28 Jul 11 Bring on Walmart say SA’s food producers
SA’s food producers are a feisty lot. Instead of fearing Walmart’s much maligned policy of sourcing cheap imports they are unanimous in their opinion: bring on the competition, reports MoneyWeb.
The companies concerned, from commercial pig farmers in Northern KZN to listed producers of branded foods, do not believe that the protectionist stance adopted by government in the Walmart case will have a beneficial impact on their businesses.
This runs contrary to government opinion. Government believes that Walmart’s sourcing policy has the potential to disrupt or damage the agriculture and agro-processing supply chains. Last week Richard Levin, DG of the department of economic development, expressed this as a key argument in defence of government’s application to the Competition Appeal Court that it review the tribunal’s decision to allow the merger with conditions.
The court papers submitted by government ask that the merger approval be reviewed and set aside; or that the matter go before the Competition Tribunal for reconsideration or that the application be heard alongside Saccawu’s appeal against the judgement, or that additional conditions are imposed. However, arguing in Business Day on Monday, Department of Trade & Industry Director-General Lionel October appeared to back-track. Government is not looking to overturn the deal he said, just to ensure the parties limited their imports and prevented damage to local industry.
In his presentation to MPs in parliament last week Levin argued that the global purchasing power of Walmart would result in increased imports, while reducing purchases from local suppliers.
The suppliers are not denying that Walmart’s entrance could rock the industry. “Yes, Walmart has massive global sourcing deals in place,” says Premier Foods CEO Ian Visser. “It would be naïve to say there will be no impact on manufacturers, but we have come to the top of the food chain by constantly improving, it is up to us to be internationally competitive.”
Local producers are already competing with a multitude of imports including cooking oil, tinned fruit, tinned soup, pasta, peanut butter, sweets and cordials while the likes of tuna, rice, baked beans and soya-based products are almost fully imported.
“Walmart is a competitive entity. But so are the local retailers,” says Pioneer Foods CEO Andre Hanekom. “All the retailers are importing product; we are already exposed to international competition.”
Products with a short shelf life – like dairy, eggs and bread – will be less affected. Maize meal – white maize in particular – is unique to SA and won’t be affected. In areas like breakfast cereals, tinned foods, biscuits, margarine, sandwich spread, tea and coffee the multinationals already present local manufacturers with healthy competition. “We have invested in world class manufacturing systems, we can compete,” he adds.
The suppliers are sympathetic to the need to protect jobs, but argue that jobs and SA’s productive manufacturing sector should be protected in other ways. “You can’t protect jobs,” argues Visser. “There is an economic cost that runs many multiples higher than the wages of that protected job. This is a direct levy on the consumer. If you make goods cheaper people buy more. This creates demand and jobs – it is a virtuous cycle. And it works the other way too.”
Guy Williams is a pig farmer and supporter of emerging farmers in Northern KZN. He is a director of Unipork Marketing, which supplies whole pig carcasses to processors in KZN and beyond. The company has two farms, one in Vryheid and the other close to Pietermaritzburg and represents about 1% of the R2bn p/a market for pig meat. “Government would be better served by improving its support for emerging black farmers or improving the dysfunctional veterinary services,” he says. “An outbreak of foot and mouth does more damage to a supply chain than five Walmarts.”
Another area where government could provide assistance to local producers is by policing imports better and ensuring that products that enter SA do so legitimately. “We can compete with anyone,” Williams says, “but it is difficult to compete with product that is illegally imported.”
Johann Vorster, CEO of Clover agrees. “The majority of dairy producing countries have internal subsidies, and the EU countries are the main culprits. This makes African countries – which are not subsidised – vulnerable. In a large part of Africa there are no local dairy industries left due to dumping. This is something the government needs to guard against.”
The food producers also see opportunity in Walmart’s arrival.
Durban-based Oceanfresh Seafood announced that it has clinched an agreement with Walmart to supply hake fillets to 500 Walmart stores in the US from October onwards.
Foodcorp is another company that expects to benefit from Walmart’s arrival. “Walmart is a big private label player. And Foodcorp is a big private label player, we produce mayonnaise, peanut butter, petfood, even pies for retail brands,” says CEO Justin Williamson. “That is an opportunity for me.”
The food producers also believe Walmart will force the entire industry to sharpen its act. “We have long been saying that the supply chains in SA are too expensive,” says Vorster. “Hopefully Walmart will force some change, for example the introduction of night deliveries.”
Williams is also optimistic: “As a farmer, I see major benefits from Walmart’s entry into our market. By focusing on reduction of distribution costs, Walmart will potentially stimulate demand by keeping food price inflation to actual levels. Simply put, Walmart will bring efficiencies and eliminate the middleman cost. As local producers we need not fear import competition. We have that already.”