some supply for below cost to maintain their market with this retailer (Fishman 2006; Hong 2011). Centralisation gives retailers flexibility, then, through economies of scale and the ability to hedge market fluctuations, in part through global sourcing. Additional costs of transportation and storage are channelled back to suppliers with just-in-time sourcing.
In South Africa, a shift from wholesale distribution to the greater use of centralised warehousing and the use of information technology (IT) systems to coordinate supply has been underway since the 1990s (Weatherspoon and Reardon 2003). The corporate chains tend to use distribution centres and direct contracts with producers for fresh produce, while smaller chains rely on wholesale markets and fresh produce markets (Weatherspoon and Reardon 2003:10).
With Wal-Mart’s entry, South African firms are working to compete with anticipated improvements in Massmart’s supply chain systems. Massmart has recently upgraded its distribution network and benefits from Wal-Mart’s technical knowledge and ‘large purse’ available to assist with logistics (BMI 2013). Thus, between 2011 and 2013 Shoprite upgraded its distribution centres and is building new ones in Cape Town, Durban and Port Elizabeth, all with the ‘latest technological developments’.10 Industry experts acknowledge that Shoprite has the best developed centralised distribution system of South African food retailers, ‘a first-class centralised distribution network’ (BMI 2013).11
The first preferred supplier programmes by retailers appear to have been focused mainly on larger farmers, many of whom were also exporters to European supermarkets, and already meeting food safety standards, volume and consistency expectations and quality measures (Weatherspoon and Reardon 2003:11). Most producers supplying to Freshmark, Shoprite’s wholly-owned distributor, had to ensure that washing, packing, labelling and bar-coding were done before the produce reached the distribution centre (Weatherspoon and Reardon 2003:11). The producers were required to make deliveries daily in refrigerated trucks, which they provided. A preferred suppliers list ensured that producers who remained on the list had to meet all requirements. Pick n Pay ran a similar preferred supplier arrangement with larger and better-capitalised farmers, who could meet the requirements and standards (Weatherspoon and Reardon 2003:12). Retailers squeezed suppliers through regularly negotiated discounts and rebates, charging suppliers extra for promotions, returning unsold products, delaying payment and using own-label branding to undercut processors (Mather 2005; Mather and Kenny 2005). Yet suppliers continued to try to absorb these costs. Being on the list meant supplying these market channels, increasingly dominating access to consumers, as we have just seen.
Weatherspoon and Reardon (2003) suggest that standards for domestic food retailing were driven by retailer procurement from exporting farmers: retailers linked in to existing networks developed through deregulation of agricultural production, which encouraged export to global markets to benefit from private standards. They note that this exacted ‘hefty entry requirements and even barriers to many farmers’ (Weatherspoon and Reardon 2003:13) at the time, including investments in coordination, farming practices, packing-shed facilities, and fleet and cold chain infrastructure. They suggested that retailers would expand to lower market consumer segments and increase price pressure on suppliers to remain competitive while meeting standards (Weatherspoon and Reardon 2003:13). They concluded their seminal article by noting three trends: the use of large, well-resourced farmers; where these were not available, the use of importing; and an ‘eagerness’ to develop programmes to ‘upgrade’ the small farmers to meet the needs of supermarkets’ (Weatherspoon and Reardon 2003: 14). They suggested that this would produce a bifurcation of producers when smaller farmers, unable to cope, faced ‘rapid exclusion’ (Weatherspoon and Reardon 2003: 14).
At the crux of the debate about Wal-Mart’s entry was its ability to source from its global suppliers, understood as far more competitive than South African manufacturers and producers in their ability to meet cost and quality standards (for instance, see Chan 2011). The ultimate resolution was the creation of the Supplier Development Fund to assist small-scale producers to enter Massmart’s supply chain. This model emerged out of Massmart’s own voluntary fund, set up during the Tribunal process, with R100 million over three years to assist small-scale black farmers to meet the requirements to source to them. The focus of the fund, which targeted 1 500 small farmers, was on loans and providing equipment (Visser 2011). Massmart saw its significance in cutting out intermediaries, much as Wal-Mart does, to source directly from the producers, who then must pack their produce on the farms, ready for distribution through Massmart’s controlled cold chain.
The R200 million fund that ultimately was mandated by the Appeal judgment was thus limited to developing the capacities of small-scale producers. As Morris puts it in his contribution to the expert committee report, the task is ‘how to institutionally build the competitive capabilities of small and medium size enterprises within these supply chains’ (Morris 2012:9, italics in original). As he notes, retailers ‘do not do so as acts of beneficence to suppliers, but because it is in direct corporate interest’ (Morris 2012:14, italics in original).
There is a longer history of supplier programmes that focus on bringing small-scale producers into the market. The current fixation is on integrating smallholders in the production and distribution of fresh fruit and vegetables into supermarket supply chains. Thus, the extended discussion into Massmart/Wal-Mart’s supplier fund becomes a condensation of the logics of the development agenda, in which retailers are well aware of the political imperatives of smallholder ‘inclusion’.
In 2009, the ANC positioned agricultural production at the centre of its focus on rural development which, in turn, highlighted smallholder production as an arena of intervention.12 Because of the concentration within the agro-food system in South Africa, any development of smallholders is seen to rest on access to local supermarket shelves rather than through production for export (Greenberg 2013; Aliber 2013).13 Furthermore, job creation in agriculture is understood by DAFF as being best facilitated through smallholder schemes and agro-processing through inclusion into value chains (Aliber 2013).14
This policy shift toward smallholder development corresponds to a growing consensus within the state that food security rests primarily on access by consumers to cheaper food (rather than, for instance, through subsistence farming), with a new-found enthusiasm for the expansion of supermarkets to rural areas and townships (for example, the Comprehensive Rural Development Programme, DRDLR 2009, as cited in Greenberg and Paradza 2013: 55). In general, the state’s approach to food security has been through providing social grants to underpin food purchases.
In
