Securing small farmer participation in supermarket supply chains in South Africa

Abstract

Urbanisation and a growing middle class with changing consumption patterns provide an ideal setting for supermarkets to prosper. With South Africa's urban population approaching 60 per cent, supermarket retail chains are now important players in the agro-food sector. Over the last two decades they have begun to purchase produce from in-house sourcing companies who buy mainly from large-scale farmers. Together with the strict requirements of the retail groups, this makes it difficult for small-scale farmers to supply these retailers. This paper highlights the market changes that could continue to exclude small producers from mass consumer markets. It uses a case study to show how small farmers can be integrated into the urban retail market and, using evidence from this study, proposes a number of strategies to help them participate in the mainstream agro-food supply chains and an innovative model for including them while maintaining profitable business operations.

¹Respectively, Professor, Research Fellow, Professor, and Postgraduate Student, Department of Agricultural Economics, Extension and Rural Development, University of Pretoria.

1. INTRODUCTION

The world population, especially in developing countries, is in a phase of rapid urbanisation and this trend is set to continue during the next two to three decades owing to the increase in global disposable income (Halbenwang, 2004). According to the World Urbanisation Prospectus (United Nations, 2004), population growth will be particularly rapid in the urban areas of the developing countries, averaging about 2.3 per cent per year from 2000 to 2030. Africa is also experiencing rapid urbanisation. In South Africa, for example, about 52 per cent of the population lives in urban areas and this could rise to 62.2 per cent by 2030 (UN-HABITAT, 2005). With urbanisation come new consumption patterns and preferences for foods of high quality that are easy to cook. This background of large concentrated urban market demand and a growing middle class with high per capita disposable income provides supermarkets with an ideal setting to grow and prosper. The rise in disposable income and the fast pace of modern lifestyles necessitates convenience and this has led to an increase in the purchases of refrigerators and microwaves among the growing middle class. As a consequence, it is not surprising that the large supermarket retail chains are now important players in the agro-food sector, and their increased participation has resulted in increased vertical integration and concentration in the sector.

It is the supermarkets' sourcing and buying practices and policies that have increased their participation in food retailing and had an impact on farmers. What merchandise the supermarkets buy and where, how and from whom they source it affects the agricultural, manufacturing and processing sectors and other sectors of the economy as a whole. Their procurement decisions and practices are complex and may be influenced by many factors, both economic, such as reducing transaction costs, determining the appropriate payment period and increasing efficiency in the supply chain, and non-economic, such as forming long-term trust based relationships with suppliers and adhering to ethical trade requirements (Louw et al., 2004)

The retailers' strict requirements as to volumes, quality, food safety systems, consistency and year round supply make it difficult for small producers to supply these retailers. Supermarket chains tend to favour established and larger producers who can comply with their requirements, so there is an increasing danger that small producers, and especially black farmers who are now entering commercial agriculture after years of exclusion, could once again be excluded and marginalised.

There have been a number of studies in South Africa (D'Haese & Van Huylenbroeck, 2005), Africa (Giovannucci et al., 2001; Freidberg, 2003; Haantuba, 2003), Latin America (Ghezan et al., 2002; Reardon & Berdegué, 2002) and the world in general (Reardon et al., 2003a,b; Biénabe et al., 2004) showing how small producers have been and can be included in or excluded from formal food systems. All the evidence, and the reality of the dynamic changes in the agri-food systems in South Africa, point to the same trend. D'Haese and Van Huylenbroeck (2005), for instance, explored the effect of supermarkets on expenditure patterns in two villages in the Transkei area of South Africa. They found that since the opening of supermarkets in the nearby town the communities have been patronising these more and farmers and local shops less. The lower food prices mean improved livelihoods and food security, but the downside is that the local shops and farmers are now unable to compete.

This paper draws on work completed as part of a global study that analysed the increasing market concentration in the processing and retail sectors with a focus on the implications of these changes for the livelihoods of small-scale producers, small and medium processors and agribusinesses (Louw et al., 2004). The paper focuses on the South African agricultural and food system and documents the role of large retailer groups in food supply chains in South Africa and the way small producers and processors are being affected by this dominance. It then uses a case study to illustrate the value of mechanisms that various stakeholders (farmers, farmer organisations, the Government of South Africa and retail businesses) have and can put in place to encourage small-scale producers' participation in these transformed markets. Supermarkets, for example, shift costs to producers by insisting that the latter undertake value-adding processes such as packaging and bar coding, which require capital investments and expensive compliance with quality standards and therefore act as an entry barrier to small-scale producers. It then uses a case study to demonstrate mechanisms that various stakeholders (farmers, farmer organisations, governments and retail businesses) have and can put in place to encourage small-scale producers' participation.

2. SUPERMARKETS AND FOOD RETAILING IN SOUTH AFRICA

Contrary to the perceptions created by Weatherspoon and Reardon (2003), supermarkets are not a new phenomenon in South Africa. OK Bazaars introduced the concept of the supermarket into South Africa in 1948 (Strydom, 1989) and by 1999 the top five South African supermarket chains had a total of 1763 stores and a 72.1 per cent market share. By 2005 they had increased their hold to 77.2 per cent, with 3019 stores across the country. Concurrently, since 1994 these chains have expanded aggressively into Botswana, Namibia, Zimbabwe, Malawi, Mozambique, Kenya and other southern and eastern African countries. While the other chains have limited their expansion to southern Africa, Pick'n Pay and Shoprite also have a presence in Australia and the Middle East (Planet Retail, 2006).

The six major chains are Shoprite, Pick'n Pay, Woolworths, SPAR, Massmart and Metro Cash and Carry (Metcash) – these last two performing both retail and wholesale functions. (Since 2005, Woolworths has become a substantial market player and joined the ranks of 2005's top five to become the fourth largest supermarket chain in 2007.) Market concentration may not be apparent because these large retailers trade under numerous names, as subsidiaries and franchise stores. Shoprite, for example, operates stores such as Shoprite supermarkets, Shoprite Checkers, Usave, Sentra, 8 Till Late and Checkers Hyper. Planet Retail's 2006 figures (see Table 1) show that Shoprite, Pick'n Pay, Massmart, Metcash and SPAR are the biggest chains in South Africa, with a 20.5 per cent, 20.0 per cent, 17.7 per cent, 10.0 per cent and 8.4 per cent market share respectively (Planet Retail, 2006). Other smaller and more independent supermarkets capture the remaining 23.4 per cent. Although these four large retailers own a mere 2 per cent of all the food retail stores in South Africa, they handle about 50 to 60 per cent of all food retail in the country.

Table 1: Share of modern grocery distribution in South Africa, 2005

Company	No. of stores	Sales area (sq m)	Average sales area (sq m)	Retail banner sales (ZAR million)	Market share (%)
Shoprite	881	1 640 540	1862	29 965	20.5
Pick'n Pay	536	497 000	927	29 167	20.0
Massmart	212	1 006 338	4747	25 843	17.7
Metcash (RSA)	596	670 600	1125	14 705	10.0
SPAR (RSA)	794	745 600	939	12 191	8.4
Subtotal	3019	4 560 078		111 871	76.6
Other				34 123	23.4
Total				145 994	100.0
Source: Planet Retail, 2006.

The trends in the four major South African supermarkets' market shares are shown in Table 2. A possible reason for the decline of Shoprite's South African market share compared with the others' may be this chain's aggressive expansion into other African countries.

Table 2: Trend in market share of major South African supermarkets

Supermarket chain	1993	2003	2004
	Market share (%)	Market share (%)	Market share (%)
	SPAR	18.3	26.1	26.3
Pick'n Pay	22.5	35.4	35.2
Shoprite Checkers	43.4	29.4	27.8
Woolworths	4.2	6.9	7.1
Others	11.6	2.2	3.6
Total	100.0	100.0	100.0
Source: Annual reports (Pick'n Pay, 2002; Shoprite, 2003; SPAR, 2003) and Planet Retail, 2006.

Although competition among top retailers in South Africa is tough, each chain targets a specific niche market or a specific income or socio-economic group. Woolworths, for example, targets the high income end of the market, whereas Shoprite tends to target the lower end. Pick'n Pay and SPAR target mainly the middle class. SPAR mostly has smaller stores whereas Pick'n Pay has larger ones and hypermarkets. Pick'n Pay and SPAR have Pick'n Pay Hypermarket and SuperSPAR for their high income markets (Weatherspoon & Reardon, 2003). Some of the retail groups have sought to create their own competing brands, for example Metcash runs five franchise brands which it calls ‘symbol groups’: Lucky 7, Square Deal, Viva, Buy Rite and Pop In (Metcash, 2005).

Large retailers are normally located in shopping malls and on the city outskirts. The urban residential areas have a wide range of smaller suppliers, including spaza or tuck shops in the lower income areas. Recognising a current and future growth market, the big retailers are also slowly entering the low income urban areas.

3. SUPERMARKETS AND THE EVOLUTION OF FRESH PRODUCE PROCUREMENT STRATEGIES

3.1 Fresh produce sources

Supermarket chains have significantly modified their ways of buying fresh fruit and vegetables since their inception years. They have shifted from sourcing for individual stores off the spot markets such as the municipal fresh produce markets to buying from specialised sourcing and procurement companies and contractors. For example Shoprite stocks and manages a fresh produce inventory and makes it available to all its outlets through a subsidiary, FreshMark.

These procurement specialists are increasingly buying directly from farmers, using verbal contracts (Louw et al., 2004), but despite this trend supermarkets are still among the top buyers off the municipal fresh produce market floors where produce is predominantly (about 90 per cent) from the commercial farmers (personal communication, 2006, T Dobbs, General Manager, Tshwane Fresh Produce Market). The more sensitive product lines such as lettuce and spinach tend to be bought directly from producers, because an intimate knowledge of post-harvest treatment (cold chain management, traceability, etc.) is critical to lengthening their short shelf life and reducing wastage (personal communication, 2006, G Du Toit, General Manager, Freshmark, Centurion).

3.2 Market coordination mechanisms

In the highly competitive environment in which they operate, supermarkets have to continually innovate and develop their supply chains in order to compete. To maintain their position in the market, they strive to achieve a sustainable competitive advantage by reducing the transaction costs in the supply chain and procurement process. One of the strategies they use is to select and deal with only a limited number of approved suppliers. From what has been observed from various Regoverning markets studies in Latin America, Africa and the developed countries, these suppliers are mostly larger companies with the necessary capital to meet the supermarkets' procurement requirements. Supermarkets are increasingly moving away from spot market buying to more tightly coordinated, vertically linked supply chains with increased use of market contracts, strategic alliances and franchises in the exchange process (personal communication, 2006, R Emongor, postgraduate student, University of Pretoria, Tshwane).

In open market transactions price serves as the primary coordinating mechanism, whereas in vertically integrated supermarket supply chains, various forms of contracts, which specify volumes, grades and standards, are used as means of coordination. In some cases, the sourcing and procurement of specific product lines is outsourced to a contracted firm or a wholly owned firm. In South Africa, supermarket chains such as Shoprite and Pick'n Pay use their own fresh produce sourcing companies, such as Freshmark, or special wholesale companies, such as Freshco, and distribution centres to centrally source and internally distribute fresh produce and other merchandise from contracted farmers and or suppliers. (Shoprite uses Freshmark, Pick'n Pay uses Freshco and both have distribution centres managed by Shoprite and Pick'n Pay themselves.) The logistics involved are possible because of improved information and communication technology, and state-of-the-art cold storage facilities. Most of the large retailers are moving from paper based transactions and verbal orders to electronic systems (Shoprite Holdings Ltd, 2003). These developments often limit the participation of small processors and producers in the supply chain.

3.3 Contracts

The sourcing companies wholly owned by the supermarkets establish agreements with producers, specifying the volumes, varieties and quality standards for their growing programmes. Processors and retailers use this type of coordination mechanism to get farmers to produce high quality commodities and in some cases they also provide production inputs such as seeds or advice about varieties and planting times to contracted farmers. The volume, quality and infrastructure requirements necessary to qualify as a supermarket fresh produce supplier effectively exclude many of the smaller producers.

South African supermarkets follow the same trends as their counterparts internationally as they increasingly enter into contractual relationships with their suppliers. The main drivers of this type of coordination mechanism are transaction costs, consistency of supply and quality, trusts, relationships and cost efficiencies. In this study, ‘transaction costs’ refers to the search and information costs of finding the right farmers, negotiating and contracting with them over volume, quality and prices, and enforcement costs for ensuring that all parties abide by their part of the agreement. The supermarket chains are concerned to secure a competitive advantage in the industry by minimising these costs and by controlling the quality and inventories. Efficient and effective management of the inventory throughout the supply chain significantly improves the service to customers (Lee & Billington, 1992).

3.4 Quality control

To achieve quick movement and exchange of goods, South African supermarkets have also introduced their own private systems of grades, standards and labels which to a large extent borrow from the European retailer consortium's EureGAP system. Examples of in-house brands in South Africa are Pick'n Pay's ‘No Name’ and Shoprite's ‘Ritebrand’ and Woolworth's and SPAR's store brands.

Customer satisfaction is of paramount importance to supermarkets. They tend to procure from established large-scale farmers who already export produce, thus ensuring that their products meet local and international standards. The grades and standards are therefore an important gateway to the formal agro-food system, but most smallholder producers are ill equipped to meet them and thus tend to be excluded. The supermarkets' procurement policies become especially problematic when they operate outside their home countries because these policies favour established home country producers. This implies importing supplies, which commonly irks local producers.

3.5 Factors that determine the trend in the evolution

The supermarkets' decisions to procure products locally or internationally or to use their own subsidiaries to supply them are determined by three sets of factors. Some of these are external or environmental factors (macro-economic factors, government regulations, competition and so on), factors internal to the supermarket (organisational factors such as objectives and procurement policies) and factors at farmer and processor level (farmer or processor facilities, assets, skills and ability to adhere to contracting requirements). These factors interact to determine which producers are granted supermarket supplier status. The way these factors interact is of the utmost importance in determining how supermarket procurement systems in South Africa evolve.

4. WAYS TO LINK SMALL-SCALE PRODUCERS TO THE MAINSTREAM

If small-scale producers and SMEs (Small and Medium Enterprises) are to be included in the changing mainstream agro-food markets, they will need to be able to sustain their participation by adapting their technology, management and organisation, having the required financial resources, and continually transforming to keep up with changes in the supply chains (Berdegué et al., 2005). This section explores the literature on efforts to create and strengthen this link between the dynamic mainstream agro-food supply chain and the emerging sector (small-scale producers and small agribusinesses).

The World Bank recently commissioned a study of various initiatives taken to better connect small-scale farmers to markets (Biénabe et al., 2004). First among this study's findings was that producer organisations have a central role to play in strengthening farmers' position in traditional and new markets (for example, by promoting fair trade) and in building their capacities (by improving access to services, training, etc.). They also play an important advocacy role with authorities to foster the development of policies favourable to smallholder farmers.

The study by Louw et al. (2004) highlights the importance of multi-actor approaches. These should simultaneously remove bottlenecks in the supply chain and encourage collective action to promote equity and competitiveness. It was found that, to succeed, these coalitions required improved coordination and that the mediation tools most effective to achieve this were participatory research, information dissemination and capacity building. The study also shows how multiple types of interventions can be structured and implemented over time and on different scales, to improve farmers' market linkage in the long run. Approaches targeted at specific sectors (staple food and diversification crops) were seen to be more efficient where farmers have low market orientation and where goods and service markets are weakly developed. Moreover, when the institutional environment is poorly developed, support for collective action was most effective in reaching the targeted supply chains (Louw et al., 2004).

The authors concluded that broader intervention at policy level, such as promoting laws on competition, is more likely to benefit small farmers. Supporting the relevant institutions and encouraging the producer organisations' advocacy functions can help define adequate priorities in the institutional setting. In situations where agriculture is more commercial, support that enhances competitiveness and addresses small farmers' economic and institutional weaknesses proved superior (Louw et al., 2004). In this study, differentiated markets (niches) were seen to be a promising means of market entry for small-scale farmers. This is where they benefit from comparative advantages such as local know-how or environmentally friendly ways of producing.

Other findings of interest from this study were that correcting marketing constraints alone was not effective in linking the small farmers to supermarkets. Small producers' marketing strategies were more strongly dependent on the existence of land, labour and the ability to mitigate risk than on the characteristics of the markets. Risks such as illness, pests, diseases and drought were managed by systems based on farmers' social networks. These were, however, not adequate to deal with additional marketing risks (shift in supply and demand, perishability, length of supply chain, process complexity and institutional risks). A review by the FAO (2004) shows that most formal market prices (especially for primary goods) are low, volatile and in a general decline. Concurrently, small farmers' risk management systems are not adapted to the mainstream market, or are absent, making these farmers' entry into this market often untenable.

Weatherspoon and Reardon (2003) also acknowledge that small producers need to gain a foothold in the supermarkets to secure their future, or risk extinction as supermarkets favour imports and established suppliers. They suggest that in order to compete, small farmers need to expand their productive capacity, ensure consistent supply and quality, and strive to adhere to supermarket and international grades and standards. They further subscribe to the wisdom of collective marketing as a means of accessing the supermarkets and meeting their needs. They predict that supermarket chains in Africa will find it increasingly advantageous to market products from small farmers and to collaborate with development programmes that help small farmers improve their supply chains in order to sell to large retailers, since these investments could lead to infrastructural developments and subsequent community development and ensure a reduction in transaction costs. They cite a successful case of a farmers' association in Montagu in the Western Cape that was offered development support to sell butternut squash to Pick'n Pay and suggest this type of collective marketing as a means of helping farmers to meet the required grades and standards, and supermarkets to reduce the transaction costs associated with dealing with several small suppliers.

These studies provide sufficient context and background to discuss the case study of a South African supermarket chain that offers market opportunities for small growers through a combination of vertical integration mechanisms and horizontal coordination (through farmers' associations).

5. THE THOHOYANDOU SPAR CASE STUDY

A case study conducted in Thohoyandou in Limpopo Province, South Africa, provided interesting evidence of an effort by a retailer to integrate small farmers into the mainstream. The SPAR supermarket here has a policy of procuring fresh produce from the local area, in contrast to the centralised procurement and distribution system used by its local retail competitor, Shoprite, which operates through Freshmark, and all the other supermarkets in the area. The case study was based on data gathered from interviews conducted in Thohoyandou in August 2004 with the managing director of the SPAR supermarket and two focus groups of emerging farmers who were delivering vegetables to this supermarket.

5.1 Thohoyandou SPAR: background

The Thohoyandou SPAR began trading in June 2002 in response to the enormous purchasing power that had developed in the corridor east of the N1 highway in Limpopo Province. The store is located between a taxi rank and a bus rank in the city business complex, a very strategic location since up to 95 per cent of the local Venda people use taxi or bus transport. By November 2004, the store's retail market share had grown to 66 per cent, as Figure 1 shows.

Figure 1: Thohoyandou retail market share in June 2005 compared to June 2004

The success of this supermarket could be attributed to its commitment to addressing the needs of the local emerging market and its high level of community involvement. An important component of its retail strategy was to supply its customers' fresh produce needs, since it was found that the competing supermarkets did not offer high quality fresh produce. Its record fresh produce sales in one day in 2004 were 3700 cabbages (an important component of the local diet), 1500 spinach bunches, 1500 beetroot bunches, 2700 carrot bunches and 4000 apple pre-packs, as shown in Figure 2. It also invested in the biggest in-store bakery in South Africa, with an output of 33 000 (23 tonnes) of loaves of bread per day.

Figure 2: Thohoyandou SPAR supermarket's record fresh produce sales in one day in 2004

5.2 Interaction between SPAR and small-scale farmers

When it comes to securing fresh produce, SPAR chooses its suppliers on the basis of their proximity to Thohoyandou, the competitiveness of their prices and their trustworthiness. The commercial agricultural sector supplies about 70 per cent of the store's fresh produce, including potatoes, onions, butternuts, peppers and tropical fruit. Local small farmers supply about 30 per cent of all vegetables in the supermarket. This local farmer association consists of 23 small growers supplying cabbages, spinach, butternuts, onions and potatoes. They engage in minimal processing activities (sorting, washing and bundling). Other market outlets for these emerging farmers are hawkers and direct sales to consumers.

The interaction between the supermarket and the farmers involves a number of key components:

•	The supermarket provides interest-free loans to the farmers, upon approval of a proper business plan.
•	Farmers are ensured of a market for their produce, based on verbal agreements.
•	The supermarket visits farms to offer production support and inspect the produce.
•	Training is offered on quality aspects of fresh produce.

Vegetable prices are determined through negotiations, based on market prices and quality and the supermarket's volume requirements. Farmers are paid on a weekly basis, after their debt repayment has been subtracted from their earnings.

It is important to note that the interaction with the small farmers involves a very strong trust component. The small scale of the farmers' operations means that delivery and quality are not guaranteed, yet SPAR nevertheless buys from them, as they believe the farmers will do their best. This is part of its strong drive towards community development. By buying from these farmers instead of from larger external producers SPAR ensures that the investment is localised. The farmers in turn trust SPAR to give them fair market related prices and to engage with them in long-term relationships, subject to delivery of satisfactory quality produce. According to the store's managing director, the vegetable quality standards enforced by SPAR were usually attainable by the growers and not a serious constraint on supplying the supermarket.

5.3 Advantages and disadvantages of the interaction

5.3.1 Advantages and disadvantages to SPAR

Procuring vegetables from the small farmers holds certain advantages for the supermarket. Smaller quantities of produce are delivered to the supermarket more often, assuring that it is fresh. The injection of capital into the local community helps promote infrastructural development that can attract more investors to the area and create a larger market for the supermarket. But the SPAR's procurement policy also has some disadvantages:

•	Having to deal with large numbers of small farmers (instead of a few large suppliers) leads to administrative pressure and higher transaction costs.
•	The emerging farmers are unable to deliver larger volumes on a continuous basis.
•	Sometimes the quality of the produce is inadequate because of, for example, climatic conditions and inadequate farming knowledge. It was pointed out that insect damage was the biggest cause of quality problems.

5.3.2 Advantages and disadvantages to the farmers

The advantages are that the relationship with the supermarket is now well established, with considerable trust and transparency between the parties, and the farmers benefit from having access to credit and receiving production and marketing advice. The engagement by the supermarket has led to improved prices for the farmers – largely as a result of better coordination of deliveries, improved production volumes and better quality produce because of the training of the growers and their improved skills. The poor technical farming and business skills of the growers, the poor communication between growers, the poor quality of produce and the non-availability and high costs of transport leave the farmers prone to opportunistic behaviour because they do not communicate among themselves, have no bargaining power and have to accept all the terms set out by SPAR.

5.4 Negotiation between SPAR and informal traders' associations

Mangoes and tomatoes are among the most important goods sold by the informal traders in Thohoyandou, since Venda and the surrounding areas are major growers of these. After negotiations with the strong associations of mango and tomato growers in the region, Thohoyandou SPAR has a policy of not selling these goods, so as not to reduce the informal traders' income generation opportunities. Thus both emerging farmers and informal traders benefit despite the formal trade that has infiltrated their traditional territory.

5.5 Thohoyandu SPAR's critical success factors

The following critical success factors were mentioned during interviews. If achieved, they will contribute to the continued success of the association between Thohoyandou SPAR and the emerging farmers:

•	Provision of training and extension in production, quality, marketing, business planning, finance and other management concepts.
•	Coordination among farmers to work towards better delivery schedules, hence preventing oversupply and ensuring better prices.
•	Support to solve the farmers' transport problems.
•	Development of coping mechanisms to deal with periods of adverse climate.
•	Access to cheaper input, credit and other markets such as the national fresh produce markets.

Public sector input may also be sought to resolve some of these concerns, but the respondents felt that private sector initiatives seemed to be more successful than those that involved the government.

6. CONCLUSIONS AND RECOMMENDATIONS

The SPAR Thohoyandou case study identified a number of findings that could help integrate small-scale farmers and SMEs and agribusinesses into the highly developed supermarket chains and the mainstream agro-food supply systems in South Africa and thus contribute to these farmers' prosperity.

The most important finding is that private entities such as supermarkets can serve as facilitators of market entry for the emerging agricultural sector. As evidenced by the Thohoyandou SPAR example, this does not require a purely philanthropic act, since market access can be provided within a mutually beneficial business relationship. Undoubtedly, though, success is dependent on commitment and effort from both the farmers and the supermarkets.

The case study highlights the need for South African agribusinesses to rethink their business model especially under pressure from BEE (Black Economic Empowerment) legislation, to follow a dualistic approach involving both profit and development outcomes.1 The establishment of mutually beneficial partnerships such as mentorship and contracting with commercial farmers, other agribusinesses and government is a model that is successful and can be pursued further. It also shows that it is possible to adapt company norms without compromising profits, thus creating opportunities to develop products and services suited to new markets such as emerging farmers. Mentoring within the agricultural sector itself is an under-utilised tool for integrating the emerging sector potential. The provision of formal and informal training, extension and mentorship programmes with an emphasis on training in business management and meeting industry grades and standards is critical. The case of the mango and tomato growers also revealed the importance of forming and strengthening producers' associations that build economies of scale and jointly market and process outputs and hence reduce transaction costs and increase negotiating power.

Private firms such as supermarkets can play an important role in facilitating the economic empowerment of poor small-scale farmers by providing interest-free loans (subject to approval of a business plan), an unlimited market for fresh produce and motivation and technical support through farm visits, and by offering training in quality standards and requiring progress reports.

Engaging a private business in a supervisory role provides an ideal opportunity for financial institutions to join in and use it as a conduit for channelling financial services to small farmers. In this process they will be able to reach the ‘unbankable’ customers and in so doing find a way of complying with certain elements of the financial charter.

Fresh produce marketing by means of product branding such as Fairtrade is another potential tool to enhance the success of the emerging sector in South Africa. Branding gives consumers the opportunity to choose products from the emerging agricultural sector and so assist its development.

The case study presented in this paper could be used as a model of an innovative approach to grant and maintain market access for small-scale fresh produce suppliers. However, follow-up research will be needed to verify the sustainability and transferability of this model to other areas and sectors – it would be a cardinal error to attempt to extrapolate conclusions from this one case study. Although the model works in Thohoyandou, it should be noted that it might not work in areas where the dynamics are different; it may be that it works in Thohoyandou because the owner of SPAR is being neighbourly. In the cities this is not the case because there every decision is based on profitability. And while the Thohoyandou SPAR is not losing by the arrangement, it might be possible to attain higher profits from a different model. The results of this study should therefore be taken as applying to a unique environment. The recommendations could be implemented in similar environments but it should not be assumed that this model will always work.

Notes

¹Respectively, Professor, Research Fellow, Professor, and Postgraduate Student, Department of Agricultural Economics, Extension and Rural Development, University of Pretoria.

¹In 2003, South Africa's financial sector released a groundbreaking and visionary Black Economic Empowerment charter, providing for increased access to financial services for poor households and communities, and aiming to direct billions of rands of investment into transformational infrastructure, agricultural development, low-income housing and small and medium black businesses (Du Toit, 2006).