Measuring the competitive trends of the South African citrus industry

May 2018
By Xolela Dlikilili and Johan van Rooyen

1 Introduction

The South African citrus industry dates back to the 1600s, when the first citrus fruit trees were planted in the Cape region. It has since experienced some growth, with the first citrus traded in the early 19th century, when three thousand boxes were exported (TurtleSA 2015). In the late 1940s, the industry was controlled by the Minister of Agriculture, through a range of acts and regulations that determined production quantities, qualities and exports via a single statutory body named ‘Outspan’ (TurtleSA 2015). Producers were not free to promote their produce as they wished in the export channels. However, this all changed in 1997, when the South African agricultural sector undertook a series of structural and policy changes. 

One of the standout policy changes was the implementation of the Marketing of Agricultural Products Act (MAP), No. 47 of 1996, which came into effect at the beginning of 1997, replacing the old Marketing Act of 1968 (Sandrey and Vink 2008). The key objectives for the MAP Act were, amongst other things, to promote market deregulation and transformation within the agricultural sector (Nyhodo and Burger 2015). The application of the Act signalled the end of the single channel agricultural export marketing schemes and measures (government-directed producers) that had been introduced by the 1968 Act. These regulation changes obliged producers and enterprises in the value chain to structure themselves as business-driven players, working in a less regulated and now highly competitive trading environment (Van Rooyen et al. 1999). 

After the deregulation, competition in the fruit export industry increased, as hundreds of marketing agents and marketers entered the sector (Vink 2004). The result was a huge drop in prices and in the quality brought to an international market characterised by a growing demand for new products (Vink 2004). The fruit industry has since revealed great refinements in terms of developing new strategies and innovative systems with regard to supplying foreign markets. 

South Africa is one of the leading citrus-exporting countries, and the citrus industry could play a significant role in achieving Vision 2030 of the National Development Plan, which aims to grow the local gross domestic product at an annual rate of 5.4% and to add a further million jobs in the agricultural and agro-processing sector. With global markets gradually undergoing significant changes, however, resulting from such factors as the political changes in the United Kingdom (with regards to the results of Britain voting to leave the European Union), and the proposed ‘closed economy’ in the United States of America, it is necessary for the citrus industry to continuously reassess its competitiveness in international markets. Furthermore, according to Edmonds (2016), the rising costs of production and the international demand for food are placing many food industries, including the citrus industry, under continued pressure to be more competitive not only in local markets, but also in international markets. 

Increased world trade also increases the level of competition faced by local producers or service providers in global markets. It is reasons like these that have made the matter of competitiveness vital for export-orientated agricultural industries such as the citrus industry. According to O’Rourke (2011), these industries cannot maintain their financial relevancy and development without harvesting and promoting competitive products. Remaining competitive is essential for the future growth of the agricultural industries (Van Rooyen et al. 2011), which means that firms or producers in the value chain have to place themselves in a position where they can be competitive in the global markets. Various forms of restrictions, policies and trade negotiations between countries also affect the competitive strength of an export-orientated industry. Furthermore, at farm level, producers are faced with uncertain weather conditions (the recent drought has hit hard certain citrus-producing provinces), rising input costs, severe water restrictions, changing technology, and rising labour costs, etc. Others in the value chain have to contend with the stringent administrative and compliance regulations related to safety, ethical, environmental and financial requirements, increasing transportation costs (especially shipping), packaging and labelling regulations, etc. 

On the demand side, consumers are concerned about food safety standards and health (with reference to citrus black spot (CBS)), responding to which requires an active, efficient, competitive and sustainable economy. 

The problem statement directing this paper thus revolves around developing and applying a two-step framework for a comprehensive statement on the competitive performance of the citrus industry as an important player in global markets; this involves defining competitiveness in the context of the industry and measuring its competitiveness over time. 

The research objectives are to: 

  • define competitiveness in the context of the citrus industry; and
  • measure and analyse the competitive performance of the industry over time and compare this with its major global competitors.

Questions driving the direction of this paper are, therefore:

  • How can 'competitiveness' be defined in the context of the SA citrus industry?
  • How competitive is this industry in relation to international competitors?

This paper is structured as follows. Section 2 provides an overview of the South African citrus industry in terms of production trade and contribution to the economy; Section 3 provides the definition of competitiveness and describes the analytical tool used to measure the competitive trends of the industry; Section 4 provides the findings from the analysis, and the last section provides conclusion. Read more

Download SA-TIED Working Paper 11/2018