National Agricultural Marketing Council Strategic Plan 2009/10; Competition Commission Food Prices briefing

Agriculture, Land Reform and Rural Development

07 July 2009
Chairperson: Mr M Johnson (ANC)
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Meeting Summary

The Committee was briefed by the National Agricultural Marketing Council (NAMC), who gave an introduction to the high food price problem, both internationally and locally, and argued that Government needed to collaborate closely with the private sector and civil society through proper incentives. The Strategic Plan, which was guided by various other documents and policies, recognised the supporting role that NAMC played to government programmes. It was mandated to do certain activities by its founding legislation and these were outlined in full. In short it aimed to   increase market access, promote efficiency in marketing of agricultural products, optimise export earnings from agricultural products, and enhance the viability of the agricultural sector. It was committed to developing Agricultural Development Schemes and enhancing market participation by low income farmers, by monitoring and developing directions to new markets. It also undertook research and development. Its budget and financial figures outlined total income of R38.7 million for the 2009 financial year, rising to R46.7 million in 2011/12. The four main programmes were described. All the strategic goals reflected its commitment to providing excellent service, up to date science and consistent management excellence.

Members asked questions why sugar prices were higher than in neighbouring countries, what had been done about the studies previously done that aimed to bring irrigable land into production, whether the fines paid in the bread price fixing cases could not be used to fund small bakeries to become competitive, what it would cost to resuscitate failed projects, and whether it was not possible to use land presently lying fallow to produce crops that were being imported.

The Competition Commission then briefed the Committee on high prices and price fixing. The background was given, showing that when markets were deregulated, in an attempt to produce market efficiency, the producers had instead taken the opportunity to exercise control themselves. Contributing factors to high bread prices were described, which had emerged from the Commission’s research. The results of the bread price-fixing investigations were set out. Other investigations in other sectors were set out, which it was hoped would be concluded by 2010.

Members asked for information on the prices of maize meal, asked whether the regulations of the World Trade Organisation were not adhered to, which might offer the tools to help the local market out of these problems, cited the main problem as greed, and said that the price fixing was effectively keeping the previously disadvantaged out of the market. Members cited the decline in the numbers of dairy farmers, noted that drastic action was needed and commented that foreigners running spaza shops were exempted from registering for VAT, whereas local owners were not. Members again commented that the fines charged should be distributed to small businesses. They further queried paraffin prices, and said that part of the problem was that consumers were not objecting. Members commented that they should consider how they as parliamentarians could craft a way forward, and be more proactive. They would consult further with the Department of Agriculture Forestry and Fisheries on these issues.

Meeting report

National Agricultural Marketing Council (NAMC) Strategic Plan briefing
Mr Tshililo Ramabulana, CEO, National Agricultural Marketing Council, briefed the Committee as set out in the attached presentation document. He said that he would argue that there was a need to increase production in order to find a solution to the high food prices problem that the world was currently facing, which the NAMC believed could be done only if Government would collaborate closely with the private sector and civil society through proper incentives. He highlighted that recent increases in agricultural commodity prices on the international market could be attributed to lower availability of grains, unfavourable climatic conditions for the production of grain in major grain producing and exporting countries, trade restrictions imposed by major grain exporting countries, the increased demand for animal protein that in turn required grain as an input for the production of more meat, increasing energy and fuel costs, potential misuse of marketing power and the possible influence of speculators.

He then focused on South Africa specific issues relating to prices, which included the role weather played in crop harvests and the effect of the weaker rand. Food prices tended to be higher in rural areas. Mr Ramabulana stated that the recession was not likely to have any major impact on food prices and that while it was still generally too high, food price inflation was slowing down. He added that retailers had been engaging with suppliers in order to find ways to keep prices down, but that no concrete solutions had been reached yet. He stated that the food price crisis of 2007 was likely to recur in 2011 with wheat and maize, if the farmers did not use the two-year window to start producing more. Mr Ramabulana highlighted that areas such as cotton and kidney bean production were down. Despite South Africa’s ability to produce both crops, it was cheaper to import them.

Mr Ramabulana then moved to discuss the NAMC strategic plan, which was guided by various other plans and which recognised the supporting role of NAMC to government programmes. The Marketing of Agricultural Products Act set out certain objectives that the NAMC must achieve, including increasing market access, promoting efficiency in marketing of agricultural products, optimising export earnings from agricultural products, and enhancing the viability of the agricultural sector. NAMC had committed to developing Agricultural Development Schemes and enhancing market participation by low income farmers. It would monitor traditional markets and develop directions to new markets. It would undertake research and development.

The strategic plan supported the vision of a united and prosperous agricultural sector, and NAMC would work through its five divisions to implement projects. He described some of the programmes, with a focus on the Land and Agrarian Reform Programme. He set out the vision and values of the NAMC. Its main purpose was summarised as creating an environment conducive to improved marketing of agricultural products by improving relations between government and industry business structures.

Mr Ramabulana introduced the NAMC Council, stating that it consisted of
ten members, and the structure of the staff.

Mr Ramabulana then tabled the budget. The total income for 2009/10 was projected at R38.7 million, rising to R46.7 million in 2011/12. The four main programmes were described. The Agribusiness Development Programme worked in close conjunction with the National and provincial departments responsible for agriculture and industry, and private institutions. This would encourage new business development. The private sector, whilst willing to assist, was faced with several constraints. NAMC thus designed development schemes to uplift black producers into the agricultural sector. NAMC would also be introducing a new programme to develop and implement market innovation projects in collaboration with industry. It would continue to strengthen support to emerging agribusinesses. In summary, its promotion programme would aim to expose 50 emerging agribusinesses to international markets, to design and send them on appropriate training courses and to assist them to export, including compliance with requirements and accreditation.

NAMC noted that many of the industry trusts were established before adoption of the current agricultural policies and NAMC would assist in helping them to realign.  It would continue to host training workshops. Its Market and
Economic Research Centre (MERC) would continue to operate, and its key focus areas were indicated as agro-food chains, trade analysis, linkage of farmers to markets, risk management and information management systems. It would be collaborating with the Department of Agriculture, Forestry and Fisheries and Statistics South Africa to monitor food prices. It would continue also to publish trends in agricultural input costs. Its publication TradeProbe created knowledge of trade-related topics. NAMC also undertook agro-food chain studies and joint research, as set out in the attached document. 

The NAMC Statutory Measures Division continued to handle all issues relating to statutory measures under the
Marketing of Agricultural Products Act of 1996.  The NAMC would continue to oversee the working of the Crop Estimates Liaison Committee. It had a dedicated desk to serve Ministerial trustees.

Mr Ramabulana summarised that the 23 strategic goals
reflected NAMC’s commitment to provide first class service, state-of-the-art-science and consistent management excellence across the NAMC’s broad responsibilities. 

Mr R Cebekhulu (IFP) asked why sugar prices were higher than in neighbouring countries, when sugar was domestically produced.

Mr Ramabulana replied that sugar was regulated by an Act managed by the Department of Trade and Industry (dti) and that he could not provide an explanation as to how that occurred.

Mr S Abram (ANC) stated that the Department of Agriculture, Forestry and Fishery (DAFF) had conducted a study about bringing 45,000 hectares of irrigable land to fruition and that he had brought up the issue in the previous Parliament. The then-Minister of Finance Mr Trevor Manuel had said that if this was possible, then it should be further investigated. Mr Abram wondered why the DAFF had not made any concrete proposals to the Department of Finance following on the groundwork already done. 

Mr Abram wanted to know if the fines paid by those companies found guilty of price collusion in the bread industry could be used to help fund small bakeries, in a bid to break the monopoly of the large companies. This, he felt would assist in keeping prices down and would actually benefit the consumer.

Mr Ramabulana replied that he agreed with Mr Abram.

Mr Abram referred to the challenge that land reform was affecting investments in agriculture. He asked if NAMC and DAFF had done any studies on what it would cost to resuscitate failed projects. He added that poverty was increasing and that the greed of large companies was pushing up prices, meaning that there was a distinct possibility of food riots.

Ms Ntombi Msimang, Chairperson, NAMC, replied that she could not quote exact figures, but that essentially it was impossible for anyone to achieve anything in farming if there was not the means to pay for the farming activities. She also said that the issue of land reform could be further complicated by one farm having multiple claimants, some of whom had no desire or aptitude for farming. The NAMC was only able to deal with the marketing side of the problem.

Ms M Pilusa-Mosoane (ANC) stated that there was much farmland lying unused. She asked if it was not possible to use this land for growing crops that were presently being imported, such as cotton and kidney beans.

Competition Commission (CC) Briefing on high prices and price fixing
Mr Tembinkosi Bonakele, Deputy Commissioner, Competition Commission, stated that currently South Africa was facing a crisis in the agricultural market, and further problems of price fixing and abuse of market power. He highlighted the historical background to the markets problems, saying that South Africa initially came from an environment of highly regulated markets. At one stage there was a concerted effort to make sure that agriculture was subsidised, regulated and price-protected, and agriculture had been very successful in this controlled environment. However, it did not assist market efficiency. Deregulation of the market was intensified in 1994, with a view to improving market efficiency, although this had not quite happened.

Mr Bonakele noted that wheat prices did not correlate with bread prices. Although there were other factors, wheat prices had come down yet the price of bread was increasing. There were contributing factors to these high food prices, which he said included anti-competitive conduct in the agro-food chain and increasing input costs, such as fertiliser. He added that the Competition Commission’s interventions were based on the impact on low-income consumers, and subsequent research that indicated anti-competitive conduct in the guise of cartel regulation and collusion.

Mr Bonakele cited the investigation into the bread industry as an example. He noted that it had been found that Blue Ribbon, Albany, Sasko and Foodcorp had been guilty of price fixing and market allocation, and were subsequently fined. Similar problems were plaguing other industries, such as the dairy, poultry, grain storage and trading and fertiliser industries. With regard to the dairy industry, Mr Bonakele stated that milk processors were forcing farmers to sell their milk at unsustainably low prices, and then inflating these prices massively when reselling milk. He added that there were legal processes around these allegations at present. In the poultry investigation being undertaken by the Competition Commission, there was the problem of concentration and vertical integration. The Commission was also currently investigating grain storage. In the fertiliser industry, it was alleged that Sasol and Foskor were controlling the market through their products Omnia and Kynoch/Yara. He highlighted that ammonia was a by-product of coal-to-liquid plants and that it was being sold to inland farmers at export prices. Mr Bonakele stated that he hoped these investigations would be concluded by 2010. He said that part of the problem had arisen from deregulation, which had in fact turned into private regulation by these companies.

Ms M Mabuza (ANC) asked for some information on mealies, saying that the price of mealie meal was rising and becoming unaffordable for many consumers.

Mr Bonakele replied that as the Competition Commission was investigating these cases, it had accrued a lot of information that he was pleased to be able to share with the Committee. The Competition Commission was also investigating maize meal and maize meal milling issues, and had found that four companies were responsible for 90% of milling, and that these companies were vertically integrated. Mr Bonakele stated that there was a case of price-fixing being made against these companies. He said that the effect of this collusion was that prices never went down.

Mr L Bosman (DA) stated that this was a complex issue and that the reasons came in part from adopting the internationally-operating free-market system. He asked why the producers and Department were not adhering to World Trade Organisation (WTO) regulations, stating that this whole system in fact offered the tools to help the local market out of this problem. Mr Bosman added that, from the point of view of effectiveness of cotton production, there were simply some areas where South Africa could not compete. Local wheat farmers were not protected and when they could not compete, there was a risk that they would leave. Mr Bosman added that the advisory committee ITAC also offered solutions, but these did not seem to be used effectively, hence the problem with the price increases. Mr Bosman stated that the Competition Commission should fix the bread issue as the problems were clearly outlined.

Mr Ramabulana stated that the Competition Commission had found that when the markets were deregulated a large number of farmers had entered the market and a number had also left. Those who stayed were forced to become more competitive in order to stay in the market. The industry had targeted the farmers in terms of competitiveness but did not focus on the entire value-chain. This was now needed, as in fact the only players who were now competitive were the farmers.

Mr Abram stated that the problem, as indicated by both presentations, was greed. He cited that certain franchisors would control their environments to keep certain groups of people out, particularly those who had been – and still were – disadvantaged. This problem was rife. Even with livestock auctioning, he had noticed that the black farmers’ livestock was often auctioned last, at lower prices. Price fixing had resulted in the loss of 24 000 dairy farmers. Dairy, which in the past was an important component of the agricultural sector, now had only 3 600 farmers. Mr Abram stated that something drastic must be done to arrest this problem or South Africa would soon be completely reliant on imports. He asked whether the fines imposed by the Competition Commission could be used to support small producers in the rural areas, as this would be making a meaningful contribution. Mr Abram stated that it was unfair that foreign operators of ‘spaza’ shops in the townships were not registered for VAT, and that locals were, leading to more unfair competition.

Mr Bonakele replied that the fines went straight to National Treasury and that the debate around spending of that money rested more with the relevant line-departments. He added that he did think that the Competition Commission needed to do much to allow market entry, but that it needed to undermine the cartels, otherwise they would just re-coagulate. Mr Bonakele stated that bread production should be simple and local, but that small bakeries were simply squeezed out by big companies.

The Chairperson stated that when paraffin prices fell elsewhere, they were never lowered in the rural areas. The same happened with the taxi industry when the fuel prices fell. There was never a ripple effect of price adjustment, merely consistent increases. He asked how the end user would be protected, and what was the mechanism to ensure that consumers benefited. He said that one major problem was that South African consumers were too complacent.

Mr Bonakele replied that the challenge of constantly rising prices was faced by everyone. He said that with regard to paraffin prices, those departments who had the power needed to effect regulations. He admitted that the challenges were large and that the Competition Commission had not yet looked at the taxi industry, as it hoped that the Department of Transport was investigating the issues. The Competition Commission had a limited budget and tried to focus on strategic cases where no other oversight body existed.

Mr Ebrahim Mohamed, Chief Director: Consumer Protection, Department of Trade and Industry, agreed that South African consumers were not vocal and that they did not react. He noted that the problem was even worse in rural areas. The Department of Trade and Industry was embarking on a large campaign to make consumers aware of their rights. Under the new Consumer Protection Act it was anticipated that some real changes should be seen from October 2010.

The Chairperson stated that Members needed to look at the Parliamentary role and how this could be used proactively to craft a way forward, merely than merely asking questions around the issues. It was clear that more regulation was needed to address the rising prices.

Mr E Sulliman (ANC) stated that the Chairperson had touched on the solution, and that Members needed to explore all possibilities in order to protect the farmers and consumers.

Mr L Gaehler (UDM) stated that these issues cut across many departments and that it would be useful to have a meeting with all the committees concerned.

The Chairperson stated that another issue out of this Committee’s domain was the problem of bank charges.

Mr Njabulo Nduli, Director General, DAFF, stated that the main focus of the Department was on increased agricultural output. As the Department presented its plan for moving forward, it would need to consolidate its funding base and look at initiatives. He added that one of the slides referred to agro-processing and value-add, and perhaps that should be the focus area of the intervention. He stated that the role of the consumer should be publicised and promoted so that the current situation was not allowed to remain.

The Chairperson stated that the Committee would need to hear from the DAFF on these issues. South Africa had prioritised engineering and economics in education and assumed that agriculture would have an economic component. If there was now a problem that South Africa was a net importer, then the Department needed to identify specific focus areas for further work.

The meeting was adjourned.

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