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Why We Pay Through The Nose For Food

Published 7 years ago
By Forbes Africa

Stars are still out as Dirk Schlebusch starts work at 4AM. It is the busiest time of day for him as truckloads of potatoes arrive at the Joburg Market. In the next few hours, they will be traded as commodities worth millions.

The market’s 10 halls, that span 64 hectares, are piled high with pallets of every kind of fruit and vegetable. This is the primary fresh produce exchange of South Africa as well as destinations across Africa. It is also the largest of its kind in the world.

Before noon, the dynamics of supply and demand, of middlemen’s mark-up and the whims of what nature offers up on the day, merge to determine the first price tag on fresh produce as it exits the market. Food price inflation and food security issues are becoming more and more important as population numbers explode and demand soars. It puts the links in the chain, like the passage of food through the market, under increasing scrutiny.

Schlebusch is a buyer with Wenpro, one of the most established agents at the market. They serve as middlemen between producers and buyers. He specializes in potatoes, like his father has done for 40 years.

Potatoes and onions are big sellers at the Joburg Market and together fill out their own hall. An average day sees around 1.4 million kilograms of potatoes traded.

Schlebusch has standard daily orders from big retail chains, wholesalers and the companies that process vegetables for frozen food products. He also sells to restaurants, hawkers and walk-in buyers.

“We have potatoes for everything and potatoes with every kind of price tag to suit whatever buyers are looking for.”

When determining a daily price, Schlebusch checks the quality of physical stock that arrived on the day, examining stats from previous days and pulling up stock sheets that detail the availability of potatoes throughout the market.

With fresh produce you don’t have the luxury of stockpiling for extended periods to influence the market in the hope of fetching a higher price. It’s too much of a gamble – fresh food perishes or loses quality and there’s no saying what hand nature will play.

Schlebusch says it’s ultimately down to supply and demand, the best produce still fetches the best prices and the highest bidder still wins. It’s how the market has functioned for 120 years, from the days of its origins in Newtown. The market is just a few years younger than when the city of Johannesburg itself was founded.

Schlebusch’s ear is glued to a phone, communicating with buyers and farmers throughout the day.

“It is about relationships. If you don’t give your farmers the service they expect they’ll go to another agent and if your buyers don’t get the produce at the prices they want they will also go somewhere else,” he says.

As he chats, a call comes through from an anxious farmer. A lorry has been delayed; it never made it to market on time to join the sample displays. It means an instant drop in price for the farmer as his potatoes become day-old stock.

It’s the middle of July, and at the market the bulk purchase price of Grade 1 bananas is worked out at around R4.45 a kilogram (R1=$0.10). They will end up in the mid-range supermarket upwards of R8.99 a kilo. The top-grade potatoes are selling at R46 for 10 kilograms. The price almost doubles at retailers.

The price gap from market to retail comes with everyone along the value chain taking their cut. Tracy Davids, an analyst at the Bureau for Food and Agricultural Policy (BFAP), says day to day market prices are more volatile than what end consumers see at retail level. The price hikes come from transport and labor costs, repackaging, labeling and operational and distribution overheads that retailers incur. Added to this is the rising fuel and electricity costs in South Africa.

Davids says managing food inflation ultimately comes down to having a more robust economy.

“Food security will always be a critical issue and at the end of the day it’s the consumer who pays more and more as costs in the value chain increase, which is why we need effective value chains,” she says.

Piet van Zyl, who runs Wenpro’s fruit section, outlines some of the unique challenges of handling fresh produce. Although the value chain comes with mark-ups, disruptions can cause even more hikes. Wenpro has seven cold rooms, each runs at around $470 to $560 a month. It makes load shedding and power cuts his biggest nightmares. Agents are responsible for the upkeep of their own pallets and fleets of forklift trucks that criss-cross the halls in urgent beeps. Agents are also responsible for the health, safety and general cleanliness of their halls. It adds up to operating costs that run into the millions.

“Agents must perform and grow or the market will start taking away your floor space,” he says, waving his gloved hand, protected against the early morning chill, across the expanse of the hall that is Wenpro’s terrain.

Agents must be able to offload produce fast enough, retain the integrity of the product on the warehouse floor and sell as quickly as possible at the best price possible.

“Sometimes the agent’s buyers resort to salvage sale, it means they will make up the loss from their profits to make sure that the farmer still gets his base asking price. It keeps the farmer loyal to the agent and opens up floor space. Good buyers know where they can afford to take a loss and where they can make a profit,” says Van Zyl.

Agents take up to 7% on any deal, 4% goes directly to the agent’s buyers. The market takes a 5% cut.

It’s something that’s top of mind for Gugu Hadebe. She is the director of Egoly, the newest of the market’s three Black Economic Empowerment agents.

Hadebe says breaking into the market as a black woman was not easy. Her advantage is that she was previously employed by the Joburg Market. She understands the role of agents as well as the cultural, political and historical nuances attached to farming in South Africa. Another significant insight she had was to team up with old hands in the business, which plainly put, meant white males.

“I knew I had to have the right partners, people who have been in the game longer than I have been, people who have built relationships with farmers and buyers,” she says.

Egoly currently has eight sales staff. They concentrate on selling to hawkers rather than competing at this stage, with the likes of Wenpro, with its 350 staffers, who target bigger fish like retail giants.

“There is a big hawkers market out there that’s still growing in South Africa. People still buy from the [old lady] on the street where they pay less, where they may know the seller and they pick and choose as they like,” says Hadebe.

Each of the market’s 14 agents has to find its niche to deliver a value-add. Some do specialty items like sourcing exotic dragon fruit from South East Asia, or making sure there’s enough ginger for the explosion of sushi bars across the country. Others offer pre-packaged produce or some, like Egoly, target specific sectors within the pool of buyers.

“We don’t sell anything as a market. It is a free market system, we are just a platform where anyone can come here to sell through an agent or to buy from whomever they choose,” says Simangele Sekgobela, CEO of the Joburg Market.

Sekgobela adds that the market has had to respond to changing demands, like the key issues of traceability of produce and minimizing human handling of food.

“We’ve also had to adapt to meet international standards, which includes things like maintaining an unbroken cold chain and following standards for pesticide limits,” she says.

The adapt or die principle applies to the market, like it does to almost everything else.

“We have seen a decline in the stock that comes through the market in the past few years. Retailers are doing more direct sales from farmers and developing their own storage facilities. In the future, there will also be more virtual sales that will mean produce will not physically come through the market. It’s the reality of a free market, but you’ll never replace the market completely. You will still need the market for its facilities, its quality control and convenience of having everything under one roof,” says Sekgobela.

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Related Topics: #Dirk Schlebusch, #Food, #market, #Potatoes, #Prices, #Retail, #September 2014, #Truckloads, #Vegetables.