Retail Industry on Access to Market & Value Chain for SMMEs & Cooperatives (Massmart and Tiger Brand); Integrated approach on implementation of National School Nutrition Programme as a set-aside for SMMEs & Cooperatives

Small Business Development

10 June 2015
Chairperson: Ms R Bhengu (ANC)
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Meeting Summary

The Portfolio Committee on Social Development invited the Portfolio Committee on Agriculture, Forestry and Fisheries, the Portfolio Committee on Rural Development and Land Reform, the Portfolio Committee on Social Development and the Portfolio Committee on Basic Education to a briefing by the retail industry on access to the market and value chain for small medium and micro enterprises (SMMEs) and Cooperatives. Ten stakeholders from the retail sector were invited to participate in the discussions but only four responded, Tiger Brands and Massmart were the only two who were able to attend the meeting.

According to a presentation by Massmart the food market was divided into the fresh market, dry groceries market, the beverage market and perishables. The fresh market was estimated to be around R 77.2 billion, the dry market was at R 63.7 billion, beverage was at R 42.4 billion and perishables were at R 30.3 billion. With regard to small business development, Massmart was committed to spending R 200 million on the development of small suppliers. Massmart was committed to identifying small suppliers and facilitating their access to opportunities within the Massmart supply chain, focusing on consumer demand based opportunities. Massmart’s focus was on identifying small and medium suppliers with a maximum turnover of around R 50 million, giving preference to women-owned and black-owned enterprises, with a strong emphasis on manufacturing.

Some of the challenges experienced by the farming sector were: under-developed infrastructure, low crop diversity, low production volumes (unreliable supply) and high reliance on open field vegetable crops. In the manufacturing sector the challenges were viewing the retailer rather than the consumer as the end customer, difficulty navigating compliance environment, struggling to achieve viable economic scale within financial constraints, and insufficient expertise to ensure on-going productivity improvement. Massmart was looking to prioritize more manufacturing and less farming and was looking to optimize private label opportunities, focusing on import substitution opportunities and deepening compliance and in-store support.

Korema Farm was a black-owned cooperative which was one of the biggest suppliers of cucumbers and peppers to Massmart. The farm employed 17 people and its main produce was cucumbers, peppers and tomatoes. Korema supplied mainly the Pretoria and Johannesburg markets. The Owner of Korema farms had been recognized as “Young farmer of the year” in three consecutive years (2012, 2013, 2014). Korema farms produced 28 266 boxes of cucumbers annually and 25 539 packs of peppers per cycle. Some of the challenges experienced by Korema farms were; high interest rates at banks, the lack of appropriate funding (blanket approach), some departments providing Korema with equipment and machinery the farm did not need, lack of competitive edge around technology and low demand for proudly South African products.

Korema farms was also involved in school feeding schemes. The biggest challenge was that of late payments, instead of payments being made within the 30 days indicated by government, some payments were made 60 and 90 days after they were due and this caused serious problems for the farm. One challenge was that they could only employ workers on a temporary basis due to the unreliable flow of income.

Tiger Brands was headquartered in South Africa and was among the 40 Johannesburg Stock Exchange (JSE) listed companies. The company held number one or two in most categories, spread across a wide range of food, home care, personal care and baby products. Tiger Brands manufactured in more than 50 manufacturing sites across the country and it also had footprints in Nigeria, Cameroon, Zimbabwe, Kenya, Ethopia, Chile and Peru. With regard to turnover and growth, in September 2013 the company’s turnover was R 27 billion, in September 2014 the turnover was R 30.1 billion. Tiger Brands would be signing a Memorandum of Understanding (MOU) with the Department of Agriculture Forestry and Fisheries (DAFF) to formalize activities and mutual support, Tiger Brands would also partner with on new candidate projects aligned to DAFF priority crops and Tiger’s send in these areas. The company would also partner with the Gauteng Economic Development on the Township Spaza shop programme.

Members thanked the Chairperson of the Portfolio Committee on Small Business for putting together the joint meeting; they agreed that such an engagement was long overdue. Government departments were working in silos and this was a concern which Parliament needed to address. However because of time constraints, most Members were unable to ask questions but there was a suggestion that a workshop would be put together for all the respective Committees, and invitations would also be extended to other stakeholders within the small business and retail sectors.

Some of the questions Members were able to ask included: How much did Tiger Brands buy from small farmers? How were the imports being replaced with locally produced goods and products? What plans were there to radically transform the retail sector to include more black retailers? How did Massmart respond to the allegations around predatory pricing? What were the nutritional benefits of the school feeding programme? What kind of contracts were there between Massmart and local suppliers? What impact had the cooperative had on the lives of the community members? How many seasonal workers did the farm employ? What was Korema farm’s profit per year?

Meeting report

Chairperson’s opening remarks

Chairperson Bhengu indicated that the Portfolio Committee on Social Development had invited the Portfolio Committee on Agriculture Forestry and Fisheries, the Portfolio Committee on Rural Development and Land Reform, the Portfolio Committee on Social Development and the Portfolio Committee on Basic Education to the meeting. She thanked all Members for attending the meeting.

Ms A Steyn (DA) appreciated the work the Chairperson had done in putting together the meeting. She asked why only Massmart and Tiger Brands were invited. Space should be opened up for more stakeholders to participate in such discussions.

Chairperson Bhengu responded that ten other stakeholders were invited but only four responded. She indicated that the Portfolio Committee on Small Business Development was meeting with Massmart for the second time.

Presentation: Massmart

Mr Brian Leroni, Group Corporate Affairs Executive, Massmart, thanked the Chairperson for the invitation. He indicated that the presentation would focus on outlining Massmart’s estimated retail share in the fresh produce market. The food market was divided into the fresh market, dry groceries market, the beverage market and perishables. The fresh market was estimated to be around R 77.2 billion, the dry market was at R 63.7 billion, beverage was at R 42.4 billion and perishables were at R 30.3 billion. With regard to small business development, Massmart was committed to spending R 200 million on the development of small suppliers, and to identifying small suppliers and facilitating their access to opportunities within the Massmart supply chain, focusing on consumer demand based opportunities.

Massmart’s focus was on identifying small and medium suppliers with a maximum turnover of around R 50 million, giving preference to women-owned and black-owned enterprises, with a strong emphasis on manufacturing. Massmart disbursed funding through: non-recovery grants for equipment, machinery and factory improvements; secured loans via guarantees to commercial lenders; and technical assistance, agricultural extension services, product safety and quality compliance, financial training and brand development.

Massmart was organized into five manufacturing clusters; processed foods, clothing and textiles, general linkages, building materials and bricks. Massmart also had a direct farm programme where it worked with small and medium farmers for supplies – Korema Farm supplied Massmart with cucumbers and peppers, African Ambition supplied tomatoes, Inqolobane Yobumbano supplied vegetable crops, Mnothopansi Cooperative supplied butternut and cabbage, Lebapankwe Trading supplied green peppers and Themba Beef supplied beef. Massmart operated in all provinces except for the Northern Cape. With regard to gender representation, in farming Massmart worked with 55% of farms owned by males and 54% owned by women, in manufacturing 67% was with males and 33% with women owned cooperatives.

He explained that some of the challenges experienced by the farming sector were:

•Under-developed infrastructure

•Low crop diversity

•Low production volumes (unreliable supply)

•High reliance on open field vegetable crops

 

In the manufacturing sector the challenges were:

•Viewing the retailer rather than the consumer as the end customer

•Difficulty navigating compliance environment

•Struggling to achieve viable economic scale within financial constraints

•Insufficient expertise to ensure on-going productivity improvement

He indicated that Massmart was learning to provide small, medium and micro enterprises (SMMEs) with support in categories in which Massmart was excelling, such as home improvements and the processing of dry foods, Massmart was also focusing on providing support that contributed to sustainable prices and productivity advantage and ensuring post-listing marketing and brand building support. Moving forward, Massmart was looking to prioritize more manufacturing and less farming and was looking to optimize private label opportunities, focusing on import substitution opportunities and deepening compliance and in-store support.

Presentation: Korema Farm

Mr Kobela Mokgohloa, Owner/ Managing Director, Korema Farms, provided a background to the business. The business was registered in 1995 as a Close Corporate; in 2004 Korema Farms was established as a cooperative. The farm employed 17 people and its main produce was cucumbers, peppers and tomatoes. Korema supplied mainly the Pretoria and Johannesburg markets. In 2012 Korema grew from having seven tunnels to having 15 tunnels. Some of the achievements of the business were that the Owner received the “Young farmer of the year” award for three consecutive years (2012, 2013, and 2014) and the business was also recognized by the National Youth Development Agency (NYDA) as one of the fastest growing farmers in 2013.

Korema farms produced 28 266 boxes of cucumbers annually, 25 539 packs of peppers per cycle, 25% of these were robot peppers, 15% were red and yellow peppers and 60% were green peppers. Some of the challenges experienced by Korema farms were:

•High interest rates at banks

•Lack of appropriate funding (blanket approach), as some departments provided Korema with equipment and machinery the farm did not need

•Lack of a competitive edge around technology

•Low demand for proudly South African products

Some of these challenges were however being improved upon, for example the Department of Trade and Industry had an agricultural subsidy for cooperatives. Korema farm was also committed to motivating and educating other young people on how to access the market and how to succeed in the farming industry. He suggested that instead of government focusing on finding new farmers more focus and support should be given to the existing small farmers such as Korema farms. Korema farms was also involved in school feeding schemes. The biggest challenge was that of late payments, instead of payments being made within the 30 days indicated by government, some payments were made 60 and 90 days after they were due and this caused serious problems for the farm. One challenge was that they could only employ workers on a temporary basis due to the unreliable flow of income. He indicated that Korema farms had a 15 year plan which included the extension of the pack house, building more structures for production, purchasing additional truck, gaining market share and building a solid relationship with the client.

Presentation: Tiger Brands

Ms Sithembile Ngobese, Manager, Tiger Brand, thanked the Chairperson for the invitation. She indicated that Tiger Brands was headquartered in South Africa and was among the 40 Johannesburg Stock Exchange (JSE) listed companies. The company held number one or two in most categories, spread across a wide range of food, home care, personal care and baby products. Tiger Brands manufactured in more than 50 manufacturing sites across the country and it also had footprints in Nigeria, Cameroon, Zimbabwe, Kenya, Ethopia, Chile and Peru. With regard to turnover and growth, in September 2013 the company’s turnover was R 27 billion, in September 2014 the turnover was R 30.1 billion.

With regard to enterprise and development model, Tiger Brands was committed to:

•Prioritizing ESD on selected large scale agricultural expenditure categories

•Leveraging procurement with strategic suppliers to form an ESD investment community

•Partnering with rural communities to establish farming cooperatives for critical mass

•Partnering with government and relevant stakeholders for financing, support and mentorship

•Focusing on consumer driven niche crops such as non-GM maize and Soya

Tiger Brands would be signing a Memorandum of Understanding (MOU) with the Department of Agriculture, Forestry and Fisheries (DAFF) to formalize activities and mutual support, Tiger Brands would also partner on new candidate projects aligned to DAFF priority crops and Tiger’s send in these areas. The company would also partner with the Gauteng Economic Development on the Township Spaza shop programme. Tiger Brands currently procured about 30 000 tons of sunflower oil per annum from oil converters in South Africa. This procurement amounted to about R 340 million per annum. Depending on prevailing local and international sunflower seed and oil markets, Tiger requested converters to import crude sunflower oil from Argentina or the Black Sea and refine it locally. Tiger Brands would consider partnering with Wilmar Continental to empower rural communities to be sustainable farmers of sunflower and maize. Wilmar Continental secured partnership agreements with tribal land owners to beneficiate arable land in the Free State and in KwaZulu Natal.

With regards to social impact, Tiger Brands had established a foundation which fed breakfast at schools in collaboration with the Department of Basic Education, to complement the National School Nutrition Program. Over 40 000 learners benefitted from this program daily across 62 schools, over 41 879 learners benefitted from the Nutrition Education Programme. Tiger Brands served 12 million meals annually and provided 107 000 food parcels a year.

Discussions:

The Chairperson said South Africa had a 30% policy for procurement for SMMEs and Cooperatives. This applied both to the private and public sector. The aim of the meeting was so that Massmart and Tiger Brands could indicate to the Committee the size of the market they occupied, and whether 30% of that market share was reserved for SMMEs and Cooperatives. How much did Tiger Brands buy from small farmers? There needed to be full implementation of the 30% policy. How were the imports being replaced with locally produced goods and products? She argued that black people, who were the original South Africans, needed to become a huge part of the main traders and not just remain consumers. Whites were still the majority of the traders and this needed to be transformed radically. South Africa needed to strive for an inclusive economy.

Mr T Mhlongo (DA) raised a concern that the Chairperson had been talking since the meeting started. Why were other Members invited if they would not be given a change to engage the presentations?

The Chairperson responded that she was simply reminding the Committee about how the meeting started before she opened up the floor for discussions.

Mr P Mnguni (ANC) said the meaning of cooperative needed to be re-looked at. Cooperatives were not an option for capitalist aspirations. He said the presentations would have been more meaningful if they had given a racial breakdown and gender representation of the industry according to market share. He indicated that high prices being charged to new farmers was also a concern, there were allegations that small farmers could not set their own prices, they produced the goods but prices were determined elsewhere. This needed to be addressed.

Mr E Nchabeleng (ANC) asked what made an entity a cooperative, was it simply a change of name? He raised a concern that there were once very good cooperatives within the country but all these have since disappeared. He indicated that Massmart had been accused of predatory pricing in a number of cases, was there any truth in such allegations? There were allegations that when Massmart entered a country the company drastically lowered its prices forcing out competition in the area. When competition had been sufficiently forced out of the market, Massmart raised its prices again to recover whatever the loss had been. With regard to Tiger Brands’ school feeding programme he asked whether there was any way the company was monitoring the nutritional benefits of the food being given to the children. Was the food providing balanced meals to the children?

Ms P Ngwenya-Mabila (ANC) asked whether both Tiger Brands and Massmart kept records of their suppliers in some form of a database. What kind of contracts were there between Massmart and local suppliers? With regards to food security, she said one of the presentations indicated that the focus would move away from farming towards manufacturing, what was the reason for this? She asked Korema farms to give an indication of the number of members the cooperative had, what was the gender breakdown? What impact had the cooperative had on the lives of the community members? How many seasonal workers did the farm employ? With regards to the funding and equipment which Korema farms received from departments but was not needed, were the departments not supplying the cooperative with needs based on a business plan? What was Korema farm’s profit per year?

Ms Steyn thanked the Chairperson for the organising the joint meeting because government’s biggest problem was that the departments were working in silos. This was an issue which parliament needed to try and fix to avoid duplication of work. The Committee visited two Massmart plantations in the Eastern Cape and they were both not functional because there was no market for their products. She said SMME and cooperative development was starting from the wrong side, there should first be a market for a product before putting up a farm. Black farmers were struggling to get funding.

Mr M Walters (DA) said the Committee was not a tribunal. The presentations were only examples of what could be done to improve the markets. Going forward the small business sector should be analysed to see how it could be expanded to include more commodities. Why was South Africa importing sunflower oil when sunflowers were being produced in the country? Parliament needed to be engaged to organize more engagements between the Committees.

Mr A Madella (ANC) congratulated Korema farms on the good work that they were doing, especially because it was a young farm owned by a young black man. What were Tiger Brands and Massmart doing to include SMMEs and Cooperatives owned and run by disabled people in their supply chain?

The Chairperson indicated that the topic of SMME and Cooperative development was a very interesting one, and the attendance showed that there needed to be more discussions on the matter. However, due to time constraints, all remaining questions which Members had should be submitted to the Committee in writing and Tiger Brands and Massmart would then respond to those questions. A follow up meeting would be organized and the relevant information would be made available to the respective Committees.

Mr Leroni responded to the question on predatory pricing and said South Africa had a Competition Commission who was very alert to that kind of behavior, and made it a point to pick it up very quickly. Also, predatory pricing happened in a situation where one retailer was incredibly dominant over the others. The South African retail industry was very developed in this regard and had very strong competition which included a variety of retailers. It was therefore not possible for a retailer to lower prices in such a way that other competitors were pushed out of the market. When Walmart came into the country there was concern that there would be a lot of imports but this has not happened. Regarding the statistics he said every business in South Africa was under incredible scrutiny, the Competition Commission reported on all the runnings of every registered company. Massmart would make a summary of the report available to the Committee.

Massmart had not looked at the including disabled suppliers specifically into their company but work would be done to change this. He asked the Committee to refer Massmart to Cooperatives which were owned and run by disabled people. Massmart worked closely with the Department of Economic Development, the Department helped Massmart identify businesses and opportunities which Massmart could work with. He agreed with the Chairperson that the industry needed to be transformed to include more black people in the supply chain. Massmart had procured R 160 million of goods from its suppliers. Retail was only one part of the industry.

Ms Ngobese said there was a need for government to work more closely with the private sector, however one of the things which came up in Tiger Brands’ work in uplifting townships was that most of the shops in the townships were being rented out by government to other nationals, making it very difficult for Tiger Brands to provide support. With regard to the nutritional content of the school feeding programme, Tiger Brands was working with some universities who went about to check up on the introduction of the programmes. The food Tiger Brands gave was food recommended by nutritionalists. The import of sunflower oil was one of the issues Tiger Brands was concerned about, and this was going to be one of the projects which Tiger Brands would be collaborating with the Department of Agriculture, Forestry and Fisheries on in the Free State.

The Chairperson thanked Members from all the Committees who attended the meeting, together with the representatives from Tiger Brands and Massmart. The joint Committees needed to organize a workshop which would include the Portfolio Committee on Transport. Farms needed to be more accessible. The lack of technology in farming was also another matter which needed to be improved. She said the Portfolio Committee on Small Business Development would compile a report on the proceedings of the meeting, which would inform the work of the joint meeting going forward. People were producing things which were not actually needed by the market and this needed to be addressed, support services were also not in line with what was needed. The individual Committees also needed to go back and prepare their inputs for the workshop. The Committee also needed to have a targeted approach in signing the transversal agreements. A tailor made funding model for small businesses was also necessary because each business required funding which was informed by its business model. The joint meeting however was a very good starting point.

The meeting was adjourned. 

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