NATIONAL DEPARTMENT OF AGRICULTURE

DIRECTORATE: MARKETING

NORMS AND STANDARDS FOR THE ESTABLISHMENT OF AGRICULTURAL MARKETING INFRASTRUCTURE

MARCH 2005

1

TABLE OF CONTENTS

Page

1. Introduction 2

2. Definition of marketing infrastructure 7

3. The status of agricultural marketing infrastructure 8

3.1 Findings from the study 10

4. Objectives of the report on norms and standards 13

5. Motivation 13

6. Recommended norms and standards 14

7. Need analysis: Checklist 19

8. Risk management strategy 20

9. Future action 21

10. Recommendations to DEXCO 22

11. Annexure A: Summary norms and standards 23

2

1. INTRODUCTION

Starting in the 1980's, many countries in Sub-Saharan Africa adopted structural adjustment programs to reform their economies in order to reverse declining income growth rates. During that period, agricultural markets played a key role in the liberalization and reform efforts of agrarian economies. Despite some improvement in some commodity prices, agricultural production in sub-Saharan Africa is still stagnant. The limited supply response to liberalization is mainly due to severe structural and institutional constraints that were neglected during these reforms. The constraints included poor roads infrastructure, communication and marketing infrastructure, lack of storage facilities, weak provisions of rural services such as rural credit, market information, research, extension, marketing skills and entrepreneurship development programs.

Rural services, including infrastructure, are necessary components for the development of markets and achievement of food security in rural areas. Rural services are needed to improve access of small farmers to input and output markets where they can purchase the appropriate farm inputs and sell their surplus outputs. Access to markets in turn improves the ability of resource poor farmers to increase their productivity, generate cash income, and improve household and local food security

Agricultural policy changes initiated by the S.A Government post 1994 resulted in the transformation of agricultural markets from a highly regulated to an essentially free marketing dispensation. Deregulation of agricultural markets was intended to align the agricultural marketing environment to Government’s broad economic policies, which favor free markets and encourage an economic environment that promotes the development of small and medium size businesses alongside big business. The new dispensation aims to meet the objectives of increasing market access for all market participants, marketing efficiency, optimization of export earnings and the enhancement of viability of the agricultural sector and the related agricultural marketing value chains.

Since then, there has been a significant positive response to deregulation by farmers, traders, processors and other service providers along the agricultural marketing chains for most commodities. Deregulation has therefore created many opportunities

3

and resulted in phenomenal increase in the number of new entrepreneurs participating in different nodes of agricultural marketing value chains, ranging from production, processing, trading and provision of supplementary marketing services. The deregulated environment did however not broadly open marketing opportunities for resource poor farmers in terms of meaningful participation in mainstream agricultural markets. A range of market access challenges ranging from access to marketing information, marketing infrastructure, marketing skills training and others have been isolated as key impediments for equitable market access.

At the outset, it should be stated that a liberalized and deregulated sector does NOT mean NO government involvement in agricultural marketing, hence the Marketing of Agricultural Products Act, No 47 of 1996. The contrary is rather true – government has now, more than ever, an important duty to perform to ensure equitable and well functioning and competitive agricultural markets and therefore market access support to the agrarian reform beneficiaries is critical. It goes without saying that government enforceable laws, rules regulations and guiding principle are essential to any agricultural marketing system. Government has thus an important duty to create the enabling environment for an efficient marketing system for the agricultural sector as a whole. In South Africa, the agricultural sector has the additional challenge to integrate disadvantaged communities into the commercial agricultural marketing value chains. The issue of improving market access for these communities is therefore continuously being raised as a burning issue and is also one of the main objectives of the marketing act and the Strategic Plan for the South African Agriculture. This issue was further highlighted in the White Paper on Agriculture as well as the BATAT report.

Market access is however a loaded term and can easily be considered as a simple issue. When the problem of market access is analyzed it becomes clear that it is the result of a long list of difficulties faced by the farmer ranging from producing a product of the right quality that is acceptable to the market to the physical aspects such as access to marketing infrastructure, information etc. Government can tackle some of these problems while others may require an initiative by the farmer in question. There are a number of strictly public interventions that can also assist in facilitating market access. These include, provision of communal marketing infrastructure, marketing information (on prices, markets, buyers, grades, processors,

4

transporters, etc), extension advice (on technical production issues, quality requirements and financial and market knowledge) and research. It should also be remembered that farmers’ ability to sell is largely determined by the ‘cost’ of selling, normally referred to as transaction costs. The higher the transaction costs the less likely it becomes for farmers to engage in profitable and competitive agricultural marketing activities. Some of the public interventions can go a long way in reducing some of these costs as well as reducing marketing risks. High unit costs (or transaction costs) of getting products to the market lead to low farm prices and is caused by low volumes, long distances to the markets, poor infrastructure, poor products quality, marketing at the wrong time, poor contacts, etc. All of these could inhibit market access. Investigating the causes of poor market access is one thing but actually structuring government programmes to address the root causes behind the symptoms is another broad challenge.

An efficient and adequate marketing system is a precondition for agricultural diversification, providing better prices to producers and the availability of competitively priced produce to consumers. Physical market access improvement is usually addressed in two ways: by providing improved marketing infrastructure and by improving rural access roads. In the case of markets, it is usual to place the main emphasis on the improvement of grains and fresh produce marketing (fruit, vegetables, and meat), focusing primarily on rural assembly markets and urban wholesale or semi-wholesale markets purely due to their food security importance.

A high level of post-harvest losses of crops, both in the field and during storage and marketing, is often a priority problem. Post-harvest research organizations usually emphasize food technology and post-harvest management (processing, preservation, handling, storage, marketing, loss reduction and harvest maturity) of farm products and by-products, but such activities are not always strongly linked to the needs of the sector. A marketing infrastructure programme will influence the direction of such research in order to address specific post-harvest issues, particularly:

• the requirements for new extension training programmes;

• utilization of resistant varieties with long shelf lives,

5

• improved on-farm processing and storage;

• improved packaging, handling and transportation methods; and

• improved operational procedures at pack-house and market level.

In many instances agricultural produce from resource poor farmers is either loaded loose in trucks or packed in unsuitable packaging, which may inevitably contribute to the quality degeneration eventually leading to low prices (incomes). Marketing infrastructure improvements should also include the promotion of an improved packaging system. This is another area for further research to develop transport strategies to move produce from point of production to markets.

Interventions possible in a marketing system are largely determined by the regulatory framework for marketing. The need for a regulatory framework therefore heightens the important role of municipalities in facilitating the establishment of marketing infrastructure. However, the legal context for municipalities to develop agricultural marketing infrastructure may also be lacking and this could compromise the development of the required agricultural marketing infrastructure. This may further have a direct impact on the market design if new institutional arrangements are to be assumed as the basis for operating the market. It is therefore necessary that municipalities become part of the agricultural development plan.

Marketing infrastructure developments must be seen within their policy context in order that their basic purpose and function can be examined rationally. The main justification for infrastructure development is to provide a suitable environment for more effective agricultural marketing. To understand this process, the marketing infrastructure development needs to be placed within the overall agricultural development policy framework. Typical marketing policies and means to achieve them, that could have an impact on a development project include:

• clarifying the role of the state and other players in the establishment of markets and marketing infrastructure within the integrated development plan approach,

• encouraging farmers’ groups and cooperatives in producing and marketing higher value crops;

6

• encouraging farmers’ groups and cooperatives in producing products required by the markets (market driven production),

• establishing and/or upgrading rural markets to reduce post-harvest losses and to improve handling;

• improving access to market facilities by:

o increasing the density of rural markets so that the average distance of farmers to market facilities is reduced;

o facilitating construction of a network of wholesale and retail markets, possibly in collaboration with the private sector;

• encouraging the processing and trade in value added agricultural products;

• establishing an effective market information service to promote trading;

• enhancing the revenue-earning base of local rural economies; and

• enhancing the capacity of communities and resource poor farmers and entrepreneurs to operate and maintain marketing infrastructure.

In South Africa, cooperating parties in the establishment of agricultural marketing infrastructure should include the following:

• Department of Agriculture [all relevant units] and all provincial counterparts,

• Research organizations,

• Standards Organization e.g., PPECB

• Municipalities and District/Provincial Authorities,

• Export Councils and Trade Organizations,

o Farmers’ associations,

o Representatives of private-sector trading interests,

o Other key stakeholders

7

2. AGRICULTURAL MARKETING INFRASTRUCTURE DEFINED

Agricultural marketing infrastructure is generally defined as any facility/tool that could be used by farmers and traders to achieve the following:

• Facilitate trade, an exchange of agricultural inputs and outputs for money;

• Facilitate the transformation of raw agricultural products into value added products through processing and packaging;

• Storage of agricultural products to smooth out supply and fulfill demand;

• Transport agricultural products to satisfy demand;

• Collect, collate, synthesize and disseminate agricultural market related information

Provision of marketing infrastructure should take cognizance of all problematic issues along the value chain, especially production related problems (quality, quantity, etc). Among other things marketing infrastructure includes the following:

• Storage units, including cold storage and regular ambient storage, ripening chambers and ice plants;

• Grading facilities for specific qualities of produce;

• Facilities for washing (cleaning) of fruits and vegetables;

• Communications facilities (telephones, facsimile, internet access, etc.);

• Abattoirs

• Livestock auctioneering facilities,

• Wool shearing, cleaning and grading sheds

• Loading pens / ramps

• Marketing information accumulation and dissemination facilities such as computers, internet, etc and

• Any other facility required by farmers and traders.

8

The coverage of the norms and standards should include the revitalization of run down marketing infrastructure based on feasibility study outcomes.

3. STATUS OF AGRICULTURAL MARKETING INFRASTRUCTURE: A GENERAL PICTURE

Since 1997, South Africa initiated a progressive process aimed at deregulating its agricultural marketing arrangements from an extremely regulated to an essentially free marketing dispensation. The thrust of marketing deregulation in terms of the Marketing of Agricultural Products Act, No 47 of 1996 was to free agricultural marketing from a regulated environment to a free marketing system. Additionally, it sought to meet the objectives of market access for all market participants, improved efficiency, and optimization of export earnings and the enhancement of viability of the overall agricultural sector. Since then, there has been a significant positive response to deregulation by farmers, traders, processors and other service providers along the marketing chains for most commodities. While it has been observed that deregulation created many opportunities and resulted in phenomenal increase in the number of new entrepreneurs participating in different nodes of agricultural marketing value chains, ranging from production, processing, trading and supplementary services, there are still some obvious market access gaps created by either lack of access to marketing infrastructure, lack of access to marketing information and training, etc, The Directorate: Marketing is therefore attempting to soften the impact of these market access barriers by developing norms and standards to facilitate the establishment of agricultural marketing infrastructure.

The following points characterize the status of agricultural marketing infrastructure in South Africa:

Pre and post deregulation, ownership of and access to agricultural marketing infrastructure by black farmers has been a problematic issue,

Since 1997, formerly control boards owned marketing infrastructure have either been privatized or corporatised,

9

Beneficiaries of control boards inherited infrastructure consolidated positions in the market and integrated forwards and backwards – near oligopolies and/or monopolies

There is still excess capacity in some industries marketing infrastructure, e.g. silos,

Access to the mainstream infrastructure by black farmers is still skewed, nil or limited.

The South African Integrated Sustainable Rural Development Strategy (ISRDS) was developed to harmonize all rural development projects and programmes. Agriculture, the mainstay sector in the implementation of the ISRDS has a potential to create a base and backward and forward linkages upon which most economic activities could develop. Resource poor farmers, located in the thirteen (13) targeted rural development nodes of the ISRDS, consistently produce food for household consumption and by chance, some for the local markets.

Underdeveloped and non-existent marketing infrastructure has been identified as one of the major constraints limiting resource poor farmers, located in these areas in accessing formal agricultural markets. Other constraints include lack of access to market information, low volumes and inferior grades of produce. To address these constraints, there is therefore a need to facilitate the formation of commodity cooperative associations that are creative, innovative, and capable to influence policy and establish “win-win” partnerships with other value chain stakeholders. Like many developing countries, South African government is also faced with uncertainties over how to boost resource poor farmers’ productivity and to encourage the growth and deepening of small scale trading and processing enterprises. While some market failures are potentially present in all areas of the countries and sectors of the economy, some may be more severe in rural than in urban areas. It is also against this background that the Directorate: Marketing instituted a comparative study to investigate the level and status of agricultural marketing infrastructure in the Boland district municipality against that available in the Bohlabelo, Zululand, Kalahari-Kgalahadi and Ukhahlamba district municipalities. The Boland district municipality has one of the most developed physical and institutional marketing infrastructure compared to that in Bohlabelo, Zululand, Kalahari-Kgalahadi and Ukhahlamba rural development nodes. The critical mass of the infrastructure prevalent in the Boland district municipality was

10

developed during the years of single channel marketing systems. A more direct intervention is therefore also needed to improve the level of marketing infrastructure in the less developed and poor resource district municipalities. Findings emanating from the investigation provide a basis to understand, plan and develop norms and standards for marketing infrastructure needed to improve market access for previously marginalized farmers.

3.1 Findings from the marketing infrastructure assessment study

Production constraints

Farmers in the development nodes are heavily constrained by a range of factors including limited access to finance, commercially viable land, capital, technical and business skills. Farming in the rural development nodes is mostly done on communal land, whilst production in the Boland is done in private property under well-developed farming systems.

Integrated production and marketing support are therefore required to uplift farmers in the rural development nodes to ensure that production responds to market requirements. CASP has therefore been introduced to provide the required integrated support. It however needs to be expanded to cover marketing infrastructure support.

Quality and quantity of products

Inadequate means of production experienced by resource poor farmers located in the rural development nodes impact directly on lesser volumes and often less than acceptable grades of agricultural produce. This in itself is a limitation on accessing mainstream agricultural markets. In addressing this limitation, a cooperative approach in training on the market access quality standards is required. Cooperative marketing arrangements could also be considered to address the low volume problem.

Unavailable and/ or Inappropriate farmer support services

Farmer support services in rural development nodes are generally limited to government extension services and to a lesser extent, support activities of commodity organizations such as Grain South Africa, the

11

National Woolgrowers’ Association and the National Emergent Red Meat Producers Organization. Support given to farmers is often very fragmented and uncoordinated, synergy is visibly absent, and the required impact is very little. Well integrated and coordinated farmer support services should be established in the rural development nodes. This could take the form of agricultural support and marketing cooperatives.

Pricing of agricultural products

The bulk of commodities produced in Boland normally go through pack houses and/or processing for grading and quality assurance. This process facilitates price determination. In the rural development nodes where marketing of agricultural products is informal, the pricing mechanism has minimal or no links with grading and quality standards. Resource poor farmers are not aware that speculator, traders and other buyers take into account grades and benchmark market prices when purchasing agricultural products. There is therefore a need for skills development in grading and maintenance of quality standards.

Market access

Resource poor farmers are in many instances constrained by a lack of appropriate outlets for their products. These farmers are unable to access the major fresh produce markets for example due to distance.

An alternative to these marketing structures could be to start informal one-day markets in areas where farmers are far from markets. This will create an opportunity to invite buyers and agents to buy and collect produce at predetermined times at central points. Coordination on the development of these alternative markets by provinces is therefore critical.

Access to markets and marketing Information

All farmers are interested in information on products prices, price trends and buyers for their products. Generally, commercial farmers are capable of sourcing price and buyer information from websites,

12

publications and commodity associations whereas resource poor farmers rely on other farmers and government extension staff for the same information. There is therefore, a great need to make information available to resource poor farmers at the right time and place.

In response to this challenge, the Department is developing an integrated agricultural marketing information system that will be linked to government’ s Gateway program and the Local Multipurpose Community Centers (MPCC’s) network to disseminate marketing information. The use of cell phones through SMS messages, radios, television, and newspapers have been identified and being tested as alternative tools that could be used to disseminate market information even to the most remote areas.

Distribution of agriculture products

The Boland has appropriate facilities and infrastructure (storage, transportation, processing, road network and communication) that is necessary to facilitate distribution of agricultural products from the farm gate to various markets. Transport and storage facilities are accessible, as farmers own the facilities. Farmers in the area generally have a choice on market outlets they would like to supply. The opposite situation prevails in the rural development nodes. Road networks are underdeveloped and inaccessible. Because of their barriers to reach formal markets, farmers in the rural development node are forced to only supply local communities at uncompetitive prices.

Local transport operators should be linked with big transport companies at determined posts during specified times to transport produce to larger markets. A transport strategy will therefore have to be developed to adequately address the problem. A linkage with the National Freight Logistics and the Agro-Logistics Task Teams has already been established around the revitalization of the rail transport.

Promotion of agricultural products

The investigation revealed that most farmers in the Boland are aggressively involved in product promotion through their organized structures and institutions like farmers’ cooperatives, commodity associations and private companies through attending trade fairs, particularly for export promotion.

13

The existences of such structures not only create opportunities to market and promote products, but also create a platform for accessing information and net working.

4. OBJECTIVE(S)

The overall objective of this paper is to develop norms and standards (policy framework) aimed at facilitating the establishment of agricultural marketing infrastructure in the rural development nodes. The targeted beneficiaries are the LRAD and agrarian reform beneficiaries.

5. MOTIVATION

The Broadening of Access to Agricultural Thrust (BATAT) report and the White Paper on Agriculture (1995) identified agricultural marketing infrastructure in the rural areas as one of the missing links to facilitate market access by the resource poor farmers. The study commissioned by the Directorate to investigate the status of agricultural marketing infrastructure in the rural development nodes also identified agricultural marketing infrastructure as one of the critical barriers limiting access to mainstream markets by resource poor farmers. The report on the study and the proposed norms and standards were circulated to all Provincial Departments of Agriculture for comments and extensive comments were received and factored into the report. The proposed norms and standards were further presented to the Agricultural Economics Working Committee of ITCA, the 10 x 10 Forum comprised of Provincial Departments of Agriculture and their Treasuries together with the Department of Agriculture and the National Treasury. It was further presented to the 4 x 4 Technical Team where Heads of Departments requested that the report be circulated to them for comment. The report and proposed norms and standards were also presented to the Agricultural and Sustainable Rural Development Committee (ASRDC) that supported the proposed policy framework. All respondents fully agreed with the findings of the study and provided comments. In addition there was great emphasis on the following;

• A need for a more focused and direct intervention by government in

the support for the establishment of marketing infrastructure. It was

14

generally felt that the Comprehensive Agriculture Support Programme (CASP) principles should also apply as part of the guiding principles in establishing marketing infrastructure. Development of marketing infrastructure should mainly be linked to the prevailing land reform projects to maximize impact

• Consultative and planning meetings should be held with provincial,

municipal and local governing bodies on a regular basis to ensure consistency of the development of local marketing infrastructure with local Integrated Development Plans and priorities

• The roles of the provincial departments of agriculture and local

municipalities in the provision of the marketing infrastructure should be clarified

• Partnerships with all other relevant stakeholders should be

encouraged, • The land redistribution and restitution process should be fast-tracked • Ownership of the marketing infrastructure by local farmers is essential

in addressing issues of theft, neglect and vandalism, which had occurred in the past.

• Mobile infrastructure should in certain circumstances be considered as

a viable option. • Lack of adequate transport is still a big challenge. Strategies to

overcome this impediment should be researched and implemented, • Processing and value adding should be encouraged and required

facilities should be provided where feasibility reports indicate positive results,

6. RECOMMENDED NORMS AND STANDARDS (GUIDELINES)

Based on the study in four rural development nodes and one developed node, literature reviewed and experience gained from Sterkspruit- Ukhahlamba District Municipality, inputs from provinces, the 10 x 10 Forum comprised of Provincial Departments of Agriculture and their Treasuries, together with the national Department of Agriculture and the National Treasury, the 4 x 4 Technical Team, the Agricultural Economics Working Committee of ITCA, and finally,

15

comments from the Agricultural and Sustainable Rural Development Committee (ASRDC), there is a clear need for the Department to facilitate the establishment of the agricultural marketing infrastructure to support the agrarian reform programmes. The following are proposed norms and standards to guide the establishment of agricultural marketing infrastructure in support of the agrarian reform beneficiaries.

6.1 Infrastructure development should be an integral part of and

support the Integrated Development Plans of the provinces and municipalities.

Uncoordinated services rendered by various stakeholders have been identified as barriers to access market. It was therefore recommended that all developmental projects should be brought in line with the integrated development approach (IDP) of each an every province and municipality. Any projects or areas falling outside the IDP should also be given priority provided that they demonstrate a high level of development potential and insufficient marketing infrastructure (the need for the infrastructure).For the purpose of the marketing infrastructure norms and standards, “development potential” means that there is no any other similar infrastructure within a 50 km radius, the infrastructure will be utilized for the whole year and not seasonally or the marketing infrastructure will be utilized for at least 70 percent capacity taking into account breakdowns, product demand and maintenance issues. Marketing infrastructure norms must conform to the broader IDP approach. While recognizing that municipalities and provinces may have different development plans, it is encouraged that all development plans in provinces be synchronized.

6.2 Ownership of marketing facilities by local farmers associations

Previously, marketing infrastructure was provided by the state mainly in the form of farmer cooperatives. As a result, majority of farmers, especially in the former homelands had perceptions that the infrastructure is a governmental property and therefore did not have obligation to maintain it sustainably. The property was as a result widely vandalized and neglected. It is important that local farmer organizations take ownership of the properties. There are a number of good models that could be used to ensure ownership of such

16

infrastructure by local farmers. It is envisaged that once ownership is there, accountability, responsibility, and good decision-making and safekeeping of the infrastructure will be secured. Any infrastructure that is being developed should be established for a legally recognized entity e.g. registered commodity groups as this will ensure a sense of ownership among the members. However, individual small scale farmers should/would be considered under exceptional circumstances. For the purpose of marketing infrastructure norms and standards, an “exceptional circumstance” means that there is no organized commodity group within a reasonable radius (50 km) or it may not be to organize farmers because they may be widely scattered or the farmer is the only one producing that commodity.

6.3. Sustainability issues 6.3.1 Economic viability of marketing infrastructure facilities

Majority of infrastructure provided to communities did not have a convincing plan of how the property/ infrastructure will be optimally utilized. Sustainability will ensure that the property is not underutilized; in that case, feasibility study to ascertain the economic viability of establishing marketing infrastructure at a particular place need to be conducted before commitment on putting up the structure is made. There are number of marketing facilities around the country that are presently underutilized as a result of poor economic planning. It makes economic sense to encourage the formation of partnerships to ensure optimal utilization of idle market infrastructure by all farmers. Where there is a need to put up new marketing infrastructure, a business/ sustainability plan should be submitted by all legal entities that wishes/ or are in need of such property.

6.3.2 Management capacity

Success of the marketing infrastructure depends on the commitment of the management team, management drawn from the farmer cooperative/s should clearly demonstrate capacity to plan, organize, lead, implement, control and monitor activities associated with the use of the marketing infrastructure facilities. Capacity building programmes should be made available to close this gap where necessary before handling over the facility.

17

6.3.3 Technical capacity

Technical staff drawn from the cooperatives should demonstrate expert knowledge of using and maintaining the equipments and marketing infrastructure. Support is usually provided by suppliers and other more established farmers in the industry. For continual use of marketing facilities small farmers need to build relation with established farmers in the form of mentorship program under consideration by the department.

6.3.4 Financial feasibility

Marketing infrastructure and income flows for a group of similar farms participating in the project should be used to assess the financial effects the infrastructure will have on farmer’s cooperatives. The return of marketing infrastructure should be self sufficient for farmer cooperatives to maintain it and to meet financial objectives and such investment should guarantee long term profitability.

6.4 Payment of user fees

Every market has overheads that must be paid to ensure continued operation of the market as well as to cover maintenance costs. Users of marketing facilities will therefore need to pay fees/ levies to cover such costs in order to sustain the services provided by the facilities. The South African Fresh Produce Markets are using a system that could be copied, adjusted and applied to the other markets.

6.5 Auditing of production volumes and potential

Before marketing infrastructure is put in place, it is recommended that the number of farmers and their production potential is assessed. Production potential should justify the expenditure of setting up marketing infrastructure. This must be justified in the business plan.

6.6 Multi-functionality of marketing infrastructure facilities

It is imperative that the infrastructure be multifunctional and utilized optimally throughout the year. Either than serving as storage and processing centers, the facility could also serve as a farmer support center accessible by all farmers. The objective for the establishment of such a facility should, for example, be to enable farmers to buy

18

farming inputs, conduct marketing activities and assist farmers to access finance and conduct training sessions. The center should be developed so that it becomes a focal point for all farming activities. Marketing infrastructure facilities should be linked to the primary, secondary and tertiary sectors of the commodity value chain. Emerging farmers fetch minimal prices for their produce usually because they do not grade and package the produce for the formal markets. Support from other units within the Department need to be mobilized to enhance support. A deliberate attempt should be made to facilitate market access through Black Economic Empowerment that should be addressed by food processors, major retailers and others. The Directorate can through the Black Economic Empowerment strategy facilitate the process of linking land reform projects with major processors and buyers on a national level.

6.7 Compliance with Product Standards legislation

Product standard act provides for control over the sale and export of certain agricultural products and other related products, with a view to the maintenance of certain standards regarding the quality of products and packaging, marking and labeling thereof. It is important that all products channeled through the marketing infrastructure facilities comply with the products standards legislation so that they are competitive in the market place. Compliance with the Products standards legislation ensures that the marginalized farmers participate effectively in mainstream markets.

6.8 Affiliation to commodity associations

To enable the department to deal with a group of farmers rather than service individuals, a cooperative approach should be encouraged and adopted. Local farmer associations must also be encouraged to form or be part of large commodity and lobby organizations. It is proposed that in certain exception circumstances, direct support be provided to individual entrepreneurs on farm.

19

6.9 Demand led approach

The establishment of agricultural marketing infrastructure will be demand driven and justified by the production environment of farmers as per the norms or guidelines. Government will however still intervene where production and marketing potential command the establishment of marketing infrastructure (supply led intervention).

6.10 Avoid investment duplication

The new infrastructure should not duplicate what is already available in the area within a reasonable radius.

6.11 Infrastructure support should be linked to production support.

The establishment of marketing infrastructure should be linked to primary production support currently provided by CASP. This approach will ensure an integration of support measures down the agricultural production and marketing value chain, consistent with the IDP principle.

7. NEED ANALYSIS

In addition to the above guidelines, the cooperating authorities in the establishment of marketing infrastructure should first consider the following general issues before mobilizing resources and establishing the infrastructure (checklist):

• Are there existing marketing problems which suggest the need for a new or improved market? If not, what evidence is there that the development is required?

• Should the project rebuild an existing market(s) or relocate to another site?

• Have the market users or directly affected groups been fully consulted in formulating the project?

• What is the ideal location for the market and how will the market relate to the whole system of markets?

• What factors should be considered in site selection and site planning?

20

• What are the main design (planning and infrastructure) issues?

• What are the management and institutional factors that should be considered?

• What other basic information is needed for deciding on whether to proceed with the investment?

• What is the market’s existing throughput and what could be the market’s future throughput?

• How large should the market be and what facilities should the market contain (such as type and size of stalls)?

• What are the next steps to consider before proceeding with detailed studies?

• Will the market operate daily, weekly or seasonally?

• Will it be possible to recover all or part of the costs?

• How should the project deal with special needs, such as livestock and dry goods sales?

• Are the marketing channels for the assembly of produce understood?

o Will the market only trade seasonally and what will the facilities be used for in the off-season?

8. RISK MANAGEMENT STRATEGY

For norms and standards to be effective, the Department should also address the risks associated with the provision of agricultural marketing infrastructure because they may destroy the overall objective of providing the long-term, sustainable marketing infrastructure to the needy communities. In implementing the above recommended norms and standards, the following risk aspects should be considered: Risks such as the sale of infrastructure, theft, damage or destruction, and the underutilization of infrastructure. In addition, response or control plans on how to deal with risks are proposed to address or minimize the risk effects.

21

a) Sale of marketing infrastructure

To avoid generating proceeds by selling the marketing infrastructure, individual farmers should take ownership of marketing infrastructure after a certain period [e.g. I year, 3 years or 5 years.]

b) Damage of marketing infrastructure

The marketing infrastructure can be damaged by various factors, namely: natural disasters (storms, floods); fire; war and violence, non-maintenance. In this case the infrastructure can be re-build with Government assistance provided the cause of damaged could be established and that the cause of damage was beyond control of farmer or the farmer/ groups tried to avert the damage. However, damaged due to non-maintenance should not be considered.

c) Theft

There is possibility that part or the entire marketing infrastructure may be stolen. The beneficiaries should take responsibility for the security or ensure that they will be able to provide security on the infrastructure. An asset or inventory control register should be used when the asset is moved or maintained. Failing which, ownership of marketing infrastructure can not pass to the farmer /groups. This could also be used against the farmer in case they need further marketing support.

d) Idling/Under-utilization of marketing infrastructure

There is a possibility that the infrastructure may be under-utilized for various reasons such as the change in the demand patterns of commodity. In this case, the Provincial Department or municipal should be notified in writing indicating the under-utilization problem, causes and how they intend to deal with it.

9. FUTURE COURSE OF ACTION

There is a clear need for the Directorate to facilitate development of the much-needed market infrastructure, especially in the less

22

developed areas of the country. To take the process forward the Directorate recommends the following;

• Presentation of the proposed norms and standards to DEXCO for

consideration and approval as policy guidelines towards supporting the establishment of agricultural marketing infrastructure,

• Inclusion of the recommended norms and standards to form an integral part of the CASP document,

• Application of the norms and standards influence the allocation of Form part of the CASP process for implementation.

10. RECOMMENDATION It is recommended that the National Department of Agriculture adopts

the proposed norms and standard (guidelines) as a policy framework to facilitate the establishment of marketing infrastructure in the targeted rural development and urban renewal nodes to support the agrarian reform beneficiaries. It is further recommended that these principles apply to the current CASP programme as well as to other programmes beyond the term of CASP.

ANNEXURE A SUMMARISED NORMS AND STANDARDS FOR THE ESTABLISHMENT OF AGRICULTURAL MARKETING INFRASTRUCTURE IN RURAL AND URBAN AREAS: [To be read in conjunction with the concept paper] 1. Definitions

A norm is a generally accepted standard that is required to achieve an actual normal situation. A standard is the level of qualities required that would be set according to norms (qualifies the norm) (Definitions adapted from the Oxford English Dictionary) Table 1: NORMS AND STANDARDS REGARDING THE ESTABLISHMENT OF MARKETING INFRASTRUCTURE Proposed norms (numbers as per the main document).

NORMS STANDARD

6.1

The provision of marketing infrastructure should be in line with the development projects in the provinces and municipalities. The establishment of marketing infrastructure in any project or area falling outside the IDP should be considered but under certain conditions.

For the marketing infrastructure to be given priority, it should

form part of the Integrated Development Plan (IDP).

The project or area must demonstrate (that)

There is a high level of development potential There is high level of insufficient marketing infrastructure.

“Development potential’ means

There is no any other similar infrastructure within a 50 KM radius

The infrastructure will be utilized for the whole year not seasonally.

Marketing infrastructure will be utilized for at least 70% capacity taking into account breakdown e.g. product demand and maintenance issues.

6.2.1 6.2.2

Local farmers association should take ownership of marketing infrastructure.

The Association must be legally registered Associated Farmers should be from historical disadvantaged

community or agrarian reform beneficiary. The circumstances of individual farmers must be in such way

24

Proposed norms (numbers as per the main document).

NORMS STANDARD

Individual farmers should be considered under exceptional circumstances.

that: -there is no organized commodity group within a 50 KM radius or -may not be able to organize other farmers or -the farmer is the only one producing that commodity/product.

6.3 The marketing infrastructure must

be utilized on a sustainable basis.

For marketing infrastructure to be sustainable: It must be economically viable There must be management capacity It must be technically feasible

6.4 Users of marketing infrastructure

must maintain the marketing infrastructure facilities.

The users must pay fees/levies to cover infrastructure maintenance, operational and other related costs.

6.5

Before the marketing infrastructure is put in place, information on production and marketing related issues should be audited/assessed

Assessment must include : Area under production Number of farmers Production volume/ livestock numbers Production potential Marketing potential (demand and supply information)

6.6

The marketing infrastructure facilities must be utilized optimally.

• The facilities must be used throughout the year. • If the facility can not be utilized throughout the year,

o it must be multifunctional in that it must be able to be used for other marketing related activities. For example as a processing centre, it could also be used for conducting training session, providing marketing information and advice, etc.

6.7

All products channeled through the marketing infrastructure facilities should comply with the Products Standard Legislation-Agricultural Products Standards Act, 1990(Act No 119 of 1990).

The products should meet quality, packaging, marking, and labeling requirements as published by the Department of Agriculture: Directorate: South African Agricultural Food Quarantine Service.

6.8 Farmers should be organized as a Farmer should either belong to

25

Proposed norms (numbers as per the main document).

NORMS STANDARD

commodity or producer group/association.

a local farmer association or large commodity organization or lobby organization

6.9

The infrastructure must pass the ‘need’ test

Infrastructure must meet the following requirements • The infrastructure must be demand or supply driven • It must be justified by production environment of farmers • There must be no duplication of investment • Infrastructure support should be linked to production support