The marketing system

When Jan van Riebeeck landed in the Cape on the 6th April 1652, one of the first priorities was to establish a vegetable industry to provide passing ships with fresh produce.  It was not until the 19th century, with the discovery of gold and diamonds, that the vegetable industry started to develop and expand into the main land. At one stage during 1972, there were 100 municipal markets with a total turnover of R80 million, however, 23 of the 100 handled 98 % of the turnover.  Currently there are 15 national fresh produce markets namely:

• Bloemfontein
• Cape Town
• Durban
• East London
• Johannesburg
• Kimberley
• Klerksdorp
• Pietermaritzburg
• Port Elizabeth
• Pretoria
• Springs
• Uitenhage
• Vereeniging
• Welkom
• Witbank

In the 17th century, the VOC determined the price of fresh produce but this became a problem during periods of over production.  Later municipalities developed their own set of rules of how produce are sold.  It was only in 1925 that the Auction Act was passed in order to ensure better structure to the whole system.  The auction system operated on supply and demand which determined prices.  There were no grading standards or packaging standards implemented neither was there a law which forced agents to grade or pack produce.  The auction system had certain flaws.  A reserve price was established in order to obtain higher prices and to prevent a collapse in the market.  This led to the sale of bulk lots and drove the smaller agents and buyers out of the markets.  The creation of a separate section to lure smaller buyers only created irregularities whereby certain individuals were favoured by selling to them at lower prices.  Some markets became to large and the auction system was difficult to implement.  The time between auctions also wasted buyers time.  Quite often buyers had deadlines or had to travel far in order to sell their goods and then had to wait until their goods were auctioned. Quite often the auctioneers were to inexperienced to handle the large quantities of goods and many buyers were unhappy with them.

Street, “out of hand” or “open marketing” sales started to compete with the auction system since the price was on average lower and buyers could buy without any delay.  Any product could be bought at any time of the day.  Cape Town market was the first market to abandon the Auction System and adapt to the open market method of sales. The open market system was completely open to all sellers and buyers no matter how big or small.  Buyers could buy small quantities or only one box. Sellers could sell large amounts or only one box.  The was no price fixing and price was determined by supply and demand.  Sellers, or growers, could sell their produce to one agent or more and buyers could buy their produce from one agent or more.  Each agent received 5-7.5% of the value of the produce sold from the seller and the market received 5% from the seller.  Before the grower or seller received his money, the commissions (a total of 12.5%) was deducted.

However, it did not go without the strict control of the market master over stocks, sales and method of payments.  The market had to ensure that the producers should have absolute surety that they will receive their money otherwise the market system would fail.

It was only in 1972 that the basic system in which produce had to be graded and standard packaging used, that the open market system started to work properly and is also the current system as we know it. The basic routes through which produce can be sold is presented in the figure below. The thick arrows indicate the most used routes of sale while the thin lines present less used methods of sale

Schematic presentation of the distribution structure for unprocessed fresh fruit and vegetables in South Africa (Marx, S, 1991).

The distribution of produce is an important development in the vegetable industry.  In the early days before the establishment of major markets in the main cities, producers took their produce to the town markets or town centres where it was sold on a weekly basis.  As the population grew, the demand of produce increased in the big cities and prices became more lucrative.  Many of the vegetable growers were far from these large city markets and had to rely on other transport mechanisms which were cheaper.  The larger markets allowed for more volume to be sold and could pay for the transport cost.  A grower had two options, i.e. road transport or rail transport.  Initially rail transport was cheaper but there was no direct link to the main markets and produce had to be offloaded and reloaded into trucks and brought to the market.  This meant handling the produce twice which increased cost and decreased quality of the produce.  The first markets to cater for direct train links were Johannesburg, Durban and Cape Town markets.

Rail had its fair share of problems.  They are not as flexible as road transport.  A truck could leave a site as soon as it was loaded but trains had to wait until the rail was free and had to adhere to schedules.  Transport of highly perishables such as leafy crops were transported on roads and directly to retailers during hot summer months.  During colder months it was possible to transport these perishables with rail to the markets.

With the development of refrigerated transport, rail transport of perishables such as vegetables, declined.  Currently road transport accounts for up to 95 % of all vegetable transport.

From the table below it can be seen there are many areas to which the producer can sell his produce. Many farmers sell directly of the farm, however, this does not guarantee a good price. Direct sales are usually fruit farmers and they sell a very small portion of their produce through small shops that are situated next to the roads

In the USA there is no fresh produce markets to which one can go and buy fresh produce.  There might be some smaller markets but they are not the main sources of vegetables.  The USA uses a brokerage system.  A brokerage system consists of fresh produce brokers which supply all the main stores and other markets with produce.  So if a chain store requires fresh produce, they would not go to a market but they will contact a broker, negotiate a price and conclude the sale.  The broker receives a percentage of the total value of the sale from both the seller (producer) and purchaser(buyer or store owner).  The commission varies between 2 % and 5 % depending on the amount involved.  After the sale the broker then contacts the producer and lets him know what and how much produce he must deliver at a certain place.

The brokerage system is a much more efficient system than the central marketing system.  It allows for more equal competition between large and small producers.  In the current system the large producers are favoured over the smaller producers.  The disadvantage is that you cannot view the produce initially before you buy.  So it is important to know you producers and broker to ensure that you get what you are paying for.