The local agricultural industry faces many challenges, ranging from droughts to policy uncertainty. Even though these critical issues require attention, it can't take your eye off the inevitable ball – the market.
Fresh produce growers must be market-oriented to remain profitable, or, for that matter, in business. The local fresh produce industry has so many market options, but getting the most out of it requires a thorough understanding thereof. Here is a summary of the five most important options and their related megatrends.
The shifting global economic powers and consumer markets are strategically important, because it directly reflects changes in globalisation and trade. The European markets will remain our most important export destination, but don't expect growth there, as the emerging markets are set to take six of the seven spots of the largest economies in the world by 2050 (specifically China, India and Indonesia).
Population growth, urbanisation and income growth are fuelling consumer market shifts. Yet the megatrend to watch is how to market in a decentralised world – economically, politically and physically, with supply chains, customers, businesses and consumers interconnecting digitally.
To position yourself in the future export market, the current big vertically integrated supply chains, which largely define South Africa's exporters, should change to multilocal production that is closer to the consumer and involves much smaller facilities.
Our attention should be on benefiting from the growth in consumer expenditure in China and India, maintaining markets in Europe and the US, exploring the geographically accessible Arabian markets, and optimising the potential of intercontinental trade.
2. Local and regional retail
The rise of the supermarket was very different in Africa than in the rest of the world. Large retailers expanded into new markets in South America and Eastern Europe. Many large chains, however, tried and failed to expand into Africa, while in South Africa retailing was defined by fierce competition and fuelled by the rise of the local consumer.
A handful of South African retailers also managed to successfully establish the concept of supermarkets throughout sub-Saharan Africa. Successful, because of consumer knowledge.
Growers deliver to retailers through contracts that are very specific in their requirements, reflecting very specific and demanding consumer needs. Relative to the supplier base in the western world, very few local growers are able to meet these requirements. Supermarkets therefore play an extensive role in supporting growers.
3. Commission markets
The local fresh produce market system, along with the important functioning of market agents, is unique and extremely valuable to the mix of market channels available locally.
We underestimate the value we have in the commission market system. Some of the large retail chains, most independent smaller retailers, and all informal retailers depend on it for their procurement. With their regional positioning, it provides access to markets for regional growers. A free and open price discovery mechanism, daily volume and price information are publicly available. Strong relationships with your market agents enable best market understanding and therefore best positioning.
4. Cross-border trade
Cross-border trade involves local retailers, the commission markets as well as direct individual trading. Retailers' footprint in neighbouring countries serves as a conduit for product flow from South Africa to add to their local procurement. Many products bought at the fresh produce markets are destined for independent retail outlets and informal markets throughout Southern Africa. Many growers are also learning the tricks of the trade in selling directly to buyers in those countries.
5. Informal markets
Hawkers, spaza shops and other small outfits buy either from bakkie traders or fresh produce markets. They play an enormous role in getting fresh produce to the consumer – mostly the less affluent consumer. Some of the largest suppliers of tomatoes and onions in the country estimate that over half of their products are sold through informal markets. There is huge potential in supporting this market channel in order to utilise its consumer access.