Trends and determinants of competitiveness in the South African table grape industry

Thesis (MCom)--Stellenbosch University, 2020.ENGLISH SUMMARY : Global competitiveness has become relevant topic, especially for South Africa’s export-driven agricultural industries like the table grape industry, which exports more than 90% of its product. In order for these industries to survive and maintain their economic relevancy in the international markets, they need to promote competitive, market-directed products and systems. The competitive performance of these industries is affected by both internal and external factors. At the farm level, producers are faced with uncertain and changing climate and weather conditions, rising input costs, fluctuating exchange rates, disruptive technology, water restrictions and policy related changes. Players in the table grape value chain have to adhere to stringent administrative and compliance regulations and certifications, related to safety, ethical, transformational, environmental and financial requirements, transportation costs (i.e. shipping), changing packaging and labelling regulations, etc. On the demand side, consumers are increasingly faced with choices from many regions and countries, and also concerns about ethics and environmental food safety standards and health; all this requires active, efficient, transparent, traceable, competitive and sustainable performance. These aforementioned factors trigger the importance to investigate the competitive performance of the South African table grape industry in global markets. The main purpose of this research was to undertake a comprehensive enquiry into the competitive performance of the South African table grape industry and how it could be enhanced in an ever-competitive global environment. Competitiveness in the context of the South African table grape industry was defined – in terms of its strong export orientation – as ‘The sustained ability of the South African table grape industry to attract investment by competitively trading its produce within the global marketplace, whilst continuously striving to earn returns at least greater that the opportunity cost of resources engaged’. This definition anchors competitiveness strongly in economic theory. The economic concepts of comparative and competitive advantage were considered in terms of New Competitiveness Theory (Cho, 1994; ISMEA, 1999; Porter, 1990, 1998; Rugman & D’Cruz, 1993; Webber & Labaste, 2011), featuring the Porter competitive diamond model as the theoretical construct. The relative trade advantage (RTA) (Vollrath, 1991) and comparative trade advantage (RCA) (Balassa, 1965) were considered appropriate to measure the competitive performance trends in the industry. The secondary trade data obtained from the ITC was used together with trade data from the Food and Agriculture Organization (FAO). The results of the analysis of both datasets (i.e. FAO and ITC) show positive figures for South Africa. For 1961, the FAO data reveal that South Africa had an RTA of 7.9, which increased over the years to a highpoint of 16.8 in 2004. The ITC data indicate an RTA value of 12.1 in 2001, with a highpoint of 18 in 2004, after which a gradual increasing, albeit positive, trend has been witnessed over recent years, with FAO data showing 10.8 in 2013 and ITC data revealing a 12.9 RTA value in 2017. The fluctuations are due to many factors, such as political factors, i.e. regulation of the industry and economic hardships in Europe and United Kingdom, and were considered in this research in terms of the Porter competitive diamond model. The trends were categorised into five phases, revealing that there has been significant improvement in the industry since economic deregulation in 1997. Another observation made on the trends from both FAO and ITC data is that there is not much difference between them, as the ITC data disaggregates table grapes from dried grapes, while the FAO data that does not. It therefore is clear that the table grape values dominate the formula used. From these measurements it can be concluded that the South African table grape industry has been competitive and, albeit fluctuating, has maintained this status since 1961, despite considerable structural changes and changing global trading regimes. South Africa (SA) is particularly challenged by countries in the Southern hemisphere, such as Peru and Chile, and outperforms countries like Argentina and Brazil. One hundred and seven (107) factors that influence (positively or negatively) the competitiveness status of the local table grape industry were identified and analysed using the Porter competitive diamond. Industry expert opinions were mobilised through a two-round Delphi technique. In the first round, selected respondents – all experts and operating at different points in the value chain – were provided with a questionnaire (the Table Grape Industry survey), which was developed and tested through interactions with the South African Table Grape Industry (SATI). The questionnaire was designed to rate the impact of the factors identified – either enhancing or constraining the competitiveness of the table grape industry. Enhancing factors include well-developed infrastructure, innovation and advanced technology, and product traceability systems. Factors constraining competitiveness include access to water, the skills of qualified labour, and potential land expropriation without compensation, all of which constrain long-term investments. These 107 factors were clustered and grouped into the six Porter competitive diamond determinants, viz. production factors, demand factors, firm strategy, structure and rivalry, related and supporting industries, government support and policies, and chance factors. Principal component analysis (PCA) was performed to identify highly correlated and uncorrelated factors under each determinant. Highly correlated factors refer to those that were rated similarly by the respondents (from different viewpoints in the industrial value chain), and uncorrelated factors were those that regarding which the respondents differed greatly in their ratings. Firm strategy, structure and rivalry was identified as the determinant that enhanced the performance of the table grape industry the most. Government support and policies, which includes land reform policies and cumbersome administrative procedures, was identified as the determinant that constrains the industry the most. From an industry consensus viewpoint, opinions on the Related and Supporting Industries determinant varied in terms of all factors. Firm Strategy, Structure and Rivalry is a determinant that was rated the highest among all the Porter’s diamond determinants. It was also found to be the highest in other studies that have been conducted on the SA export fruits industry (Boonzaaier, 2015; Boonzaaier & Van Rooyen, 2017; Dlikilili, 2018; Esterhuizen, 2006; Jafta, 2014; Sibulali, 2018; Van Rooyen et al., 2011). Abei (2017) and Angala (2015) found the same in the Cameroonian and Namibian fruit industries respectively. Almost all the ratings for factors under this determinant were rated above 3 out of 5 (60% plus impact). This indicates that, in a highly competitive trade environment as is the case for table grapes, firm-level strategy needs to be of the highest order to sustain their trade. This finding also confirms the stated definition of competitiveness used in this study related to the use of scarce factors of production. The views of the respondents also varied on factors such as labour/social unrest and strikes, crime, competitors’ unfortunate events, health conditions and South Africa’s economic development, which means that there could be discrepancies within the industry value chain that constrain co-ordinated decision-making related to government negotiation. In total, 27 factors revealed high correlation. These correlated factors were further subjected to Cronbach’s alpha analysis to assess their levels of internal reliability. These factors were then subjected to a round-two Delphi analysis. In this round, the respondents were requested to rate the relevance of these remaining factors as determinants of competitiveness. The results reveal that well-developed infrastructure, advanced technology and a product traceability system, improved access to water, labour skills and stable land reform policies are highly relevant to the overall competitive performance of the industry. The prevalence of a socio-economic and transformation theme was strongly observed in some of the most constraining factors across all the Porter determinants. This led to a proposal that an additional or seventh determinant, namely socio-economic and political transformation, be added to the Porter competitive diamond to make provision for the South African situation as an economy in transition facing various socio-economic challenges. This new determinant identified and grouped socio-economic/political factors and highlighted the overall constraining impact of these factors on current competitive performance. The most enhancing factor was ‘obtaining unskilled labour’, and the most constraining was land reform policies, including ‘without’ compensation prospects. The addition of such a new determinant to the Porter competitive diamond needs to be looked at further in detail, but reflects the considered view of Michael Porter when he visited South Africa in 2007. His view was that economic objectives need to complement social objectives in a developing country environment such as that experienced in South Africa. From this, it can be concluded that the explicit inclusion of socio-economic/political transformation interventions will improve the analysis of the competitiveness of agri-businesses in the South Africa. The results of this study were finally drafted into a set of strategic findings and recommendations that propose industry-level strategies to address factors that were identified as constraining yet relevant to the industry. These factors also need an industry-based “strategic plan” to interact with government in order to establish sustained collaboration between the industry and government agencies, in particular the Department of Agriculture, Land Reform and Rural Development and the Department of Human Settlements, Water and Sanitation, to address water- and land-related matters; and to interact on all trade-related matters.AFRIKAANSE OPSOMMING : Globale mededingendheid het ’n relevante onderwerp geword, veral vir Suid-Afrika se uitvoergedrewe landboubedrywe soos die tafeldruifbedryf, wat meer as 90% van sy produkte uitvoer. Vir hierdie bedrywe om te oorleef en hulle ekonomiese relevansie in die internasionale markte te behou, moet hulle mededingende, markgerigte produkte en stelsels bevorder. Die mededingende prestasie van hierdie bedrywe word beïnvloed deur beide interne en eksterne faktore. Op die plaasvlak word produsente gekonfronteer met onsekere en veranderende klimaats- en weerstoestande, stygende insetkoste, skommelende wisselkoerse, verdelende tegnologie, waterbeperkings en beleidsverwante veranderinge. Die spelers in die tafeldruifwaardeketting moet aan streng administratiewe en voldoeningsregulasies en sertifikasies voldoen wat verband hou met veiligheids-, etiese, transformasionele, omgewings- en finansiële vereistes, vervoerkostes (m.a.w. verskeping), veranderende verpakkings- en etiketteringsregulasies, ens. Aan die vraag kant word verbruikers toenemend gekonfronteer met keuses uit verskeie streke en lande, en ook bekommernisse oor etiese en omgewings- voedselveiligheidstandaarde en gesondheid; hierdie vereis alles aktiewe, doeltreffende, deursigtige, naspeurbare, mededingende en volhoubare prestasie. Voorgenoemde faktore gee aanleiding tot die belangrikheid daarvan om die mededingende prestasie van die Suid-Afrikaanse tafeldruifbedryf in globale markte te ondersoek. Die hoofdoel van hierdie navorsing was om ’n omvattende ondersoek in te stel na die mededingende prestasie van die Suid-Afrikaanse tafeldruifbedryf en hoe dit in ’n steeds mededingende globale omgewing verhoog kan word. Mededingendheid in die konteks van die Suid-Afrikaanse tafeldruifbedryf is gedefinieer – in terme van sy sterk uitvoer-oriëntasie – as ‘die volgehoue vermoë van die Suid-Afrikaanse tafeldruifbedryf om belegging te lok deur mededingend sy produkte binne die globale mark te handel terwyl dit voortdurend daarna streef om opbrengste te verdien wat ten minste groter is as die geleentheidskoste van die hulpbronne gebruik’. Hierdie definisie anker mededingendheid sterk in ekonomiese teorie. Die ekonomiese konsepte van vergelykende en mededingende voordeel is in terme van Nuwe Mededingendheidsteorie oorweeg (Cho, 1994; ISMEA, 1999; Porter, 1990, 1998; Rugman & D’Cruz, 1993; Webber & Labaste, 2011), met die Porter mededingende diamant- model as die teoretiese konstruk. Die relatiewe handelsvoordeel (relative trade advantage (RTA)) (Vollrath, 1991) en vergelykende handelsvoordeel (comparative trade advantage (RCA)) (Balassa, 1965) is beskou as gepas om die mededingende prestasietendense in die bedryf te meet. Sekondêre handelsdata vanaf die ITC is gebruik saam met handelsdata vanaf die Food and Agriculture Organization (FAO). Die resultate van die analise van beide datastelle (m.a.w. FAO en ITC) toon positiewe syfers vir Suid-Afrika. Vir 1961 toon die FAO-data dat Suid-Afrika ’n RTA van 7.9 gehad het, wat oor die jare gegroei het tot ’n hoogtepunt van 16.8 in 2004. Die ITC-data dui op ’n RTA-waarde van 12.1 in 2001, met ’n hoogtepunt van 18 in 2004, waarna ’n geleidelik toenemende, tog positiewe, tendens oor die afgelope paar jaar gesien is, met FAO-data wat ’n waarde van 10.8 in 2013 getoon het en ITC-data met ’n RTA-waarde van 12.9 in 2017. Daar is verskeie faktore wat die skommelings veroorsaak, soos politieke faktore, m.a.w. regulering van die bedryf en ekonomiese swaarkry in Europa en die Verenigde Koninkryk, en hierdie is in die navorsing in ag geneem in terme van die Porter mededingende diamant-model. Die tendense is in vyf fases gekategoriseer, wat toon dat daar ’n beduidende verbetering in die bedryf was sedert ekonomiese deregulering in 1997. Nóg ’n waarneming op grond van die tendense in beide die FAO- en ITC-data is dat daar nie baie verskille tussen hulle is nie, aangesien die ITC-data tafeldruiwe van gedroogde druiwe disaggregeer (disaggregate), terwyl die FAO-data dit nie doen nie. Dis is dus duidelik dat die tafeldruifwaardes die formule wat gebruik word, oorheers. Vanuit hierdie metings kan dit afgelei word dat die Suid-Afrikaanse tafeldruifbedryf mededingend was en hoewel dit gewissel het, het dit hierdie status sedert 1961 behou, ten spyte van aansienlike strukturele verandering en veranderende globale handelsregimes. Suid-Afrika (SA) word veral uitgedaag deur lande in die Suidelike halfrond, soos Peru en Chili, en presteer beter as lande soos Argentinië en Brasilië. Een honderd en sewe (107) faktore wat die mededingendheidstatus van die plaaslike tafeldruifbedryf (positief of negatief) beïnvloed, is geïdentifiseer en geanaliseer deur gebruik te maak van die Porter mededingende diamant. Die opinies van bedryfskundiges is verkry deur gebruik te maak ’n twee-rondte Delphi-tegniek. In die eerste rondte het geselekteerde respondente –almal kundiges wat op verskillende plekke in die waardeketting werksaam is – ’n vraelys (die(Tafeldruifbedryf-opname (Table Grape Industry survey)) gekry wat deur interaksies met die Suid-Afrikaanse Tafeldruifbedryf (SATI) ontwikkel en getoets is. Die vraelys is ontwerp om die impak van die geïdentifiseerde faktore te evalueer as versterkend of beperkend van die mededingendheid van die tafeldruifbedryf. Versterkende faktore sluit in ’n goed ontwikkelende infrastruktuur, innovasie en gevorderde tegnologie en produk- naspeurbaarheidstelsels. Faktore wat mededingendheid beperk, sluit in toegang tot water, die vaardighede van gekwalifiseerde arbeid en die moontlikheid van grondonteiening sonder vergoeding, almal waarvan langtermyn beleggings beperk. Hierdie 107 faktore is in ses Porter mededingende diamant-determinante gegroepeer, nl. produksiefaktore, vraagfaktore, ondernemingstrategie, struktuur en wedywering, verwante en ondersteunende bedrywe, regeringsondersteuning en -beleid, en kansfaktore. Hoofkomponentanalise (Principal component analysis (PCA)) is onderneem om hoogs gekorreleerde en ongekorreleerde faktore onder elke determinant te identifiseer. Hoogs gekorreleerde faktore verwys na dié wat deur die respondente eenders geëvalueer is (vanuit verskillende gesigspunte in die bedryfswaardeketting), en ongekorreleerde faktore is dié waaroor die respondente noemenswaardig in hulle evaluerings verskil het. Ondernemingstrategie, -struktuur en -wedywering is geïdentifiseer as die determinante wat die prestasie van die tafeldruifbedryf die meeste versterk het. Regeringsondersteuning en -beleide, wat grondhervormingsbeleide en omslagtige administratiewe prosedures insluit, is geïdentifiseer as die determinant wat die bedryf die meeste beperk het. Vanuit ’n bedryfskonsensus-oogpunt het opinies van die Verwante en Ondersteunende Bedrywe in terme van alle faktore verskil. Ondernemingstrategie, -struktuur en -wedywering is die determinant wat die hoogste geëvalueer is onder al die Porter diamant determinante. Dit is ook gevind om die hoogste te wees in ander studies wat op die SA uitvoervrugtebedryf onderneem is (Boonzaaier, 2015; Boonzaaier & Van Rooyen, 2017; Dlikilili, 2018; Esterhuizen, 2006; Jafta, 2014; Sibulali, 2018; Van Rooyen et al., 2011). Abei (2017) en Angala (2015) het dieselfde gevind in die Kameroense en Namibiese vrugtebedrywe onderskeidelik. Amper al die evaluerings vir faktore onder hierdie determinant is hoër as 3 uit 5 geëvalueer (60% plus impak). Dit dui daarop dat, in ’n hoogs mededingende handelsomgewing soos wat die geval is met betrekking tot tafeldruiwe, moet ’n ondernemingsvlak-strategie van die hoogste orde wees om hulle handel in stand te hou. Hierdie bevinding bevestig ook die gestelde definisie van mededingendheid wat in hierdie studie gebruik word, wat verband hou met die gebruik van skaars produksiefaktore. Die sienings van die respondente het ook verskil oor faktore soos arbeids/sosiale onrus en stakings, misdaad, ongelukkige gebeure wat mededingers ervaar, gesondheidstoestande en Suid-Afrika se ekonomiese ontwikkeling, wat beteken dat daar verskille kan wees in die bedryf se waardeketting wat gekoördineerde besluitneming met betrekking tot onderhandeling met die regering kan beperk. In totaal het 27 faktore hoë korrelasie getoon. Hierdie gekorreleerde faktore is verder onderwerp aan Cronbach se alfa-analise om hulle vlakke van interne betroubaarheid te assesseer. Hierdie faktore is toe onderwerp aan ’n twee-rondte Delphi analise. In hierdie rondte is die respondente gevra om die relevansie van hierdie oorblywende faktore as determinante van mededingendheid te evalueer. Die resultate toon dat goed ontwikkelde infrastruktuur, gevorderde tegnologie en ’n produk-naspeurbaarheidstelsel, verbeterde toegang tot water, arbeidsvaardighede en stabiele grondhervormingsbeleide baie relevant is vir die algehele mededingende prestasie van die bedryf.Master