Small millers’ and bakers’ perceptions of the limitations of agro-processing development in the wheat-milling and baking industries in rural areas in South Africa

Abstract

ABSTRACT According to the Food Price Monitoring Committee (FPMC) (2003), milling and baking industries are highly concentrated, and most of the major millers are vertically integrated with bakeries. The Committee found that the baking industry is also characterised by a high level of market power, with six baking groups being responsible for 80 per cent of South Africa's bread production. Hence, this study aimed to identify the factors that restrict the development of agro-processing in the small wheat-milling and baking industries in the rural areas of South Africa. Data was collected by means of a structured questionnaire and by conducting 15 interviews with various small wheat-milling and baking firms in the supply chain as well as with major roleplayers. The study found that the small wheat-milling and baking industries have relatively high barriers to entry, including the ability to acquire the required capital to start operations; to establish a market; to acquire knowledge of the wheat-milling and baking industries; to uphold a well maintained infrastructure; to acquire marketing-management knowledge; and to have the necessary cash flow. The only barrier to exit deemed to prevail in the wheat-milling and baking industries is the ability to sell machinery at book value. The study also found that small-scale wheat millers and bakers felt exposed to wheat price volatility, as they had neither the cash flow nor the knowledge to counteract these price risks by way of risk-mitigating strategies available through derivative markets. The study therefore concluded that large-scale wheat millers and bakers have a competitive advantage over their smaller counterparts, in that they have the economies of scale, necessary skills, knowledge and cash flow to overcome obstacles in a short period. Moreover, smaller wheat millers and bakers can take several months to recover from setbacks, which sometimes prove to be detrimental. The study further made some recommendations concerning these factors, in order to facilitate small-scale wheat millers’ and bakers’ development and expansion of production.