SOUTH AFRICA—BACKGROUND

In rural areas, where poverty and unemployment are particularly acute among the historically disadvantaged, state–owned agricultural assets are a legacy of apartheid and the Homelands policies. The apartheid government provided massive financing and technical assistance to create numerous large and small farming and agribusiness schemes, projects and enterprises in an attempt to build Homeland credibility and capacity to keep black workers in designated areas. In the transition to democracy, these assets have, for the most part, become the responsibility of provincial and, very recently, municipal governments whose management, governance and financial capacities are weak and who are unable to provide effective support to the parastatal agricultural sector they have inherited. Further, these enterprises have generally been unable to adapt to the agribusiness environment engendered by the government's new market–driven agricultural policies. With little state support, and with limited capacity to adapt to a new commercial environment, most of these enterprises drain state coffers, receive little or no funding, and operate marginally, if at all.

Overlying these development challenges, the traditional produce markets are rapidly changing with the rise of supermarket chains.The rise of supermarkets in Africa since the mid–1990s is transforming the food retail sector. Supermarkets have spread fast in Southern and East Africa, already proliferating beyond middle class, big city markets into smaller towns and poorer areas.

South African food retailing is composed of two dramatically different sectors: the informal sector (hawkers, small stands and spazas), and the formal sector. The gross turnover in the formal food retail sector in South Africa is projected to be more than US $6 billion in 2002, up from $4.5 billion in 1998. While supermarkets represent fewer than 2% of all food retail outlets, a rough estimate of the share of total food retail in South Africa is around 50–60%. The rapid growth of supermarkets in South Africa began in 1994 (in particular, since the end of apartheid). This rapid growth was caused by the meteoric rise of Shoprite/Checkers and Pick 'N Pay in the past seven years. The sector is highly consolidated in the hands of four major chains—Shoprite/Checkers and Pick 'N Pay, with roughly 80% of the sector, 40% each, and Spar and Woolworths, with 10% and 5% respectively.

Why does the rise of supermarkets in the region matter for development and the rural poor? It matters because supermarkets are taking over the most dynamic segments of the food retail markets—the rapidly growing urban areas where incomes are higher. Those are the food markets that the rural poor need to target to be able to escape from poverty.

Supplying supermarkets presents both potentially large opportunities and challenges for producers. Supermarkets' procurement systems involve purchase consolidation, shifts to specialized wholesalers, and tough private quality and safety standards. The scale of procurement is typically much larger and requires both volumes and coordination among suppliers and between suppliers and retailers and/or intermediaries.

To meet these requirements, producers have to make investments and adopt new practices. That is hardest for small and medium producers, who thus risk exclusion from dynamic urban markets to markets increasingly dominated by supermarkets. Recent research shows that while these changes provide great opportunities for some producers to broaden and deepen their markets and raise their incomes, for others, especially smaller farms and firms, they imply huge challenges and risk of exclusion for the transforming food economy.

There is an urgent need for development programs and policies to assist the historically disadvantaged small and medium producers to adopt the new practices that the supermarket's procurement systems demand, so they don't get left behind.