Competition Commission to probe retailers?

The Milk Producers’ Organisation (MPO) has welcomed a report by the National Agricultural Marketing Council (NAMC), which found that supermarket chains were possibly abusing their dominant positions and that the agriculture minister should forward the findings to the Competition Commission.

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The Milk Producers’ Organisation (MPO) has welcomed a report by the National Agricultural Marketing Council (NAMC), which found that supermarket chains were possibly abusing their dominant positions and that the agriculture minister should forward the findings to the Competition Commission.
“We laid a complaint with the commission against the supermarkets two years ago and there hasn’t been much progress on the case,” said MPO CEO Bertus de Jongh. “At least now the NAMC is supporting us and government agencies appear to be taking a firm stance. Hopefully the supermarket case will be the next big case the commission looks at.”
The report, which was funded in part by the MPO, concentrated on the liquid milk market and is intended to be used to open debate on the perceived uncompetitive behaviour of the large supermarket chains.
It found that the number of greengrocers and small retail outlets had dwindled and four retail supermarket chains, Pick ’n Pay, Shoprite/Checkers, Woolworths and Spar, jointly controlled 94,5% of the retail food market in South Africa.
“Supermarkets dominate the distribution channel and are an inhibiting factor in the market,” said De Jongh. “There are roughly 45 000 farmers in the country and 45 million consumers. Four supermarket groups are distributing farmers’ produce to all those consumers. You can see by the sheer numbers who is dominating the distribution channel.
“We feel they’re skimming off the cream and are making farming unprofitable. We’re losing farmers all the time and last year, South Africa become a nett importer of food. These are clear signs that agriculture is going through tough times.”
In the report, the NAMC’s Prof Johann Kirsten said farmers and food processors were becoming more concerned with the competitiveness of the food marketing chain. “Of particular interest are their procurement practices, price-setting behaviour and the manner in which they impact on the nature of competition among all other food retailers,” Prof Kirsten pointed out.
The report found that retail prices had increased more rapidly than farm gate prices, thus increasing the marketing margin between the farm gate and retail price, without such margins being explained adequately.
“What needs to be confirmed is whether market power manifested by the purchasing practices of processors and retailers is responsible for the widening gap between farm level and retail prices,” Prof Kirsten wrote.
He said the possibility supermarket chains were abusing their positions could ultimately be detrimental to food security in South Africa.
“The commission should consider the merit of introducing new rules which could govern the relationships between suppliers, especially small and medium suppliers, and retail chains. This should be introduced with the objective to prevent the restrictive practices by the retailers and their associated costs to suppliers,” said Prof Kirsten.
De Jongh said the MPO wanted legislation to be changed to empower producers. “The Marketing Act and the Competition Act should be adapted to accommodate farmers. They are individuals who are flanked by big conglomerates both on the input and output sides.
“They are a soft target and we want legislation to change to help farmers to at least balance and strengthen the distribution channel.” – Robyn Joubert