South African producers have not yet taken a collective stand against unfair trade practices and low prices by international supermarkets. The primary reason for this is that they are unwilling to cooperate because, in a deregulated environment, they are each other’s competitors.
While retailer power has increasingly become consolidated, the opposite has happened to the collective power of South African producers. The state played no minor role in this. After the deregulation of the agricultural sector in 1997, marketing boards were shut down. This ended the single marketing channel system that previously allowed producers as a collective
to negotiate en bloc with powerful retailers.
Since then, producers have competed against each other, with retailers encouraging this ‘race to the bottom’ to get lower prices. As a result, prices have eroded and not kept up with input costs. Producers’ lack of collective power to force buyers to the negotiating table means that most producers – especially those in highly labour-intensive industries – are extremely unwilling to make any concessions that might inflate their main costs, namely labour costs.
For example, producers remain reluctant to enter a bargaining space with workers about wages. Although they are prepared to go through this process at farm level, they remain unwilling to make industry-wide concessions. Largely, this reluctance stems from the weak bargaining position they find themselves in vis-à-vis buyers, and especially supermarket buyers.
The relative powerlessness at both the producer and worker level, has led to a stalemate. On the one hand, workers cannot survive on a wage of R150/ day; on the other, most producers will go bankrupt if the minimum wage is lifted significantly above R150/day. The idea that the majority of South African producers can easily afford to pay higher wages is a fiction: 56,49% of producers have an annual turnover of below R500 000.
A way out of this dilemma has to be found, preferably without having to cut more jobs or push producers into bankruptcy.
Some argue that if SA producers set their prices too high, international supermarkets will simply shop in Chile and Argentina. It therefore appears that there is also a need not only to consolidate the power of SA producers as a collective, but strengthen the power of southern hemisphere producers as a collective. This may even involve lobbying for a living wage for farm workers of all southern hemisphere suppliers.
Hypocrisy of subsidised countries
The double standard of sustained subsidisation of European and US producers while organisations such as the World Trade Organisation keep preaching the mantra of free trade needs to be taken up again. The real effect of these subsidies is that farm workers in the global south are suffering as their employers try to compete with northern hemisphere producers on an uneven playing field.
To quote Anton Rabe, CEO of Hortgro: “There are things that we could sort out with Chile and Australia to address unfair trade practices. We have not yet stood together against retail. We are fighting about 25% of the value chain, but what about the rest? The enemy lies beyond the farm gate and that is where we should unlock value.”
Apart from expanding production to cope with increasing pressure on their bottom lines, SA producers are looking for alternative outlets to traditional British and EU supermarkets. This strategy makes a difference because a wider choice of potential buyers enables them to claw back some bargaining power. Some of these newer markets require less stringent quality and process standards, making it less costly to implement for smaller producers.
Government has lobbied to help producers gain access to new global markets. But market access is not only about striking trade agreements with more countries; it is also about removing tariff and non-tariff barriers such as chemical residue and environmental issues.
It’s crucial for all stakeholders to take a value-chain perspective of the woes of the sector and identify the blockages that prevent an equitable flow of value down the chain. If producers, government and workers collectively fail to take a broader view, they will continue fighting over the one small sliver of cake, as one industry expert put it. The disproportionate value (that is, the biggest slice of the cake) that accrues to international sellers of South African agricultural produce must be addressed.
Instead of positioning themselves to obtain more bargaining power, SA producers try to roll with the punches. Their main strategy has been to increase volume. Yet pursuing this alone is counterproductive in the long run, as it leads to an oversupply of markets, which drives prices even lower.
For the most part, producers are price-takers with little power to take on their trading partners. This was especially so when dealing with UK supermarkets concerning unfair trade practices.
The Competition Act prohibits producers from price fixing. Yet, a precedent has already been created for exemption from the Competition Act: the SASA Council is allowed to set sugar prices for growers and millers. Could more exemptions from the Competition Act – especially on exported produce – enable South African producers to fix farm gate prices higher, enabling them to pay a living wage to workers?