Given current South African political imperatives for socio-economic transformation, smallholder farmers are sometimes seen as a panacea for rural poverty and unemployment. Smallholder farmers are coming under increased pressure to actively participate in the mainstream economy, by integrating their food production into existing agro-food value chains. The government's strategy in respect of market integration, by facilitating certification process (GlobalGAP certification), emphasises supplying produce for supermarkets or export markets.
South Africa food markets are estimated to be worth over R200 billion, with the fresh produce sector commanding a 15% share. Food markets in South Africa are highly concreted and integrated and governed by a few oligopolistic agribusinesses. Four retail chains (Shoprite-Checkers, Pick n Pay, SPAR and Woolworths) increasingly dominate fresh produce markets, which has resulted in the displacement of traditional markets such as the National Fresh Produce Markets. Supermarkets have become de facto governors of the country’s food business Supermarkets are bargain hunters, increasingly looking for producers who can guarantee not only competitive pricing but also quality, quantity and consistency. Restructuring processes, allowing supermarkets to dominate fresh food markets, often shun smallholder farmers, because of the high transaction costs incurred in coordinating smallholder farmers.
However, the Competition Commission's recent decision to approve Walmart’s acquisition of Massmart might just be a game changer. The Commission's ruling that Walmart must set up a local procurement fund may allow some smallholder farmers to access supermarket value chains on a substantial scale - or may just be an agreement on paper, not backed by effective implementation.
A recent PLAAS study in Limpopo Province sought to understand smallholder farmers’ participation in fresh produce value chains. The study found that most of the farmers who market fresh produce are full time commercial farmers but they are resource poor, with inadequate production equipment (e.g. tractors and ploughs) and infrastructure (e.g. irrigation). The smallholder farmers surveyed participate in multiple markets, ranging from formal to informal, but informal market participation dominates. Market diversification is probably a risk mitigation strategy given the price volatility and quality differentiation experienced in the fresh produce sector. The National Fresh Produce Market (Johannesburg Fresh Produce Market) has secured the largest market share of produce from these smallholder farmers, despite being the market that is furthest away from Limpopo (about 300km). Informal channels such as roadside and farm gate markets have a significant share, while supermarkets and agro-processors are the least supplied.
Contrary to the conventional view that supermarkets fail to source produce from smallholders, some (e.g. SPAR and Pick 'n Pay) do undertake local procurement - largely from smallholder farmers. This shift away from centralised procurement allows some smallholder farmers to participate in mainstream markets, but their potential is limited by the difficulties of maintaining quality and consistent supply.
The Vhembe Packhouse is a new innovation by farmers in collaboration with NGOs to support smallholder farmers' access to formal markets. Packhouses allow for bulking, sorting, packaging and labelling in line with procurement standards (such as GlobalGAP certification), often a pre-requisite for participating in formal value chains. The facility is managed by a secondary cooperative. At the time of the survey it was not yet in full operation, and the cooperative members were by-passing it, sending their produce direct to the markets instead. The packhouse does not have strong business model to serve as a market intermediary for its owwer and surrounding community. The packhouse has neither a coordination mechanism (e.g out-grower model) nor an off-take contract crucial for playing its market intermediary roles. A revised business model, focussed on securing upstream and downstream links, coupled with an out-grower model, might change the fortunes of this initiative, but at present the project's failure to open markets for smallholder farmers make it an unlikely model for policymakers to adopt.
Despite the significant role of informal markets, government has no policies or programmes to enhance smallholder capacities to supply these markets. The PLAAS study suggests that informal markets channels (roadside and farm gate) should not be overlooked by policy makers and development practitioners. Informal markets can play an important role in the rural population with respect to enterprise development, job creation, food security and income generation.
The study also revealed growing support from supermarkets for local procurement models. Local packhouse–smallholder farmer co-operatives, have the potential to offer local supermarkets easy, co-ordinated access to smallholder produce.
However, the PLAAS study showed that it is not enough to invest in building packhouse infrastructure and supporting formal market certification. Government support for smallholder farmers must also include:
- training, focused on developing viable business models (which link upstream and downstream processes) and financial management;
- facilitating or providing, financial investment in cooperatives until such time as they become going concerns; and
- finding ways to support smallholder farmer efforts by developing alternative fresh produce markets.
The Department of Agriculture, Forestry and Fishers (DAFF), the Department of Trade and Industry (DTI), and the Sector Education and Training Authority (SETA) now recognise support systems for smallholders are needed, but so far their efforts in this direction have been weak and ineffective. Smallholder farmers are struggling to find production and marketing support in ways that are appropriately aligned with their production systems and capacities. While value chain integration is indeed complex, given that different smallholder farmers aim to produce for different market segments, the current failures of support systems are not due primarily to a lack of knowledge about what needs to be done, but rather because of insufficient action on the ground, and little ongoing support for processes - not just infrastructure.
 The definition for smallholder farmers in South Africa is highly contested in both the political and academic circles. Definitions include a long continuum of farmer types, ranging from rural land holders to small-scale commercial farmers. In some circles the terms 'smallholder farmers', 'communal farmers', 'emerging farmers' and 'black farmers' are treated as synonyms. Definitional issues are also aggravated by a lack of data available enumerating this sub-population, despite their importance in the country’s food ecosystem. This group has largely been marginalised in the mainstream economy, suffering from 'double-barrelled exclusion': first, excluded by the past regimes along racial lines, and now excluded by market forces.