Mathabo Le Roux
29 October 2008
Johannesburg — THE hasty and radical reform of SA's agricultural sector after 1994 has not had the desired outcome, leading competition economist Simon Roberts said yesterday.
Instead, the sweeping liberalisation has made South African farmers vulnerable to price volatility and competition abuses in other segments of the value chain - notably at input and processing levels - which may call for some form of regulation to remedy the situation.
Roberts, senior economist at the Competition Commission, presented a paper on his findings at a conference held by the development policy research unit of the University of Cape Town's school of economics.
His assessment comes on the heels of a damning report from the United Nations Conference on Trade and Development, which found that market-driven reforms had severely hampered farm output in sub-Saharan Africa.
SA in 1994 embarked on sweeping agricultural reforms, dismantling marketing boards, phasing out import and export controls and all but eliminating state support in a bid to drive down food prices, speed up land reform and bring previously disadvantaged people into the sector.
While liberalisation has brought about a "competition-perfect situation", with many producers active in the industry, high levels of market concentration prevail in other segments in the value chain, including processing and extension services, such as silos for storage.
Anticompetitive behaviour is generally found in markets dominated by only a few players.
In recent years the Competition Commission has scrutinised a number of sectors in the food processing industry, including bakers, millers and dai ry processing, and exposed widespread collusion and anticompetitive conduct in those sectors.
While barriers to entry in some of these sectors, such as baking, are not prohibitively high, Roberts said the great tendency towards vertical integration in the industry means that fewer players are inclined to enter the field.
Moreover, cases of alleged collusion and discriminatory pricing have also been probed in the fertiliser industry, which is one of the major input costs for agriculture.
Farmers are for instance charged inland import parity prices for fertiliser by Sasol, the only local producer of ammonia from nitrogenous fertiliser.
Roberts' study found that producers are squeezed from two sides, with monopolist prices exerted on the input side, while concentration in upstream, processing sectors are pushing prices for products down. The situation has also led to large-scale shedding of jobs, with as much as 70% of jobs lost in the maize and wheat sectors, Mike de Klerk, an economist with ComMark, said in reaction to Roberts's findings.
Roberts said the analysis "certainly supports ' intelligent' regulation", admitting that reactive competition policy was too blunt an instrument to rectify the situation, as competition cases took a long time to reach conclusion.
"It looks like the outcome of the deregulation process was undesirable, " he said.
Be the first to Write a Comment!
Copyright © 2008 Business Day. All rights reserved. Distributed by AllAfrica Global Media (allAfrica.com). To contact the copyright holder directly for corrections — or for permission to republish or make other authorized use of this material, click here.
AllAfrica aggregates and indexes content from over 125 African news organizations, plus more than 200 other sources, who are responsible for their own reporting and views. Articles and commentaries that identify allAfrica.com as the publisher are produced or commissioned by AllAfrica.
