Competition, Barriers to Entry and Inclusive Growth: Agro-Processing

87 Pages Posted: 8 Nov 2016  

Phumzile Ncube

Centre for Competition, Regulation & Economic Development (CCRED)

Maria Nkhonjera

Centre for Competition, Regulation & Economic Development (CCRED)

Tamara Paremoer

Centre for Competition, Regulation & Economic Development (CCRED)

Tatenda Zengeni

Centre for Competition, Regulation & Economic Development (CCRED)

Date Written: September 2016

Abstract

This study is part of the broader barriers to entry project undertaken for the National Treasury and it assesses barriers to entry and expansion into the agro processing sector. It focuses on three agro-processing subsectors; poultry, milling and dairy. The paper draws on interviews conducted with new entrants and existing firms in each sector, supported by a review of secondary data on prices, costs, and profits. The analysis identifies the barriers to entry and expansion in each sub-sector, assesses the competitive dynamics within each sub-sector, and identifies the impact of interventions by the competition authorities in these sub-sectors. The research shows that in order to understand barriers to entry and the growth of smaller firms in agro-processing, it is crucial to appreciate that these are value chains characterised by successive levels of processing and value addition. Linkages between the levels and different types of vertical integration are important to coordinate access to inputs and investments at the different levels. The ability to participate depends on fitting into a value chain and how the overall chain is governed, typically by lead firms. There are also substantial scale effects and time required to build production capabilities. These characteristics imply that addressing barriers to entry in the sector require a deep understanding of the specific challenges that new entrants would face in a particular value chain, the historical evolution of the sector, and the scope for strategic behaviour by incumbents at all levels of the value chain. Focusing on facilitating entry at one discrete level of the value chain will likely fail as it will miss the binding competition bottlenecks elsewhere.

Keywords: Agro-processing, Barriers to Entry, South Africa, Competition

JEL Classification: L1, L5, L66

Suggested Citation

Ncube, Phumzile and Nkhonjera, Maria and Paremoer, Tamara and Zengeni, Tatenda, Competition, Barriers to Entry and Inclusive Growth: Agro-Processing (September 2016). CCRED Working Paper No. 3/2016. Available at SSRN: https://ssrn.com/abstract=2866293 or http://dx.doi.org/10.2139/ssrn.2866293

Phumzile Ncube (Contact Author)

Centre for Competition, Regulation & Economic Development (CCRED) ( email )

5 Sturdee Ave
Johannesburg, GP, 2196
South Africa

Maria Nkhonjera

Centre for Competition, Regulation & Economic Development (CCRED) ( email )

5 Sturdee Ave
Johannesburg, GP, 2196
South Africa

Tamara Paremoer

Centre for Competition, Regulation & Economic Development (CCRED) ( email )

5 Sturdee Ave
Johannesburg, GP, 2196
South Africa

Tatenda Zengeni

Centre for Competition, Regulation & Economic Development (CCRED) ( email )

5 Sturdee Ave
Johannesburg, GP, 2196
South Africa

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