i

HORTICULTURAL DEVELOPMENT PLAN FOR THE THULAMELA LOCAL MUNICIPALITY

Appendix F: Market analysis

OABS Development (Pty) Ltd

Compiled by:

Dr Daan Louw (Managing Director: OABS Development) as Project Leader, in

conjunction with Mr Clifford Flandorp (Project Coordinator)

October 2017

258 Main Street, PO Box 3426, Paarl, 7622 Tel: +27 (0) 87 095 2108 Fax: +27 (0) 86 616 4970

Contact persons:

Dr Daan Louw (Project Leader) Cell: 082 857 3458 Email: Daan@oabs.co.za

Mr Clifford Flandorp (Project Coordinator) Cell: 072 518 1658 Email: Clifford@oabs.co.za

Horticultural Development Plan for the Thulamela Local Municipality

ii

TABLE OF CONTENTS

TABLE OF CONTENTS ............................................................................................. ii

1. MARKET ANALYSIS ......................................................................................... 1

1.1 INTRODUCTION ........................................................................................ 1

1.2 MARKET TRENDS: NATIONAL AND INTERNATIONAL ........................... 1

1.2.1 National consumption ............................................................................ 1

1.2.2 National supply volumes - and price trends: Tshwane and Johannesburg

Fresh Produce Markets ....................................................................... 2

1.2.3 International marketing trends ............................................................... 6

1.2.4 Production and supply ........................................................................... 7

1.2.5 A view on possible improvement in dynamics and mechanisms ............ 7

1.2.6 A view on future market opportunities to create and idealized horticulture

portfolio ............................................................................................... 8

1.2.7 A view on future infrastructure development .......................................... 8

1.3 DEVELOP A MULTI-CRITERIA ANALYSIS (MCA) FRAMEWORK ............ 9

1.4 MCA RESULTS AND SHORT LIST OF CROPS ...................................... 10

1.4.1 Subtropical and nut crops .................................................................... 10

1.4.2 MCA Results: Vegetables crops .......................................................... 10

1.5 CROP ENTERPRISE GROSS MARGIN ANALYSIS ................................ 11

1.5.1 Fruit crops gross margin analysis ........................................................ 11

1.5.2 Vegetable gross margin crops analysis ............................................... 12

1.5.3 Value adding opportunities .................................................................. 12

1.6 CHAPTER SUMMARY ............................................................................. 13

2. REFERENCES................................................................................................ 15

LIST OF TABLES

Table 1.1: South Africa: Private consumption of food ................................................ 2

Table 1.2: Vegetable marketing 2014 – 2016 ............................................................ 3

Table 1.3: Fruit marketing 2014 – 2016 ..................................................................... 5

Table 1.4: MCA for fruit and nut crops ..................................................................... 10

Table 1.5: MCA: Vegetables .................................................................................... 11

Table 1.6: Fruit crops gross margin analysis/ha ...................................................... 12

Horticultural Development Plan for the Thulamela Local Municipality

iii

Table 1.7: Vegetable crops enterprise analysis/ha .................................................. 12

Table 1.8: Value adding opportunities ..................................................................... 13

LIST OF FIGURES

Figure 1.1: Multi-criteria framework for selection of agro processing value chains ..... 9

1

1. MARKET ANALYSIS

1.1 INTRODUCTION

This Appendix deals with a comprehensive market analysis in order to establish the current

agriculture output in the area and national demand and supply factors. Finally, an assessment

will be done to identify market dynamics, - opportunities (both production - and marketing -)

and infrastructure development.

1.2 MARKET TRENDS: NATIONAL AND INTERNATIONAL

1.2.1 National consumption

Table 1.1 provides a view of private consumption (on a range of agricultural goods) in South

Africa for the period 2000 - 2014, as supplied by Statistics South Africa, Subtract of Agricultural

Statistics, 2016.

The demand for fresh produce was as follows:

• The demand for fruit and vegetables (excluding potatoes) increased from R14.183

million in 2000 to R55.611 million in 2014 or by 292%.

• The demand for potatoes grow in the order of 276% from R4.339 million (2000) to

R16.314 million (2014).

Total demand in consumption grows from R106 133 million to R521 133 million over the period

or 391%, and it will continue showing strong growth due to:

• Continuous growth of the middle class – both in population and disposable income

• General population growth and associated rise in food demand

• Increase in demand for certain food types from Africa - particularly from South Africa

The economic growth potential of Africa will open new markets and it is known that the South

Africans cannot supply in the increasing African demand. New large-scale entrants are

needed. The conclusion is that the food market segment will show (strong) growth in the future

as well. Such a scenario will benefit any future horticulture production in South Africa.

2

Table 1.1: South Africa: Private consumption of food

Source: DAFF – Abstract of Agric. statistics SA (2016)

1.2.2 National supply volumes - and price trends: Tshwane and Johannesburg

Fresh Produce Markets

Table 1.1 illustrated the national trend of a strong growing demand for food in South Africa.

This section will provide a view of production volumes sold and price movements over three

years (2014 – 2016) in the mentioned two fresh produce markets in the economic heartland

of South Africa, namely Gauteng. The Limpopo area (TLM specifically) will market a large

portion of their produce at either of these two fresh produce markets over and above the

produce marketed through newly establish supermarket value chains. The role of municipal

fresh produce markets is important because it is an outlet for any surplus produce over and

above export volumes and national supermarket value chain volumes. As such the fresh

produce markets play a significant role in the price making decision of the national fresh

produce crop.

In order to give a view of the production (supply) trends the following two tables will provide

insight on the matter – focusing on the statistics of the mentioned two markets – as illustrates

in Table 1.2 and Table 1.3.

A view on regional vegetable trends:

As far as vegetables are concerned the focus is on produce from the Vhembe area.

Meat

Bread and

grain

products

Sugar

Milk, milk

products

and eggs

Oils and

fatsPotatoes

Vegeta-

bles and

fruit

Total Other

Coffee,

tea, cocoa

and sub-

stitutes

Grand Total:

Consump-

tion expen-

diture on

food

2000 27 080 29 192 3 062 12 461 3 292 4 339 14 183 93 609 9 361 3 163 106 133

2001 29 587 44 498 3 116 14 043 3 568 4 588 14 131 113 531 11 353 3 836 128 721

2002 36 804 52 361 2 922 14 903 4 161 5 485 17 268 133 904 13 390 4 525 151 819

2003 45 834 56 135 3 521 17 756 4 587 5 955 19 559 153 345 15 335 5 182 173 861

2004 47 560 55 843 3 553 14 694 4 617 6 584 19 339 152 189 15 219 5 143 172 551

2005 56 419 54 549 3 786 19 582 4 515 6 637 21 450 166 938 16 694 5 641 189 272

2006 66 396 55 612 3 914 23 290 5 446 7 606 22 828 185 093 18 509 6 254 209 857

2007 72 576 65 036 3 827 28 365 5 354 8 077 28 814 212 049 21 205 7 165 240 419

2008 108 046 90 194 4 185 38 411 6 248 10 747 30 900 288 731 28 873 9 756 327 360

2009 116 056 95 567 4 853 39 590 8 110 12 248 35 520 311 944 31 194 10 541 353 679

2010 121 566 92 870 5 478 42 237 7 342 13 231 37 335 320 060 32 006 10 815 362 881

2011 133 550 114 604 6 289 43 836 8 184 13 805 39 305 359 574 35 957 12 150 407 681

2012 145 561 116 279 6 555 51 265 9 400 14 710 43 646 387 415 38 742 13 091 439 247

2013 157 276 120 515 6 326 55 270 11 268 15 508 49 343 415 506 41 551 14 040 471 096

2014 175 046 130 661 6 323 62 824 12 859 16 314 55 611 459 638 45 964 15 531 521 133

15 Yr growth 546% 348% 106% 404% 291% 276% 292% 391% 391% 391% 391%

Calender Year

R million

3

Table 1.2: Vegetable marketing 2014 – 2016

Source: DAFF (2016b)

4

The supply volumes and price trends at these two markets are a fairly accurate picture of the

national narrative, due to the size and position of the two markets – being Gauteng based.

The following important conclusions can be drafted, taken the identified vegetable basket into

account:

• Production volume based on unit sales is constant in so far where Tshwane declined

by -1.77% and Johannesburg increased volumes by +1.36%. The assessment is that

supply to fresh produce markets has stagnated. Factors contributing hereto can be the

effect of international - and regional exports and access of larger volumes into the

supermarket value chains. The effect of sporadic droughts in certain supply areas must

be considered as well.

• Units sold: Potatoes are the biggest seller at 54.4% followed by onions (17.41%) and

tomatoes (12.79%). The other produce follows: Cabbage (6.11%), Butternut (5.25%),

Sweet Potatoes (1.92%) and Spinach (1.07%). Green Beans and Sweet Corn are in

low demand at 0.87% and 0.17% respectively.

• What is significant is that sales turnover increased by 25.18% (Tshwane) and 26.44%

(Johannesburg) respectively over the period. Average sales price/unit increased by

27.44% (Tshwane) and 24.74% (Johannesburg). The average price/unit increase of

8.70% is fairly above the inflation rate - which can be a demand driven effect.

A view on regional fruit trends

The fruit basket drafted focuses on the fruit basket from the Vhembe area, as illustrate in Table

1.3. The assumption is that Macadamia is earmarked for export, although a portion is sold

locally these volumes are not traded in the National Fresh Produce markets. The fruit types

included in the basket are:

• Banana – Bananas require ripening facilities to mature them for human consumption.

Therefore, banana is market via fresh produce markets (equipped with ripening

facilities) or to entities that are equipped with ripening facilities.

• Litchi – a portion is sold as fresh produce and a portion is processed.

• Mango - a portion is sold as fresh produce and a portion is processed.

• Oranges - a large portion is exported, the class 2 and 3 is sold as fresh produce and a

portion is processed.

• Avocado - a large portion is exported, the class 2 and 3 is sold as fresh produce and

a portion is processed.

• Granadillas - a portion is sold as fresh produce and a portion is processed.

The market diversification options of fruit types are evident.

5

Table 1.3: Fruit marketing 2014 – 2016

6

The following is of importance:

• Banana (61.42%), oranges (24.32%) and avocado (7.18%) are in demand and

represent the ± 93% of the basket, followed by Mango sales in the order of 7%.

• Unit sales: Over the three-year period sales declined by 25.35 % (Tshwane) and

28.05% (Johannesburg). Banana and mango sales were the main contributors:

o Banana unit sales declined between 30 – 35%

o Mango unit sales declined with 48.39% in Tshwane

o Avocado unit sales declined with 22.53 % (Tshwane) and 16.79%

(Johannesburg) respectively.

The effect of severe droughts cannot be underestimated and might be the main

contributor. The strong demand for avocado contributed that larger volumes by

redirected into lucrative markets, e.g. supermarket value chains.

• Sales turnover increased by 16.02% (Tshwane) and 9.10% (Johannesburg)

respectively over the period. Average sales price/unit increased by 55.41% (Tshwane)

and 51.64% (Johannesburg), which portrait a very positive outlook for certain fruit

types.

1.2.3 International marketing trends

The face of the industry has changed in the past decade, especially as far as fruit exports are

concerned from Southern Africa. Continental Europe and the UK have traditionally been the

main export destination for South African fruit during 2001. An important change taking place

(especially) since 2007 has been a relative shift away from exports to Continental Europe and

the UK towards growing markets in Africa, Asia and the Middle East. The rise of global value

chains and production networks (GVCs/GPNs) lies at the heart of contemporary

transformation in global trade, production and employment. The rise of supermarkets involved

in multiple retailing (food and non-food) has been an important facet of this transformation.

Leading companies increasingly coordinate their sourcing through interlinked global networks

of cross-border suppliers, rather than operating through fragmented agents within market-led

trade channels.

Supermarkets are an important driver of changing global dynamics in agro food trade,

production and employment. Supermarkets coordinate value chains that link production,

processing, retail and consumers, leading to a decline in traditional wholesale and wet markets

in many countries. They are consumer-oriented, and strive for quality, low cost and

consistency, governing their suppliers through application of strict standards. The South

African supermarkets are also leading the expansion of modern retail across Sub-Saharan

Africa.

Value chain development, driven by Global Value Chains and Global Production Networks,

benefitted primary agriculture in the following:

• At primary production level, GVC / GPN’s assure better and less fluctuated prices

through programming of supply.

• Programming of supply improve logistics in particular and reduce costs. High-quality

logistics affect trade even more than distance or transport costs; every extra day

7

needed to ready goods for export and import could potentially reduce trade flows by

up to 4%.

• Programming of supply allow for better production planning.

• Value adding (e.g. pre-packing) at source opportunities were created, where in the

past value adding was done at accumulation- / distribution points.

• Specialization opportunities at source were created.

• Food safety is guarantee – through strict client driven compliance requirements.

• Job creation at source, where in the past jobs were created in the cities at

accumulation- / distribution points.

The purpose and place of the old generation wet - or wholesale markets and municipal

markets cannot be underestimated, due to their critical historical function in the price making

decision and the selling of large volumes of excess produce not accommodated by the

Supermarkets or Production Networks.

In conclusion, the assessment is that GVC’s / GPN’s (or for that matter Regional Value Chains

/ Regional Production Networks) will be the focus in the medium - to long term planning of any

marketing strategy and - plan. The South African supermarkets are well established and have

open the African market for access at stable - and reliable prices with all the accommodating

advantages as discussed. The old generation wet - or wholesale - and municipal markets will

always have a role and function in the market place, although not as a value adding

opportunity.

1.2.4 Production and supply

The biggest concern of small scale producers is their inability to produce and supply volumes

that will justify logistical- and other marketing costs. The average production unit (0.50 – 1.50

ha) is too small to gain leverage in accessing markets. The small-scale producers have basic

two options in marketing their excess produce: (i) selling to local buyers / shops / outlets in

their immediate vicinity or (ii) selling to middlemen / hawkers / traders whom collect the

produce at farmgate level. In both cases prices paid will not be on par with market prices as

indicated by the national fresh produce markets. The subject of market failure that exists was

discussed in Appendix D.

1.2.5 A view on possible improvement in dynamics and mechanisms

The mentioned background gave an overview of the dilemmas faced by small scale producers

to access markets successfully. To improve market access in the TLM area emphasis must

be place on improving market dynamics and mechanisms in a two-pronged approach:

Priority 1: Develop strong agricultural production based industries (and business entities) on

the identified land / irrigation schemes and the downstream development of value adding agro-

processing facilities for the respective industries. These developments must lay the foundation

for the agriculture development in TLM.

The assessment is - based on the market analysis – the following fruit types have the ability

to maintain strong industry growth at both production - and processing levels:

• Macadamia

• Avocado

• Citrus – oranges and lemons

8

• Mango

• Banana

As far as the vegetable types are concerned, the assessment is that the following vegetable

types have potential to become strong industries in the TLM area:

• Potato – although not known in the area it needs a second consideration

• Onions

• Tomato

Priority 2: The planned strong industries / Agri Businesses will benefit the small-scale

producers, downstream:

• to create a natural demand, pull effect in the area for produce that will fit into the

industry plan

• open logistical access and better prices

• create jobs and alleviate poverty in the area

• dilute the market failure effect experienced by the small-scale producers

1.2.6 A view on future market opportunities to create and idealized horticulture

portfolio

Sections 1.2.1, 1.2.2 elaborated on the changing marketing environment and the local and

global growing demand for fresh produce. The natural resources of the Thulamela area are

conducive for production of quality produce that will fill the market demand and requirement.

Market opportunities will be found at all levels of the fresh produce value chain – including pre-

packing opportunities (value adding):

• Export class 1: Global export markets and South African Supermarkets

• Class 1: South African Supermarkets, Sub Saharan African - and Indian Ocean

markets

• Class 2: South Africa Supermarkets, South African wholesalers and smaller outlets

• Processing

1.2.7 A view on future infrastructure development

The success of the development plan will depend on the establishment of following key

infrastructure:

• Critical on farm infrastructure – e.g. machinery, equipment, irrigation, utility storage

and loading facilities

• Revitalization of the irrigation schemes

• Establishment of centralised machinery and equipment HUB’s - where identified

• Establishment of centralised processing-, packing- and cooling facilities

• Establishment of logistical support to accommodate the small-scale producers’

transportation needs and to bring them into the mainstream industries.

9

1.3 DEVELOP A MULTI-CRITERIA ANALYSIS (MCA) FRAMEWORK

In this regard the 1GTZ Value Links Manual: The Methodology of Value Chain Promotion

(1st Revised Edition, January 2008) provides an appropriate set of pragmatic tools to achieve

the desired value chain development outcome.

Consider Figure 1.1 below as the point of departure for the selection of value chains with

potential. There are 4 main criteria:

• Institutional framework criteria – (15% weight)

• Growth potential: demand criteria – (35% weight)

• Growth potential: supply criteria – (30% weight)

• Economic, social and environmental: impact criteria (20% weight)

It should be obvious that the demand criteria should have the highest weight since if there is

not a demand for the product and if it cannot be produced competitively; there will not be a

high development potential for this value chain. Similar, supply criteria must also carry a higher

weight since production potential, value adding potential, innovation potential and comparative

advantage is also of paramount importance for the sustainable growth of the value chain.

Economic, social and environmental criteria are important from a social / government

perspective. Finally, the institutional framework criteria refer to a business environment that is

conducive to the development of the value chain.

Figure 1.1: Multi-criteria framework for selection of agro processing value chains

The framework presented is often used in the selection of agro processing value chains with

a high potential for growth and development.

1 Deutsche Gesellschaft fur Technische Zusammenarbeit (GTZ) GmbH – commissioned by the Federal Republic of Germany:

Federal Ministry for Economic Cooperation and Development.

(30%)

10

1.4 MCA RESULTS AND SHORT LIST OF CROPS

1.4.1 Subtropical and nut crops

This section will draft an analysis of the MCA results on the various crops / value chains

analysed. The results of the MCA are based on the expert opinions of the team. If there are

very small differences between the total score for crops they should be regarded as having

more or less the same potential. It is clear that Macadamias has the highest score followed by

Avocado’s and Citrus with relatively lower scores for litchis, mangoes and bananas.

Table 1.4: MCA for fruit and nut crops

1.4.2 MCA Results: Vegetables crops

The results for vegetables indicates that the potential for vegetables is for all practical

purposes the same. The reader should also note that it is important to consider vegetable

rotation systems and harvesting time (which will depend on planting dates) that is aligned with

the market demand during the year.

1A. (Market) DEMAND

CRITERIA (= most important 25 9 22 25 11 14 0 0

¨    Sustained local demand 10 5 5 4 5 3 5

¨    Competitive position on local 5 5 4 4 5 3 4

¨    Sustained foreign demand 10 5 0 5 5 0 0

¨    Competitive position on foreign 5 5 0 5 5 0 0

¨    Product differentiation /

reputation advantage5

5 0 4 5 5 5

1B. GROWTH POTENTIAL -

SUPPLY CRITERIA 17 12 18 20 18 17 0 0

¨    Comparative / competitive 10 5 3 5 5 5 3

¨    Innovation potential 5 3 2 4 5 3 4

¨    Value-adding potential 10 4 2 4 5 5 5

¨    Production potential 5 5 5 5 5 5 5

2. Criteria related to

(economic, social and 20 20 20 20 20 20 0 0

¨    Employment potential 5 5 5 5 5 5 5

¨    Cross-sectorial linkages and

spill-over effects5

5 5 5 5 5 5

¨    Inclusiveness 5 5 5 5 5 5 5

¨    Environmental Sustainability 5 5 5 5 5 5 5

3. Criteria related to

institutional aspects: 14 14 14 15 15 15 0 0

¨    Inter-f irm relationships 5 4 4 4 5 5 5

¨    Support system 5 5 5 5 5 5 5

¨    Business environment&

regulatory framew ork conditions5

5 5 5 5 5 5

Total 100 76 55 74 80 64 66 0 0

15

Unweighted score (illustrative) - Max score =5 where 1=low and 5=high

LitchiMango Macada

miaCitrusAvocado Banana

Sub-

criteria

weight

Main

criteria

Weight

Criteria

35

30

20

11

Table 1.5: MCA: Vegetables

1.5 CROP ENTERPRISE GROSS MARGIN ANALYSIS

The purpose of section 1.5 is to design and draft the various identified value chains based on

their various enterprise analysis.

1.5.1 Fruit crops gross margin analysis

Table 1.6 illustrates a breakdown of the enterprise analysis of the various selected fruit crop

in full bearing. The fruit crops selected were done on the basis of known crops to the population

and the area, crops with commercial potential and according to the MCA selection criteria.

1A. (Market) DEMAND

CRITERIA (= most important

criteria type for VC

upgrading)

14 10 14 15 12 12 12 17

¨    Sustained local demand 10 3 5 5 4 5 5 5 5

¨    Competitive position on local

market5

3 5 5 4 5 5 5 5

¨    Sustained foreign demand 10 2 0 0 2 0 0 0 2

¨    Competitive position on foreign

market5

2 0 0 3 0 0 0 2

¨    Product differentiation /

reputation advantage5

4 0 4 2 2 2 2 3

1B. GROWTH POTENTIAL -

SUPPLY CRITERIA 18 13 13 14 14 14 14 14

¨    Comparative / competitive

advantage10

4 4 4 4 4 4 4 4

¨    Innovation potential 5 4 2 2 2 2 2 2 2

¨    Value-adding potential 10 5 2 2 3 3 3 3 3

¨    Production potential 5 5 5 5 5 5 5 5 5

2. Criteria related to

(economic, social and

environmental) impact

potential 20 20 20 20 20 20 20 20

¨    Employment potential 5 5 5 5 5 5 5 5 5

¨    Cross-sectorial linkages and

spill-over effects5

5 5 5 5 5 5 5 5

¨    Inclusiveness 5 5 5 5 5 5 5 5 5

¨    Environmental Sustainability 5 5 5 5 5 5 5 5 5

3. Criteria related to

institutional aspects: 12 12 12 12 12 12 12 12

¨    Inter-f irm relationships 5 4 4 4 4 4 4 4 4

¨    Support system 5 4 4 4 4 4 4 4 4

¨    Business environment&

regulatory framew ork conditions5

4 4 4 4 4 4 4 4

Total 100 64 55 59 61 58 58 58 63

35

30

20

15

Main

criteria

Weight

Sweet

Corn

Sweet

PotatoSpinach Tomato

Criteria

Sub-

criteria

weight

Unweighted score (illustrative) - Max score =5 where 1=low and 5=high

Butternut CabbageGreen

BeansOnions

12

Table 1.6: Fruit crops gross margin analysis/ha

Sources: South Africa Avocado and Citrus Growers Associations, Levubu Macadamia Study group and the KZN Dept of Agriculture & Rural Development, 2015-2016, OABS adjusted

Going forward, the authors suggest that the strong industries being developed for the avocado,

citrus and macadamia cultivars – they are all well-established export orientated industries with

growth potential.

1.5.2 Vegetable gross margin crops analysis

Table 1.7 illustrates a breakdown of the enterprise analysis of the various vegetable crops.

The selection of viable vegetable crops depends on intercropping and double cropping

characteristics in order to reach optimal crop rotation between various complimentary crops.

Table 1.7: Vegetable crops enterprise analysis/ha

The selected crops indicated gross margins that varies from R7081/ha for cabbage up to

R121 368/ha for tomatoes.

The production of the mentioned crops is all economic viable in TLM area. The actual financial

impact of the various crop combinations will be illustrating in the economic model illustrating

the development impact.

1.5.3 Value adding opportunities

Table 1.8 illustrates a view horticultural enterprise with strong value adding opportunities in

the TLM area. The focus is to add value on all produce as vertically up the supply chain as

possible in order to gain better prices and create jobs in the TLM area.

Yield/ha Export Local Processing

Avocado 17 000 10 200 3 400 3 400 192 066 22 778 50 942 13 752 87 472 104 594

Banana 21 000 1 000 20 000 - 94 520 31 254 42 592 3 691 77 536 16 984

Citrus 30 000 18 000 6 000 6 000 194 502 75 235 81 649 13 752 170 636 23 866

Macadamia 5 937 154 362 - - 154 362 12 638 50 346 4 500 67 484 86 878

Mango 10 000 - 8 000 2 000 82 000 13 685 47 626 2 165 63 476 18 524

Litchi 6 000 - 5 400 600 158 040 9 904 79 270 1 402 90 576 67 464

Budgeted

Gross

Margin

DescriptionKilogram

Gross

Farm

Income

Pre

harvest

Costs

Harvest

& Post

Harvest

costs

Over

heads

Budgeted

Total

Costs

Description Butternut CabbageGreen

BeansOnion Sweet Corn

Sweet

PotatoSpinach Tomato

Estimated Yield (kg/ha) 20 000 60 000 8 000 25 000 50000 (COB) 20 000 20 000 52 000

Budgeted Gross Income 58 292 77 292 91 584 73 198 37 500 102 520 61 800 278 850

Pre harvest costs 14 988 33 005 25 438 13 436 18 609 20 528 19 082 61 880

Harvest & Post Harvest costs 15 430 35 706 14 064 20 144 8 389 13 918 15 274 94 102

Overhead costs 1 500 1 500 1 500 1 500 1 500 1 500 1 500 1 500

Budgeted Total cost 31 918 70 211 41 002 35 080 28 498 35 946 35 856 157 482

Budgeted Gross Margin 26 374 7 081 50 582 38 118 9 002 66 574 25 944 121 368

Source: KZN Dept of Agriculture & Rural Development, 2015-2016, OABS adjusted

13

Table 1.8: Value adding opportunities

The following observations are of importance:

• Production, harvesting and basic processing is similar for all produce and can be done

at source – given processing-, packing and cooling facilities exists.

• The known or traditional way of packing / processing is indicated in the table.

• Almost all the varieties offer pre-packing or vertical market penetration opportunities

according to client specification. The pre-packing option can be executed at source

and will result in better prices/kg. Job creation will also benefit from the action.

Almost all the varieties offer industrial processing opportunities. Available volumes at source

will determine to what extend cost effective industrial processing can be done in the TLM area.

1.6 CHAPTER SUMMARY

With respect to chapter four the following observations is of importance:

• The demand for food is increasing at significant ratios. As far as the South African fresh

produce demand is concerned indications are that the demand grows as follows, since

2000.

• The demand for fruit and vegetables (excluding potatoes) increased from R14.183

million to R55.611 million in 2014 or by 292%.

• The demand for potatoes grow in the order of 276% from R4.339 million (2000) to

R16.314 million (2014).

• Total demand in consumption grows from R106 133 million to R521 133 million over

the period or 391%, and it will continue showing strong growth due to:

⁃ Continuous growth of the middle class – both in population and disposable income

⁃ General population growth and associated rise in food demand

⁃ Increase in demand for certain food types from Africa - particularly from South Africa

The economic growth potential of Africa will open new markets and it is known that the South

Africans cannot supply in the increasing African demand. New large-scale entrants are

Avocado X X Carton X Guacamole

Banana X X Carton X Dried / Juice

Citrus X X Carton / Bag X Dried / Juice / Jam

Macadamia X X Bag X -

Mango X X Carton / Bag X Atjar / Juice / Dried

Litchi X X Carton X Juice

Butternut X X Bag X Foodstuff ingredient

Cabbage X X Bag X Foodstuff ingredient

Green Beans X X Bag X Foodstuff ingredient

Onion X X Bag X Foodstuff ingredient

Sw eet corn X X Bag X Foodstuff ingredient

Sw eet Potato X X Bag X Foodstuff ingredient

Potato X X Bag X Foodstuff ingredient

Spinach X X Bundle / lux - Foodstuff ingredient

Tomato X X Carton / Bag X Foodstuff ingredient

Traditional

processing &

packing at source

Production Harvesting

Pre-packing -

client specific

at souce

Industrial

processingDescription

14

needed. The conclusion is that the food market segment will show (strong) growth in the future

as well. Such a scenario will benefit any future horticulture production in South Africa.

Small-scale / Small holders’ producers are under consistent pressure to increase production

in order to benefit from economy of scale. Apart from the challenge to produce bigger volumes

they have to produce quality according to client specification. The mentioned background

gave an overview of the dilemmas faced by small scale producers to access markets

successfully. To improve market access in the TLM area emphasis must be place on

improving market dynamics and mechanisms in a two-pronged approach:

Priority 1: Develop strong agricultural production based industries (and business entities) on

the identified land / irrigation schemes and the downstream development of value adding agro-

processing facilities for the respective industries. These developments must lay the foundation

for the agriculture development in TLM.

Priority 2: The planned strong industries / Agri Businesses will benefit the small-scale

producers, downstream:

• to create a natural demand, pull effect in the area for produce that will fit into the

industry plan

• open logistical access to markets at better prices

• create jobs and alleviate poverty in the area

• dilute the market failure effect experienced by the small-scale producers

The development of strong industries will address a range of logistical and market access

related issues and dilute to a large extend the effects of market failure.

Through the application of the Multi Criteria Analysis on a range of fruit – and vegetable crops

the assessment is that:

Fruit types: It is clear that Macadamias has the highest score followed by Avocado’s and Citrus

with relatively lower scores for litchis, mangoes and bananas.

Vegetable types: The results for vegetables indicates that the potential for vegetables is for all

practical purposes the same. The reader should also note that it is important to consider

vegetable rotation systems and harvesting time (which will depend on planting dates) that is

aligned with the market demand during the year.

The various value chains were unpacked and give a view of potential income streams for each

crop type. Finally, the chapter concluded on forward market integration value adding options

for each identified crop, which indicated that forward market integration is possible for each of

them.

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2. REFERENCES

Complete list of references available in main report.