Do South Africa’s competition authorities consider normal market and business dynamics when anti-competition and trust matters are under the spotlight?
This is a question that often comes up when the Competition Commission, the country’s competition watchdog, makes findings on the practices of private sector players and essentially fires shots across the bows.
The question also came across my mind on Monday, 13 January 2025, when I read the commission’s findings from a two-year inquiry into South Africa’s fresh produce value chain and competition dynamics in the sector.
The commission’s inquiry — like many others before it that are inquisitory and not accusatory — probed whether the practices of various players in a sector impeded, restricted or distorted competition dynamics.
In the case of the fresh produce market inquiry, the commission focused on the behaviours of farmers, large grocery retailers, property owners, local municipalities, and others in the fruits and vegetables industry from 2017 to 2022. It focused on players that are involved in the long value chain of fresh produce (from production at farms to sale at grocery stores), including apples, oranges and soft citrus, bananas, pears, table grapes, potatoes, onions, carrots, cabbage, tomatoes and spinach.
Are retailers doing enough?
The commission’s inquiry took several potshots at private sector players.
A reading of the inquiry’s report and some of its bizarre recommendations suggests that competition authorities might not wholly consider market dynamics or take stock of the long-established efforts of these players to promote competition.
Sorry, but This Is the Future of Food
At a grocery store level, the inquiry found that retailers including Woolworths, Shoprite Checkers, Spar, Food Lover’s Market and Pick n Pay are not doing enough to support/develop food farmers and smaller businesses involved in the fresh produce value chain. In the commission’s view, retailers should do more through their enterprise and supplier development programmes to integrate farmers and small businesses in their processes of sourcing fresh produce. In other words, the commission wants grocery giants to spend more money to expand their programmes.
A read of publicly available annual and sustainability reports of Shoprite, Pick n Pay and Woolworths shows that retailers are already doing their bit by spending billions of rands every year to integrate small businesses into their mega supply chains. These retailers already procure fresh produce from farmers. Underscoring this is that Shoprite spent R1.2-billion during its 2024 financial year to procure fresh produce from farmers. Woolworths and Pick n Pay have also opened up their wallets, spending more than R1-billion and R178-million, respectively, during their 2024 financial years on farmers and general businesses (small and medium-sized, black and women-owned). Their support for farmers on a cumulative basis and over many years (including the period from 2017 to 2022 that the inquiry focused on) swells to billions.
Increased support
A question for the Competition Commission is whether more support is needed when retailers have already contributed substantially to their enterprise and supplier development programmes, and what this increased support should look like.
Only the commission and its authorities know. It only said in its report: “Large retailers [namely, Woolworths, Shoprite Checkers, Spar, Pick n Pay and Food Lover’s Market] must use their best endeavours to maintain and expand these programmes, in accordance with existing obligations.”
Property owners and landlords of shopping malls in South Africa have been forced to enter the fray. Property owners and landlords have been urged to open their malls to provide retail floor space to other and smaller fresh produce retailers, allowing them to compete against their larger counterparts.
The commission wants JSE-listed shopping mall owners and landlords including, among others, Accelerate Property Fund (the owner of Fourways Mall in Gauteng), Hyprop Investments (owner of Rosebank Mall in Gauteng and Canal Walk in the Western Cape), Redefine Properties (owner of Centurion Mall in Gauteng) and Resilient Property Fund (Mall of the North in Limpopo and Jabulani Mall in Gauteng) to “use reasonable commercial endeavours to provide vacant floor space to SME [small and medium-sized enterprises] retailers, on terms and conditions that are acceptable to both parties”.
The commission says the property industry still uses long-term exclusive lease agreements at shopping malls despite its explicit finding in 2019 that such agreements prohibit competition.
Restrictions on tenants
Long-term exclusive lease agreements allow a supermarket chain to be the only seller of specific goods at a mall to protect their turf, and can be in force for as long as 30 years in their rental agreement with landlords. These agreements also include restrictions on the type of non-supermarket tenants that landlords can allow to trade at malls, thus restricting the entrance of competitors.
However, five years after the commission issued its ruling, most property owners and landlords have already phased out the use of long-term exclusive lease agreements. There are now more chances of finding a shopping mall boasting Woolworths, Checkers, Spar and Pick n Pay. In the past, only one or two of them would be available at a mall and located far from each other. This was no accident; it was by design.
The commission wants the South African Property Owners’ Association (an industry body) to promote initiatives that are “aimed at facilitating entry by potential new entrants for the formal retail of fresh produce (or related products)”.
However, the property industry already has support mechanisms for smaller entrants, such as offering them rental rebates, discounts and payment holidays, pushing landlords to sacrifice generating higher rental income. Again, what further support measures would the commission prefer the property industry to offer when it already offers extensive relief measures?
The inquiry also probed the complaint that large retailers were profiteering from the sale of fresh produce by unfairly marking up fruits and vegetables. The commission couldn’t make a finding on this. An otherwise finding would have been controversial, considering that retailers have been forced to absorb large costs in recent years to maintain South Africa’s food security system. These costs — often not passed on to consumers — include retailers spending billions of rands to buy diesel to run generators so that stores would be open during the higher stages of Eskom blackouts, and the many petrol and diesel price increases of the past.
It’s important to keep market dynamics in mind when reading the inquiry’s findings.
