The South African fresh produce market system is unique in the world because it functions on a commission basis, as Attie Horn, president of the Institute of Market Agents of South Africa (IMASA) and Michael Cordes, general manager of IMASA, explain to FreshPlaza. This system is governed by legislation that protects the seller (the farmer) and the Agricultural Produce Agents Council (APAC) which trains, licenses and, if need be, disciplines market agents. It enables a farmer to be more of a “price maker” than a “price taker”.
Attie Horn, president of the Institute of Market Agents of South Africa (IMASA), and Michael Cordes, general manager of IMASA
There is currently an ongoing investigation into alleged price-fixing at some markets after a complaint was laid at the Competition Commission, but no charges have yet been laid. Potatoes SA released a statement in defence of the free market system of selling fresh produce, stating “it provides the ideal, inclusive and transparent trading environment to all fresh produce producers, be they small-scale, emerging or commercial producers, to sell their produce directly to buyers.”
Some major producers like ZZ2 have so much faith in this system of fresh produce trading, that not only does the vast majority of their produce (in excess of 80%) go to the fresh produce markets, but they have helped to establish two markets in Polokwane and Mooketsi to service the north of the country.
IMASA is of the opinion that there might be an imperfect understanding of how the system functions, perhaps because of the volatility of prices which are acutely sensitive to as many as 45 pricing factors, of which the main ones are supply and demand, quality, continuity of supply and communication between farmer and market agent. It is a purely free market system, with no fixed baseline prices.
The Tshwane fresh produce market (copyright: City of Tshwane)
This system provides South African farmers with the opportunity to decide on their own marketing and gives them a daily insight into fluctuating prices, according to which they can decide whether to send stock to the market or hold back. A relationship of trust is of cardinal importance and some producer-agent relationships go back decades. Good market agents regularly visit producers to acquaint themselves with the production conditions.
All stock sent to the market remains the property of the grower until it is sold; at the market an agent acts as intermediary and it is in the agent’s interest – because his or her commission depends on it – to negotiate the best possible price for the farmer, while still attracting willing buyers. Furthermore, in terms of the law, producers have to be paid within five days, quite unlike when selling per contract to some supermarkets.
The software used at the market, the Freshmark Electronic Sales Processing System, is another unique feature of the South African commission system. It provides agents with a comprehensive database of prices across all categories – there are easily 200 different products traded on these markets – with an overview of stock levels, price fluctuations as well as averages across a season. Moreover, farmers have full access to this data and therefore can see the exact prices of produce and the available stock already at the market at any given point and need not only rely on what they are told by an agent.
The agent commission follows accepted usage, around 7.5% on most produce with the exception of potatoes and onions for which lower commissions were negotiated; 5% and 6% respectively. One of the misconceptions regarding the system that was evident in some media reports recently, is that this agent commission pushes up the price of commodities. “The agent’s commission doesn’t influence the consumer price because it is subtracted from the selling price, not added on top of it,” explains Attie Horn. At the municipal markets (of which there are thirteen, like Tshwane (Pretoria) and Durban) a further 5% commission is added which goes to the municipality for upkeep of the infrastructure and facilities. The Johannesburg market is corporatised while the Cape Town market was privatised in 2010; a further ten markets are also in private hands.
Copyright: City of Tshwane
“Agencies are in strong competition with each other, even across the different markets, in order to attract business. Any kind of conspiracy amongst agents from different agencies would be to cut your throat. Farmers can easily move their produce to another agency if they’re unhappy,” he continues.
For instance, since Pretoria and Johannesburg are so close to each other, it would be easy for a producer to decide to rather send produce to the one if unhappy with the other. The Johannesburg market has always been the dominant market, accounting for about 37% of the industry. Where the Tshwane market has a monthly turnover of about R110 million (€7.52 million), it is approximately R220 to 225 million (€15.05 million to €15.39 million) a month in Johannesburg.
The market regularly receives overseas visitors who are at first surprised and then envious of the price sensitivity which allows farmers to take full advantage of factors like supply shortage or increased demand.
According to Michael Cordes, who was a farmer and then a market agent himself, if the system has a weakness, it is that people don’t understand how it works. “Producers will always want a high price but the ideal is to maintain an average price over a long period, and the only way you can do that, is to market consistently. If the system can do that, there’s no better system on earth for the farmer.”
For more information:
Institute of Market Agents of South Africa
Tel: +27 12 326 8821