Presentation:

Parliamentary Portfolio Committee:Trade & Industry

- Revised IPAP: 2010/11 to 2012/13 -

S A Fruit & Vegetable Canning Industry

05 March 2010

Introduction:

Opening & Welcome

Industry Delegation:Rudi Richards : SAFVCA / “PPP”RepresentativeJill Atwood-Palm : SAFVCA / “PPP”RepresentativeGafieldien Benjamin : FAWU / “PPP” RepresentativeNassos Martalas : Langeberg & Ashton FoodsGerhard Kotze : Rhodes Foods

Open to QuestionsRequest to reserve these to end of presentation

- Rurally-based

- Agro-Processing

National Body

Pineapples

Vegetables

Tomatoes

Other Fruit

Industry: General Profile

Geographically spread, but

mostly up North

Deciduous

Industry SizeSize of Industry: R 5.0 bn

Fruit: Export Value: R 1.5 bn

Strongly export-driven:Especially fruit, 85% of SA production exportedSA accounts for approx. 7% of World Export Fruit

Our Competitive Advantage

• Well-established Industry

• Reliable Supply & Quality of Fruit & Vegetables

• Strong Manufacturing Capability/World Class Standards

• Experienced Exporters with proven track record

• Premium Quality Products

• Highly Nutritional Products (fully backed by scientific research)

• Partnership with Stakeholders across Value Chain

“PPP” Fruit Canning Initiative

… to create a sustainable platform for the long-term growth and competitiveness of

the industry

… to create a sustainable platform for the long-term growth and competitiveness of

the industry

“PPP” Fruit Canning InitiativeOrigin:

DTI commissioned independent Value Chain Study (NPI)

Recommendations to address hardships in industry

Formed basis of “PPP” Business Plan

Under the guidance of Minister Dr Rob Davies & DTI Officials, evolved into “PPP” Fruit Canning Initiative

Trans-formation Marketing

Market Access Competitive-

ness

Fruit Canning Initiative Business

Plan

“PPP” Main Pillars ….

Address the shaping for appropriate Industrial Policy

Our Basis for IPAP InclusionResearch Basis: UCT Study: Prof. Don Ross +On-going interaction between DTI/Industry Inclusion on initial & revised IPAP:

Key Research Findings:

Worthy recipient for industrial policy intervention

Concrete basis with sound proposals: Viewed as a good starting point to addressing Agro- Processing as a whole within IPAP

Our Basis for IPAP InclusionBUT “trapped in a timing accident” by major temporarymacro-economic challenges

Unfavourable market conditions as a result of global crisisExport-unfriendly Exchange Rate: Strong & VolatileUneven Playing fields: Inequitable market access / unfair subsidiesAdverse Input Cost pressures

Impact: “Waiting-to-Build” climate Under-investmentShort-Term “trap” could result in negative long-term effects

NEED: Industrial Policy interventionPositive signal to stakeholders & potential investors = Growth indicator

Government:- the dti- Provincial

Government:- the dti- Provincial

Business:- Canners- Growers- Can Makers

Business:- Canners- Growers- Can Makers

Labour:- FAWU

Labour:- FAWU

Community-Formal Structures-Informal Structures

Community-Formal Structures-Informal Structures

Leadership Group

Leadership Group

SAFVCA

The Industry Partnership …

Representative of all key stakeholders within the Value

Chain

Role of Labour and Community within “PPP” and IPAP

Socio-Economic ProfileKey Indicators:

11,000 factory workers (with a wage Bill of close to R 500m)

> 500 administrative employees

Employed at more than 30 factories situated in rural areas

17,000 farm workers

Employed at more than 1,500 farms supplying the industry

Supports more than 120,000 dependants

Socio-Economic ProfileRole of the Industry in the Socio-Economic context:

Main employer in most rural areas (in small towns/surrounds)

Labour intensive environmentCreating Jobs & Employment OpportunitiesUplifting Skills: Higher Skills level required within factories

Beneficiated Agriculture

Providing Value-Added Products in Agro-ProcessingSector

Providing Food Security

Contributing significantly to Rural Development

Providing Community Upliftment

Contributing to Transformation Objectives

Socio-Economic ProfileImpact:

Absence of an enabling environment could result in job losses & impact adversely on the already flailing agricultural sector and struggling rural communities

NEED: Industrial Policy intervention:Stimulate job creation and uplift ruralcommunities (including interim relief to protect jobs in the short term)

Role of Labour:Avoid impact & support industry’s drive for Industrial Policy Intervention

Enabling Environment …

Geared to create an Enabling

Environme nt

Benefit of IPAP to the

Industry

Sustainable Platform

GROWTH

Current State: Disabling

Environment– Under serious

threat

Short Term

Long Term

IPAP Interventions … Critical!!!

Market Access

Uneven Playing FieldsImprovement of access into key established markets i.e. EU (TDCA / EPA) – SA product into EUNon-reciprocal treatment – EU products duty-free into SAImprovement of access ito EFTA (Mid-Term Review)Urgency & action of competitors (e.g. Chile) into major trading blocs & key markets

Unfair PracticesElimination of subsidies of competitors

IPAP Interventions … Critical!!!

Market Access

Other OpportunitiesPreferential access into emerging geographies i.e. China / IndiaOther key geographies e.g. Japan, Korea, AGOA, Mercusor, SADC

Protection of Domestic MarketBlock uncontrolled, illegal and subsidised imports from entering the domestic marketImproved import controls and inspections

Exchange Rate:Strength & Volatility: Uncompetitive exportsForex levels does not reflect the inflation differentialNEED: Appropriate Rate of Exchange Policy to support the growth of exports for existing and new exporters

IPAP Interventions … Critical!!!

Improving the Regulatory Framework

Establishment of National Food Control AgencyOvercome “fragmented” structure (including obsolete regulations)Improve controls over both exports and importsConsolidation of Food Safety, Ethical and Quality Audits

Zero-Rating of VAT on Canned Fruit & Vegetable ProductsEliminate unfair treatment of canned fruit & vegetablesFresh produce (incl. Frozen Vegetables) currently zero-ratedSpecial case for Baked Beans: Highly nutritional product; Rich source of protein; Purchased largely by lower income groupsSame argument for “Canned Pilchards” – currently zero-rated

Sugar IndustrySugar Act: Unintended consequences on downstream usersUncompetitive disadvantage to industry

IPAP Interventions … Other

IPAP Interventions … OtherTinplate / Can Manufacturing Industry

Structure of Industry: Negative Impact on downstream usersTinplate = Monopolistic (100%); Can Maker = Super-Dominant Player (88%)Unfair pricing structure : DTI referral to Competitions Commission

10.54

6.386.78 7.06

8.36 8.317.55

8.46 8.65

9.83

11.211.64

17.47

6.46

8.61

6.056.61

7.58 8.46

7.366.96

6.056.6

8.46

5

7

9

11

13

15

17

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

ROE Can Inflation

Improving Competitiveness / Reducing Costs

Cost of ServicesReliable supply & competitively priced services e.g. electricity, water, effluent disposal

Improved Logistics & InfrastructureReduction of costs: Land / Rail

Appropriate Industrial Upgrading Assistance Scheme

Improve factory efficiencies, competitiveness & technologies

“Tree Pull & Plant” SchemePlanting of more profitable fruit varieties with better yields &volumes

IPAP Interventions … Other

Support Measures

Support for Agri-Research:R&D for new Varieties suitable for processingMore profitable with better yields / volumes

Capital Investment Support ProgrammesResumption of Pine Canning in EC; Upgrading of Vegetable manufacturing

Constraints of Working Capital:Seasonal Relief Scheme to overcome the impact of the constraint of Working Capital on Growth

National Feeding SchemesPromote & increase consumption of productsBenefits of highly nutritional productInclusion of products on Government Feeding Schemes i.e. Schools, hospitals, etc

IPAP Interventions … Other

Scenarios: High & Low Road …No

Intervention

LOW ROAD

Long Term

Negative Impact

•Factory Closures•De-industrialization•Job Losses•Impact on Rural Communities

•Supply Chain knock- on

Industrial Policy

SupportHIGH ROAD

Long Term

GROWTH•Job Creation/Employment Opportunities / Skills Upgrading

•Industrial Upgrading•Rural Development•Community Upliftment•Protect & Grow Markets•Increase Exports, esp. new markets

•Accelerate Transformation•Protect Supply Chain•Increase Govt. Fiscal Coffers

Bridging: Interim Support

• Protect employment levels & supply chain

• Urgent Stabilisation

• Possible Interventions:• Minimum Pricing to

Farmers• Surplus Removal

Scheme• Working Capital Support

Short-Term Crisis AVOID Long Term negative Impact

Industry is a worthy recipient for Industrial Policy support (Based on sound, well-researched economic & consumer studies)

Presented concrete proposals for intervention

Our expectations are THUS:Inclusion of proposals for future Industrial Policy actionWith a Sense of Urgency and a Focus on Delivery

Appropriate Industrial Policy (including interim support to address short term crisis Sustainable platform for long-term growth

Conclusion

THANK YOU

QUESTIONS ???