"Participation Builds Unity"
"MADE IN AFRICA - FOR AFRICA"
"Participation Builds Unity"
"MADE IN AFRICA - FOR AFRICA"
PRESENTS
The NATIONAL AGRICULTURAL MARKETING COUNCIL (NAMC)
report on competitiveness in the international agricultural industry
“The world agri-food market will become even more competitive in the next 10 to 15 years and the pace of change being seen throughout the supply chain will not
abate. South Africa competes very effectively in selected areas of the global agrifood sector; the real challenge will be to build on these advantages and look to learn from them.”
The NATIONAL AGRICULTURAL MARKETING COUNCIL (NAMC) commissioned a study looking at the competitiveness of key South African agricultural industries in relation to major international competitors.
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The study aims to provide a better understanding of issues affecting international agricultural industry competitiveness and to bring these together in one document. It is hoped that the report will help South African producers to develop strategies to compete effectively on the world stage.
The study looked at the following countries: European Union (EU), United States
of America (USA), China, Japan, Australia, and Brazil. While the product sectors
investigated included: meat, vegetables, dairy, maize, wine, flowers, deciduous
fruit, citrus, sub-tropical fruit, raisins, sugar and cotton.
In particular the research addresses the following issues:
The first section of the report provides information on levels of support for
agriculture for the identified countries. This allows an assessment of both
production and marketing support in all cases, and so aids judgement with regard
to South Africa's weakness or otherwise in these key areas.
The second section of the report considers issues surrounding yields, costs and supply chain efficiencies for the specified countries. Section three gives an overview of the upstream supply chain in each of the markets under review. Section four considers production, marketing and competitive strategies of key competitors by product group, considering competitors today as well as future threats.
KEY CONCLUSIONS
Production
Underpinning any of these production based factors is the need for macro
economic and political stability. One of the key factors that will determine the
level of inward and in some cases outward investment vis-à-vis the South African
agri food sector will be a reasonable degree of stability in this respect. One of the
key factors which has prevented many of the ACP countries from exploiting any
degree of tariff advantage that they might enjoy in the EU market has been the
lack of stability in terms of politics and economic factors (such as exchange rates
and inflation), which has acted as a key constraint on developing the
infrastructure and the attraction of further inward investment into pre and post
harvest infrastructures. Instability has also taken its toll at various times on the
agri food sectors in Latin America: Argentina and Brazil come immediately to
mind.
Levels of government support
The most distorted market(s) as a result of the OECD expenditure on PSE are:
All major agricultural countries support their domestic and export industries in
some form or another. The EU is by far the worst culprit in terms of how it
supports its agriculture, but on a pro rata basis Japan is also highly protected.
The importance of the EU to South Africa’s position is that it is by far the most
important export market, and at the same time by far the most protected.
Although a compelling argument can be made for further deregulation of the
sector at the global level, were South Africa to deregulate further while others do
not, South African producers would be put at a serious disadvantage vis-à-vis the
competition.
In the future, as Producer Subsidy Equivalent (PSE) payments are gradually
reduced, more attention may well be given to areas that come under the
definition of General Services Support Estimate (GSSE), and will include training,
market promotion, R&D etc. This is an area where South Africa, based on our
past experience of working in country, has not allocated as much funding as
some of its international competition, and is an area where further activity and
funding could well be justified in the future.
Further investments in production technology will clearly be required in the future.
However, it is absolutely certain the South Africa will also need to be a better
marketer in the future, as key international markets become less regulated and
the intensity of market activity at the Point of Sale, be it in retail or foodservice,
increases.
However, as primary producers are required to provide varying degrees of
matched funding for the activities that are carried out under the auspices of the
GSSE, they will also hold the implementing organisations involved, be they
government bodies; trade associations; export development agencies, more
accountable for their performance.
New levels of value for money in terms of service levels and demonstrable
benefits will be necessary if these organisations are to rely on a higher degree of
(primary) producers’ support. The USDA co-operator organisations, especially in
the West Coast fresh fruit sector, have already felt the full force of this sort of
pressure from their member growers and packers.
Downstream supply chains and international markets
Increased competition in both geographic markets and across all market sectors
is only to be expected. New areas of production are developing in Eastern
Europe, in South America and in Asia (most notably China). These countries, too, will be looking to increase international trading, and in some areas (e.g. Brazil in pork and orange production) are already key suppliers. They will look to improve quality, and have a key advantage in low costs of production.
It is imperative then, that South Africa considers and seeks out new market
opportunities beyond the core EU market. Developing economies in Asia and
Latin America will offer opportunities for both new markets and new supply
capabilities.
Key to success will be market access, which may have to be considered in terms
of joint venture activities, which can range from those of an ad-hoc nature to
formal acquisitions or direct investment. In an increasingly competitive world,
partnership will offer a way forward. At the same time, the possibility of global
supply, or at least panregional supply and customer demand for year round
supply capabilities across a wide range of product categories, means that
partnering with suppliers in other countries may offer opportunities in terms of
meeting customer demand. While trading will always be an option, the challenge
for suppliers is to extend relationships beyond basic supply and demand to
understanding and offering products and services that meet customer need.
Dealing with major retail players across key markets, there will be an increasing
demand for category management skills from suppliers. Retailers, facing intense
competition, are looking to their suppliers to develop category and improve sales
from them. Suppliers hold key knowledge about varieties, whether of fruit or wine, and can use this knowledge to better meet consumer demand and so increase category sales. The development of "category captains" – one key supplier for each category, supported by one or two smaller suppliers – will develop. Category management skills, therefore, will become essential to dealing with the organised retail sector.
Foodservice is likely to follow the same broad development patterns
(consolidation, centralised buying, demand for meal solutions) across all
geographic markets. However, there is still not enough emphasis on foodservice
by many players. While the very largest branded food manufacturers have
developed foodservice supply divisions, many players lack a dedicated focus on
the foodservice sector. This results in a lack of understanding of the needs of
foodservice suppliers, market demand and, accordingly, the products and
services required from food suppliers and manufacturers. Without a thorough
understanding, the opportunities offered by foodservice as a means of gaining
greater influence and benefit from the supply chain will be hard to realise.
There will be an increased emphasis on food safety, traceability and quality
assurance. Retailers are increasingly demanding that protocols in food
production, such as EUREPGAP protocols in fresh produce, be met. The most
demanding retail customers will also have their own protocols. This will require
investment on the part of producers, but it must be recognised that such
investment may not bring extra return – it will be a prerequisite for market access.
Such challenges must be faced and overcome with appropriate solutions if South
Africa is to remain competitive as a supplier of food at the international level.
Strategies developed for future supply must take into account not only the
changing nature of global trading, but also of consumer demand in key markets,
if the appropriate products and service are to be developed.
The competition and best in class
The world agri-food market will become even more competitive in the next 10 –
15 years, and the pace of change being seen throughout the supply chain will not
abate. There are many challenges ahead for the South African agri food sector in
both production and processing, and especially in marketing. In future more
careful targeting of assistance to the agri-food sector, especially in post-farm gate activity, is required.
South Africa competes very effectively in selected areas of the global agri-food
sector; the real challenge will be to build on these advantages and look to learn
from them. Learning from both the South African experience and competitors will
give valuable insight for future success. If we were to rank South Africa against
other suppliers in terms of competitive positioning currently, it would perhaps not
be best in class, but it is by no means the worst, either.
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* Level of government support
* Production
* Market trends
* Competitive strategies
* Main suppliers and their respective market shares.
The work carried out on production shows that in terms of its ability to compete
against other international producers:
* South Africa can compete in a number of areas such as the fresh fruit
and wine sector, where its performance in terms of productivity and
yield can be regarded as being “best in class".
* There are a number of areas where South African productivity will be a
huge way behind what might be seen as the “best in class”, such as
the US in maize, the Ivory Coast in pineapples and Mexico in
avocados. Regardless of any eventual deregulation in the international
agricultural sector, the competition might already be well out of sight for
South African producers, and deregulation might even accentuate
these differences.
* Looking at comparative costs of production data can be a minefield,
and at times misleading. Even when some industries appear to be
significantly disadvantaged in terms of key production inputs (a classic
example of this is the cost of labour in the citrus sector, where the US
industry would appear to be at a considerable disadvantage to the
Brazilian sector) they can in fact be at least as (if not more) efficient in
the mid to long term.
* As a result we are of the opinion that it might not be just a simple case
of “what the inputs cost”, but rather, “its how you apply them that
counts”. This case study can be found to hold true time and time again.
In most cases where low cost production has found international
success, such as poultry from Thailand and Brazil, as production costs
begin to rise, any commercial advantage becomes less and less
sustainable without taking other factors into account. In this example,
both Thailand and Brazil will be put under increased pressure from
China and forced to look for added value in all aspects of their export
business in terms of products, customers and service levels
* In this situation, the role of R&D, technology transfer and training are
all increasingly important.
* In the case of South Africa, therefore, basic production would not
appear to be the biggest constraint, especially in the areas where
South Africa has already demonstrated its credentials against other
significant world producers. As a result, we feel that post farm gate
activity will be the key area for attention in the future.
The overall level of support – especially made through the mechanism of the
PSE – is without doubt massive. The figure of US$257 billion per annum is
falling, and in many areas is being re-allocated under systems where farm
producers will not be rewarded for straight production but more on the basis of
meeting market needs and environmental good practice. However, it might take
10 – 20 years before significant changes are made to the agricultural systems of
the EU, Japan and North America at the rate at which the cuts in funding are
being made.
Understanding the implications of key supply chain and market trends will be
critical to ensuring that South Africa remains competitive as a supplying nation in
the global market. Most particularly, given the current importance of Europe as
the key market for fresh produce and wine, South African producers must be
aware of the need to meet and satisfy customer and consumer demand, and the
competition it faces.
A number of key lessons can be learnt from looking at what we consider to be the Best in Class. South Africa needs in effect to benchmark itself against these
factors, all of which are increasingly important for a successful export industry:
* Macro-economic and political stability in order to reduce the impacts of
adverse investment and economic conditions such as high interest and
inflation rates, which can lead to a lack of confidence in the export
source amongst key international customers
* Scale of activity
* Strong public and private sector interaction
* Strong trade associations working across the supply chain
* Strong private sector players often spearheading the export
development (i.e. Dole in Chile, Fosters in Australia etc)
* Investment in the physical infrastructure of processing, storage and
distribution facilities Understanding the need for management control
schemes such as HACCP and ISO as well as production protocols
such as EUREPGAP
* New product development
* Investment in R& D
* Strong supply chain relationships
* Inward and outward investment
* Generic promotion as well as more brand focused activity is required
over an extended period of time
* Investment in marketing is going to be increasingly important in the
future
* Added value market opportunities must be sought as commodity
markets and products come under more pressure from least cost
producers and exporters
* Identifying and exploiting new market regions for export development
www.namc.co.za
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