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SA Market Summaries Preserving and Processing of Fruit and Vegetables SAMS # 011 March 2010

SA Market Summaries

Preserving and Processing of Fruit and Vegetables

SAMS # 011

March 2010

Introduction

Food processing and preservation is a branch of manufacturing industry that provides ready-to-eat products that require minimal preparation or cooking, and together with modern distribution networks, makes seasonal crops available year-round. The processing and preserving of fruits and vegetables plays an important role in utilizing additional produce gainfully and reducing post harvest losses.

Food processing and preservation essentially extends the shelf life of foods and preserves the freshness, taste, appearance and texture of foods as well as enabling the year-round availability of foods that have limited growing seasons. All food preservation systems are designed to prevent deterioration and spoilage during storage. Preservation usually involves preventing the growth of bacteria, fungi and other micro-organisms, as well as retarding the oxidation of fats which causes rancidity. Preservatives such as antioxidants prevent fats and oils from becoming rancid while emulsifiers stop products such as peanut butter from separating into solid and liquid fractions.

Consumer profile and current market trends

Single-parent families, two-income families, individuals choosing to live alone and a growing numbers of women in the workforce have fueled the demand for convenience foods. There has been a noted increase in consumer demand for ready-to-eat, convenient processed fruits and vegetable products which translates to increased product sales but this has been more in the area of frozen vegetables than of canned fruits and vegetables. To compete in this changing marketplace, processors of frozen vegetables have extended their product lines with value-added items such as prepared meals, sauced vegetables, frozen entrees and vegetable mixes.

Single-serving frozen vegetables are an example of packaging that targeted changing demographic patterns, but they sold well only in stores with a high proportion of singles, or younger and elderly couples for customers.

The U.S. Food and Drug Administration has declared that frozen fruits and vegetables are just as beneficial as their fresh counterparts. Since most frozen vegetables are individually quick frozen within hours of harvest, they offer home cooks and food service operations the advantages of labour saving convenience plus nutrient value, ease of

preparation and year-round availability. The versatility of processed and preserved fruits and vegetables also enable them to be utilized in areas where refrigeration is not possible such as in camping expeditions and rural areas.

Reputation for high quality products on world markets

The industry is internationally competitive and generally regarded worldwide as very efficient and quality conscious. Produce of consistently high quality is maintained and the industry also has effective structures that facilitate healthy co-operation. South African canners have established, over many years, a network of agents in many overseas countries.

The industry has an advantage of being the geographically closest off-season supplier to Europe. There is therefore significant space for gradual growth through tariff rate improvement in the EU.

Business opportunities and future trends

The prospects for export growth in this market are severely constrained due to the fact that sales to the EU are limited by a quota system, whereas EU countries currently have duty-free access to the South African market. The biggest threat to the South African canning industry is the unrealistically high subsides paid to producers and canners in other countries, especially the EU. For instance the industry has to contend with overseas protectionism such as:

Import tariffs into the European Union of up to 21.2%. As from January 2000, the Industry received a quota in terms of which 80% of the annual EU shipments are exported into the EU at 50% of the normal import duty rate.

Production aid in competitor countries.

Export subsidies and soft loans in competitor countries.

Import tariffs in the United States and Canada of 13% to 35%. This makes it very difficult for South African canners to compete with their European counterparts but on the other hand it allows overseas canners to export products such as tomatoes and tomato paste to South Africa at a cheaper price than that of local producers.

Where access to the EU market is concerned, the future outlook is for South Africa to secure better tariff terms or at least as favourable as those of other developing countries operating in the same market, such as Chile. South Africa currently exports only 5% of processed and preserved vegetables so the export growth potential in this market is high. Potential to operate in new market such as in eastern Europe and western Africa remains a prospect for the industry.

The South African Fruit and Vegetable Canners’ Association (SAFVCA) identifies two other regions as having promising opportunities for growth:

Australia - The once-mighty deciduous fruit processing industry in Australia has greatly declined over the past two decades as rapid growth in higher value-added sectors of production has diverted capital from horticulture. The market is increasingly receptive to South African products.

Emerging Middle Eastern Countries - Petrol-exporting countries of the Middle East feature rapidly growing middle classes and sharply rising demand for imports as their foreign reserves swell. People in these

cultures are unusually partial to fruit-based confectionaries and desserts. Based as it is in the Western Cape, SA processed fruit output is already Halaal, a feature which has been a key part of the recent export sales boom for the Ceres line of fruit juices.

Standards and legislation

The industry is subject to government regulations that impose strict quality inspection of products before they are approved for export or allowed to be sold to local consumers. The Department of Agriculture regulates safety and quality of agriculture and animal products in terms of the Agricultural Product Standards Act, 1990. During 2006/7 the industry commissioned a study into the current quality regulations stipulated by the Agricultural Products Standards Act, in terms of which compliance is controlled and inspected by the Perishable Products Export Council Board. The legislation requires that all export products be inspected for quality at considerable cost to the industry. The study concluded that substantial changes to the Act are needed in order to upgrade and modernize the quality regulations and services as well as to substantially reduce costs.

The Department of Health requires that all foodstuffs are safe for human consumption in terms of the Foodstuffs, Cosmetics and Disinfectant Act, 1972 (FCD Act). This Act addresses the manufacture, labeling, sale and importation of foodstuffs. Matters regarding the hygiene of foodstuffs are addressed by the National Health Act (2003) and the hygiene requirements at ports and airports including vessels and aircraft are addressed by the International Health Regulations Act (1974). The South African Bureau of Standards (SABS) falls under the jurisdiction of the Department of Trade and Industry and controls canned meat and frozen and canned fishery products through the Standards Act (1993). In addition all food additives in processed foods must be approved by the national regulatory body and strict limits are placed on the amount and types of additives in foods. All additive must be included in the ingredients listing on a food package.

There is however an anomaly in the tax laws that makes canned vegetables subject to VAT but exempts frozen vegetables. Industry leaders argue that this discriminatory law is disadvantageous since the poor are more likely to buy canned goods that can last without refrigeration.

Black Economic Empowerment

The fruit and vegetable processors’ recent track record with respect to BEE is well regarded. Individual companies actively embrace black empowerment. McCain, a leading vegetable processing and preserving company contracts suppliers from farming projects run by previously disadvantaged individuals. Black economic empowerment is also being encouraged through corporate social responsibility and the sustainability and growth of permanent jobs. With regard to social responsibility most of the leading companies such as Tiger Brands actively align themselves with government initiatives and play supportive role in community upliftment.

Key Risks

Static demand in canned vegetables

The local market demand for canned vegetables and fruits has remained fairly static over the last few years. The demand for canned fruit and vegetables has not risen dramatically in recent years due to a number of reasons:

A move towards convenient pre-prepared vegetables.

Improved distribution of fresh produce in areas where deliveries were problematic in the past.

Consumers increased preference for fresh fruit and vegetables, mainly for health reasons. Canned fruit is often falsely perceived to contain preservatives that are bad for health. Improved technology has made it possible for fresh produce to be distributed around the world under controlled temperature and atmosphere conditions, thereby reaching its destination in good condition.

Trade barriers

The department of trade and industry is pushing hard for duty- and quota-free access to the EU for canned fruit. South Africa's negotiations are based on the claim that its industry is not a threat to the EU and the call for equitable treatment. For example, Chile has duty-free access while South Africa, which has greater developmental needs, does not.

Power shortages

The current electricity crisis is also concentrating minds, since power disruptions affect the production of processed vegetables and fruits along the value chain.

Skills shortages

The industry faces skills shortage with regard to food scientists.

Product oversupply

There is an oversupply of canned fruit (especially peaches) on world market.

Discriminatory VAT application

Discriminatory application of tax laws where VAT is charged for canned vegetables but exempt for frozen vegetables.

Further information

The South African Fruit and Vegetable Canners’ Association (SAFVA) has been the national association for the fruit and vegetable canning industry since 1954. The association is the national organization for fruit and vegetable canners. Its main purpose is the advancement of the South African canning industry and it serves as a mouthpiece for the industry as a whole. SAFVCA also runs a section 21 company known as the South African Fruit and Vegetable Canner’s Export Council (SAFVCEC) under the approval of the Department of Trade and Industry.

P.O. Box 6175, Main Street Post Office, Paarl 7622.

Tel: 021 871-1308

Fax. 021 872-5930

Email: safvpa@mweb.co.za

The South African Association for Food Science and Technology (SAAFoST) is the association for Food Scientists, Technologists and other Professionals serving the food and allied industries in South Africa. The organisation is concerned with the advancement of knowledge of Food Science and Technology. The association is a founder member of the International Union of Food Science and Technology (IUFoST).

PO Box 868, Ferndale, 2160

Tel: 011 789-1384

Fax: 011 789-1385

Website: www.saafost.org.za

Canning Fruit Producers Association is a non-profit association for the producers of apricots, pears and clingstone peaches. The business of the Association is handled by 26 Board members that consist of representatives of the various production regions.

PO Box 426, Paarl, South Africa

Tel: 021 872-1501

Fax: 021 872-2675

Website: www.canningfruit.co.za

The Deciduous Fruit Canners Association of South Africa was established in recognition of the specific needs of the deciduous fruit canners in the Western Cape. The four Western Cape deciduous fruit canning companies (Ashton Caning, RFF Foods, Tiger Brands and Del Monte), make up the membership of this voluntary association affiliated to and acting under the umbrella of the SA Fruit & Vegetable Canners’ Association. The aims of this body are to serve, promote and protect the interest of its members on both the national and international level.

Gauteng Enterprise Propeller:

Branches

Ekurhuleni

Ground Floor, Victoria Street, Germiston Tel: 011 821-2870

Johannesburg

29 Rissik Street, Marshaltown, Johannesburg

Tel: 011 833-2542

Sedibeng

1st Floor, GEP House, 22 Hertz Boulevard, Vanderbijlpark Tel: 016 910-1200

Tshwane

4th Floor, 221 City Towers Building, 227 van der Walt Street, Pretoria Central Tel: 012 323 4203

West Rand

23 Eloff Street, Krugersdorp

Tel: 011 950-9870