Recent articles about a threatened increase in the price of butter, such as that in Business Report on April 10, have again drawn attention to the state of South Africa’s agricultural sector, the need for initiatives to ensure the country’s food security and the need to encourage small-scale farming as a means of alleviating poverty, creating jobs and opening up access for previously disadvantaged people to formal retail markets.
In the case of milk products, while this appears to be a global issue, price increases are also being driven by the flight of dairy farmers in the face of rising input costs, declining profit margins and buy-outs by bigger commercial agricultural conglomerates. This not only poses a threat to the long-term supply of milk, but has caused the loss of thousands of rural jobs. It is clear when considering what farmers are paid for their products and what margins the retailers are making, that there is a rather substantial middle ground of margin making, which benefits neither the farmer nor the retailer.
Although the production of milk in South Africa has increased slightly over the past 10 years as farms have grown in size and capital intensity, the number of producers has decreased from 7 077 in 1998 to 2 627 in June last year, a 63 percent decline. The Milk Producers’ Organisation reckons that at least 10 jobs are lost for every farmer who exits the industry and the defection of almost 5 000 dairy farmers from the sector has thus caused severe job losses.
While the odds may appear stacked against smaller dairy producers, Pick n Pay believes that there is a role for the emerging, small-scale and communal dairy farmer, and we have dedicated resources to developing this. Not only can small, rural producers contribute to household food security, but – given the necessary financial, technical and material support – they have the potential to develop into a progressive and sustainable emerging sector.
Among the major hurdles confronting small-scale dairy farmers are high cost barriers to entry into the supply chain and quality control issues such as keeping milk at the right temperature and pasteurising it. Another problem is that the productivity of small-scale farmers is decreasing due to a lack of sufficient government support with rural infrastructure, finance and agricultural expertise. The dairy industry receives no subsidies from the government and is entirely subject to market forces, making it difficult for small-scale farmers to be competitive.
There is no doubt that the potential of small-scale farmers could be part of the solution to food insecurity and poverty reduction. Investing in small-scale farmers is just the first step in helping to make their livelihood more sustainable, as historically, the most challenging area for emerging farmers has been market access.
For this reason, Pick n Pay has made the conscious decision to promote emerging businesses and to boost local business enterprise wherever possible. A substantial percentage of our after-tax profit annually goes towards, among other projects, initiatives that boost the growth of small-scale enterprises and bring emerging producers into the supply chain.
Through the Ackerman Pick n Pay Foundation we partner with emerging producers in order to bring them to a point where they can enter the supply chain as suppliers to our stores in their own right.
This we have achieved by providing technical assistance and financing to emerging entrepreneurs, helping them to build networks and access to formal markets, strengthening worker-owned enterprises and bringing emerging farmers into the Pick n Pay fresh produce supply chain.
Our small business incubator initiative offers not only funding, but also expertise to emerging producers and manufacturers in terms of mentorship and access to experts in the field.
In support of such initiatives, Pick n Pay is committed to Fairtrade, the leading international certification system for sustainable production and poverty reduction in the agricultural sector. Fairtrade provides social, economic and environmental standards that are specifically dedicated to the empowerment of small farmers and farmworkers while regulating production in a sustainable and environmentally sound way. For every Fairtrade product sold, a percentage of the profit goes back to farming communities, which use the extra income for social projects or to invest in small-scale farming.
An example of this type of partnership is the story of All Seasons, the first South African food brand to be owned by rural black women and farmworkers.
Founded in 2005, this Western Cape-based company chose the dairy sector as its entry point into the food supply chain. Two years later, it successfully registered the All Seasons brand, which is registered in many sub-Saharan countries and enjoys the endorsement of the Comprehensive African Agriculture Development Programme. Pick n Pay sources long-life milk and basic food produce from All Seasons, ensuring a sustainable income stream for this laudable empowerment initiative.
Our relationship with All Seasons is more than just a supplier agreement, it is a real partnership in which a small-scale, black-owned supplier has been provided with viable market access, and contributed significantly to the transformation of the agricultural sector.
More generally, Pick n Pay gives preference to local suppliers and to assisting as many small, medium and micro enterprises and broad-based black economic empowerment suppliers as possible. In the case of many of our franchise stores, for example, produce grown in the immediate vicinity is supplied to the Pick n Pay store, which means supply can be very local.
This is a model we have replicated elsewhere in Africa. Finding local suppliers and entrepreneurs requires determination and effort, but it is our intention to ensure that local farmers and suppliers are supported in order to stimulate further economic growth in those countries where we do business. In Zambia, for example, Pick n Pay has a total of 230 local suppliers, including small-scale farmers who have proved themselves more than capable of providing foodstuffs at a price and of a quality demanded by Pick n Pay.
South Africa’s economic prosperity will be built on entrepreneurship. If we are to conquer the curse of unemployment, poverty and hunger, it is to small business that we must look to create jobs and opportunities for those to whom our history has denied access to the formal economy.
Gareth Ackerman is the chairman of Pick n Pay Stores.