Agrifood Sector Studies South Africa: Restructuring Food Markets South Africa - dynamics within the tomato subsector

By Andre Louw, Davison Chikazunga, Danie Jordaan, Estelle Bienabe

The restructuring of the South African food markets is observed through consolidation, trans-nationalization and the emergence and disappearance of supply chain actors. Advanced stages of consolidation are observable in most sectors of the South African food supply chain. They are evident from relatively high levels of concentration observable in food production, processing, wholesale and retailing. Despite reasonably high and rising levels of foreign direct investment in South Africa, inward trans-nationalization into the South African food sector is limited to a few small multinationals. This is, arguably, due to the country's remote geographical position away from industrialised regions. Outward trans-nationalization of South African firms investing outside of South Africa is growing, with many food retailers embarking on regional expansion strategies, primarily into Africa. In terms of emerging and disappearing market agents, fresh produce markets' share in fresh fruit and vegetable wholesaling is declining and being replaced by category managers or category management functions performed by food retails. Retailers also continue to expand into non-traditional areas, which include townships and former homeland areas that have in the past been served by traditional independent stores. The continued expansion of retailers is spearheaded by growth through franchise format stores and forecourt stores. It has also been observed that the encroachment of supermarkets into areas traditionally occupied by the informal markets is displacing these informal markets and the traditional vegetable shops or so-called greengrocers historically found in suburban South Africa.

The restructuring brought about by these changes includes the evolution of procurement systems. The different retail ownership formats have shown different and also similar approaches to procurement. Corporate stores that are wholly owned by the retailer group are compelled to procure solely from the retailer's regional distribution centres. The phenomenon where corporate stores only procure fresh produce through their distribution centres that in turn only procure from a few select suppliers is a well established procurement practice that has been in use for over a decade in South Africa.

Generally the restructuring of food chains in South Africa is being driven by similar determinants as in other developing countries. The impact of this restructuring is consolidation and concentration in the food supply chain where larger stakeholders across the chain are displacing the smaller ones. Smaller scale growers, independent wholesalers, corner vegetable shops and a vibrant informal market are being displaced by groups of preferred supplier producers; large regional distribution centres are spread across the country to supply a rapidly growing network of corporate, franchise and voluntary trading group retailers with fresh produce.