commission continues to monitor price volatility of essential food items and expects businesses to justify any price increases in line with competition laws, particularly in the context of supply chain disruptions caused by the pandemic.
  • Concentration trends and market inquiry: The Commission's study highlighted high levels of concentration in parts of the economy, including the agricultural value chain. A market inquiry into the fresh produce market will be initiated to assess competition levels, price outcomes, challenges faced by farmers, and barriers to entry. The inquiry will focus on themes such as value chain efficiency, inputs for growers, participation of small and historically-disadvantaged growers, and regulatory barriers.

The Competition Commission (Commission) has stated that it will continue to monitor the increasing price volatility of essential food items in South Africa. This comes after legal interventions intended to guard against price gouging during the pandemic were repealed when the National State of Disaster was lifted in April 2022. The Commission noted that while businesses that operate in the consumer goods and retail sector are dealing with genuine and ongoing supply chain disruptions, they should ensure that any price increase is carefully considered and justified vis-à-vis competition laws. For example, albeit unclear in terms of which provisions it would be acting, the Commission recently warned that, following the implications of the Ukrainian war on edible oil prices, it was “studying the causes” of recent significant price increases to assess whether they are justified or if companies are merely profiteering from consumers.  

The Commission’s latest Essential Food Pricing Monitoring Report highlights that the increasing price volatility of various essential food items, including fresh produce, has had a detrimental impact on the poor as food price inflation and volatility affects them to a greater degree.

Arguably, these price increases have resulted from a combination of factors, including the ongoing pandemic, weather conditions, oil price fluctuations and geopolitical challenges. The Commission observed generally that “it is key that increases in prices … are not exploited unduly by intermediaries or processors – especially those sourcing scarcer products … who may attempt to use cost increases to justify greater price increases than warranted”. The specific legal basis in terms of which such exploitative increases will be addressed remains unclear.

Concentration trends and market inquiry

In addition, in November 2021 the Commission published a study measuring the levels and trends of concentration and participation in the South African economy generally. According to the Commission, the study revealed that there are concerning trends of high levels of concentration in particular parts of the economy, including numerous sub-sectors within the agriculture value chain (e.g. farming, grain, fishing, forestry and livestock); that many agricultural inputs are dominated by a few firms and agricultural processing remains concentrated despite a broader base of participation; and the agricultural sector was identified as a good market inquiry candidate.

In line with the trends identified in the Commission’s work outlined above, the Commission recently announced its intention to initiate a market inquiry into the South African fresh produce market. The aim is to understand the state of competition at all levels of the industry, the market features affecting price outcomes, and the challenges currently faced by farmers, to examine whether there are any features in the fresh produce value chain which lessen, prevent or distort the competitiveness of the South African fresh produce market. The Commission has preliminarily identified four broad themes to be assessed: the efficiency of the value chain; the market dynamics and impact of key inputs for growers; the participation of small and historically-disadvantaged growers; and the barriers to entry in relation to the regulatory environment. Notably, it is not clear how the question of access to agricultural land as an input will be addressed (if at all). This market inquiry is set to commence shortly, once the final terms of reference are published, and the intention is for it to be completed within 18 months (during which the public and business will be invited to provide inputs).

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