Market Access and Trade Issues

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Market Access and Trade Issues
Prepared by National Agricultural Marketing
Council

• NAFU Conference 2007

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Issues covered

• Definitions
• Background on marketing trade in SA
• Current market access trade environment
• Challenges faced by black farmers
• Government policies/programmes aimed at solving
  challenges faced by black farmers
• Opportunities for market access trade for black
  farmers
• Questions for discussion

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Definitions

• Trade voluntary exchange of goods and/or
  services
• Marketing - anticipation of consumer wants
  providing a service/product to meet those wants
  (entails advertising, distribution selling)
• Market a social arrangement that allows
  buyers and sellers to discover information and
  carry out a voluntary exchange of goods and
  services.
• Market access ability to enter the market

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Definitions

• For the purposes of todays discussion
• trade shall refer to exchange of
  goods/services across national borders (or
  international trade)
• when referring to market a distinction will be
  made between local and international market

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Background on marketing trade in SA

• From about year 1500 European merchants first met
  with Africans (Khoi herders later Nguni mixed
  farmers)
• They established a barter relationship African
  sheep cattle exchanged for European iron
• As European settlers expanded their land
  occupation, Africans were dispossessed of their
  land
• By 1910 the whole country was under white rule
  and most farmland was occupied by white farmers
• Africans were constrained in the reserves (later
  homelands)

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Background on marketing and trade in SA

• Different policies were introduced to support
  white farmers, e.g.
• Land and Agricultural Bank Act (1912)
• Cooperative Societies Act (1922) securing of
  inputs supply of marketing services for white
  farmers
• Marketing Act (1937) to promote marketing of
  white produce (thereby neglecting needs of
  Africans)
• Through these laws, the gap between white
  commercial farming and black (mainly) subsistence
  farming widened

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Background on marketing and trade in SA

• In the 1980s partial changes took place as
  government involvement in agriculture was
  lessened.
• However, exports and imports were still managed
  by the state through export monopoly schemes
• Following political changes of 1994, a series of
  legislative changes took place

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Background on marketing and trade in SA

• The most important changes
• Land reform
• Institutional restructuring of the public sector
• New Marketing of Agricultural Products Act
• Trade liberalisation (in line with WTO
  requirements)
• Water Act
• Labour market policy reform

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Background on marketing and trade in SA

• Two changes are highlighted for the purposes of
  todays discussion namely
• Trade liberalisation - opening up of the economy
  to world trade
• Market deregulation repeal of the 1937
  Marketing Act (and its government-controlled
  marketing schemes and replacement with the new
  Act aimed at improving market access and
  enhancing agricultural exports)

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Current marketing trade environment

• Implications of trade liberalisation
• Licences quota admin in relation to trade
  agreements
• Import permits
• Discontinuation of export subsidies
• Adherence to local international standards
  regulations
• Lowering of tariffs

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Current marketing trade environment

• Implications/effects of market deregulation
• Freer pricing system establishment of the
  agricultural marketing division at SAFEX, which
  acts as a major price discovery centre. Prices of
  products not traded on SAFEX are determined at
  various auctions fresh produce markets. Some
  products are sold directly to manufacturers where
  prices are negotiated
• Less reliance on state support and improved
  efficiency Difficult adjustment period but more
  opportunities for good entrepreneurs leading to
  competitiveness of the commercial sector
  internationally

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Current marketing trade environment

• More competitive less regulated food chain
  one channel marketing abolished except in case of
  sugar
• Accelerated rationalisation of commercial farms
  commercial farmers adopted various risk
  strategies to cope with fluctuating prices (e.g.
  income farm diversification) resulting in
  smaller number of larger farms. Number of
  commercial farmers dropped from 60 000 to 40 000!

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Current marketing trade environment

• Effect of market deregulation on black farmers
• many farmer support services that emerging
  farmers need were withdrawn parallel to
  deregulation.
• Recent research found that market deregulation
  has discouraged entrants of Black farmers due to
  increased marketing risk.
• Black farmers still experience the same types of
  market access challenges that have been there for
  decades as a result of discriminatory practices
  of the past.

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Challenges faced by black farmers

• Low productivity due to
• insecure tenure system,
• small landholdings
• ineffective support services (extension,
  marketing finance)
• Limited access to markets (supply side)
• Lack of transport, storage marketing
  infrastructure,
• discrimination at points of sale,
• lack of market information,
• limited bargaining power,
• poorly coordinated institutions

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Challenges faced by black farmers

• The following challenges apply to all farmers
• Global agricultural trade is still distorted
  (tariffs non-tariff barriers)
• Developed countries still give support to their
  agricultural sector (higher domestic support
  export subsidies)
• Trade direction patterns make SA vulnerable
• Increasing concentration through supply chain
  arrangement by multi-nationals
• Increasingly stringent regulations and standards
• Trade intelligence is very poor
• Non-optimal institutional integration

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Government policies/ programmes

• Broader strategic objectives
• To build an efficient internationally
  competitive sector
• To contribute to objectives of GEAR (economic
  growth reduction of income inequality
  poverty)
• To support emergence of small medium-size farms
  side by side with large commercial farms
• To preserve natural resources develop
  supporting policies institutions

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Government policies/ programmes

• Marketing of Agricultural Products Act (1996) 4
  main objectives one of them is to provide market
  access to all participants (NAMC is the main body
  responsible for ensuring achievement of these
  objectives)
• Broad-based Agri-BEE framework to eliminate
  racial discrimination by implementing initiatives
  that mainstream blacks at all levels along the
  entire agricultural value chain
• Agricultural marketing and trade policies are
  still being drafted. In the meantime, the DoA
  supported by NAMC handle transmission of
  information on matters related to market
  locations, packaging, labelling meeting certain
  technical requirements, provision of quality
  control services development of infrastructure

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Opportunities for market access and trade for
black farmers

• Fix the institutional environment
• Identify optimal product export mix
• New markets new products
• Technology and infrastructure requirements
• Compliance (regulations, standards)
• Skills knowledge transfer
• Trade promotion and intelligence
• Trade diplomacy (trade policy harmonisation,
  South-South collaboration)

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Opportunities for market access and trade for
black farmers

• Success rests upon government private sector
  partnerships
• The case of wool in the Eastern Cape is an example

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Opportunities for market access and trade for
black farmers Wool case study

• Farmers in communal areas own /- 3 million wool
  sheep
• Prior to 1996 poor shearing conditions, poor
  wool quality, unclassed wool, low prices
  (R2.50/kg)
• While commercial farmers fetched prices of
  R15-R20/kg due to better shearing conditions,
  better quality wool
• A project was conceived between EC PDA the Veld
  and Livestock Liaison Committee to provide
  training in sheep shearing and classing for
  communal farmers

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Opportunities for market access and trade for
black farmers Wool case study

• This culminated in a public-private partnership
  (NWGA, BKB, DoA, ARC, EC PDA, Commark Trust,
  PAETA, CSIR, Wool Trust, Landcare, Cape Wools,
  GADI)
• As an export product, wool provides a unique
  opportunity for communal farmers to access export
  markets
• Through provision of necessary infrastructure and
  training, communal farmers can sell through
  auctions where international buyers bid on SA
  wool
• Example One shearing shed increased its wool
  value from R17,000 to R200,000 in 4 years!

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Opportunities for market access and trade for
black farmers Wool case study
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Opportunities for market access and trade for
black farmers Wool case study
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Opportunities for market access and trade for
black farmers Wool case study

• Elements of success in the project
• Training
• Marketing support
• Resource management
• Genetic improvement
• Mentorship

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Questions for discussion

• What are the three most pressing challenges with
  respect to market access for black farmers?
• What are the three most effective solutions for
  solving these problems?
• Who should do what in respect of the above
  solutions?