The competitiveness of the South African agro-food and fibre complex depends on a number of factors: technological, socio-political and economic. This paper attempts to identify and analyse such factors by using a framework of analysis proposed by Michael Porter (1990). Appropriate measures to increase competitiveness are proposed. These include improved supply chain management, cost reduction, contractual pricing and the establishment of a clear "agribusiness development policy".Agribusiness, Industrial Organization,

Doyer, Ockert T.

Esterhuizen, Dirk

van Rooyen, C.J.

English

Research Papers in Economics

 
 
 
 
 
 
 
Determinants of Competitiveness in the 
South African Agro-food and Fibre 
Complex 
 
Esterhuizen, D.,  Van Rooyen, C.J.  and 
Doyer, O.T. 
 
 
 
 
Working paper: 2000-02 
 
 
 
Department of Agricultural Economics,  
Extension and Rural Development 
University of Pretoria 
Pretoria, 0002 
South Africa 
 
 DETERMINANTS OF COMPETITIVENESS IN THE SOUTH AFRICAN 
AGRO-FOOD AND FIBRE COMPLEX 
 
Esterhuizen, D., Van Rooyen , C.J.  & Doyer, O.T. 
 
dirk.lbk@agriinfo.co.za, johan.lbk@agriinfo.co.za, tobias@scientia.up.ac.za 
 
 
The competitiveness of the South African agro-food and fibre complex 
depends on a number of factors: technological, socio-political and economic. 
This paper attempts to identify and analyse such factors by using a framework 
of analysis proposed by Michael Porter (1990).  Appropriate measures to 
increase competitiveness are proposed.  These include improved supply 
chain management, cost reduction, contractual pricing and the establishment 
of a clear “agribusiness development policy”. 
 1. INTRODUCTION 
Competitiveness and investment in agribusiness are closely related (Van 
Rooyen & Esterhuizen, 2000). The competitiveness of the South African agro-
food and fibre complex depends on a number of factors: technological, socio-
political and economic.  One of the most pervasive influences is the external 
environment, and in particular, the set of policies which operate in the market 
for agricultural goods.  In a recent study conducted by Van Rooyen, 
Esterhuizen & Doyer (1999) it was found that the South African agro-food and 
fibre complex is generally marginal as far as international competitiveness is 
rated. Appropriate adjustments could therefore contribute to changing 
negative situations into positive status.  It will however, be important to identify 
the particular set of factors, which needs to be adjusted.  
 
In this article, the approach to competitiveness analysis developed by Porter 
(1990, 1998) will be used to determine and analyse the factors influencing the 
competitiveness of the agro-food and fibre complex in South Africa. The agro 
food and fibre complex includes primary production, processing, and 
manufacturing of agricultural food and fibre products. The methodology of 
Porter will firstly be summarised.  The data used to do the Porter analysis will 
then be described, followed by the analysis and conclusion.  
 
2.  METHODOLOGY AND DATA USED 
When and why is an industry internationally competitive? How sustainable is 
the position?  In order to find answers to these questions a third question 
posed by Porter (1990) must first be addressed: “Why does an economy 
achieve international success in a particular industry?”  According to Porter, 
the answer lies in six broad criteria or attributes that shape the environment in 
which firms compete and promote the creation of competitive advantage.   
These are:  
•  Factor conditions: the nation’s position in terms of factors of production, 
natural resources, level of production costs such as the price of labour, 
diesel, pesticides, machinery etc, knowledge and infrastructure, necessary 
to compete in a given industry; •  Demand conditions: the nature of home demand for the industry’s 
product and service and the ability to record this demand, for example, 
home demand composition, demand size and internationalisation of 
domestic demand.   
•  Related and supporting industries: the presence or absence in the 
nation of supplier industries and related industries that are internationally 
competitive.  
•  Firm strategy, structure, and rivalry: the conditions in the nation 
governing how companies are created, organised and managed, and the 
nature of domestic rivalry.  
•  Government attitude and policy: government plays a vital role. 
Government can influence each of the above determinants, either 
positively or negatively, through policy and operational capacity. That is 
why government as a determinant of competitiveness must be viewed 
apart from the four determinants;   
•  The role of chance: chance events are occurrences largely beyond the 
power of firms (and often the national government) to influence. Events 
such as wars, political decisions by foreign governments, large increases 
in demand, shifts in world financial markets and exchange rates, 
discontinuity of technology and input demand can be described as chance 
events. 
 
This method is based on the perceptions of industry leaders on issues 
influencing competitiveness.  It points out strengths and weaknesses, and 
critical strategic factors are identified to which firms have to pay special 
attention in order to develop and sustain a competitive advantage in years to 
come. 
  
To do the analysis, primary data was obtain through a postal survey at firm 
level.  A questionnaire was developed using Porter’s determinants of 
competitive advantage. Because the population size was unknown it was 
decided to use a non-probability method and own judgement to determine the 
sample size. Questionnaires were sent to all the members of the Agricultural Business Chamber (ABC) and to agribusinesses on an address list obtain 
from the South African Grain Information Services (Sagis). A total of four 
hundred (sample sizes) questionnaires were posted and seventy 
questionnaires returned by all sectors within the food and fibre complex were 
used in the analysis.  This represents a respondent rate of 17.5%.   
 
3.  APPLICATION OF THE PORTER ANALYSIS 
Each of the Porter determinants was analysed separately.  The main features 
are discussed below: 
  
Production factor conditions: In Table 1 production factor conditions, as 
determinants of the competitiveness of the agro-food and fibre complex 
industry, are rated by firms in this complex, in terms of having an enhancing, 
constraining or neutral impact on competitiveness.  The average score for all 
the factor conditions is between 1 and 2, which means that, on average, factor 
conditions in South Africa are a weakness in the agro-food industry’s 
competitiveness.  The factor conditions that are constraining competitiveness 
most are the overall cost of production, the cost and quality of unskilled 
labour, the cost of skilled labour, administration cost associated with labour 
matters, quality of infrastructure, cost of capital and the cost of technology.     
 Table 1: Production factor conditions as determinants of 
competitiveness  
Factor conditions  Rate 
Cost of production  1  
Labour 
-  Cost of unskilled labour 
-  Quality of unskilled labour 
-  Availability of unskilled labour 
-  Cost of skilled labour 
-  Quality of skilled labour 
-  Availability of skilled labour 
-  Administration cost associated with labour 
matters 
(1 – 2) 
1 
1 
2 – 3 
1 
1 – 2 
1 – 2 
1 
Natural resources  2 
Infrastructure 
- Quality   
- Availability 
(1) 
1 
1 – 2 
Location  1 – 2 
Capital 
- Cost 
- Availability 
(1) 
1 
1 – 2 
Knowledge 
- Cost 
- Quality 
- Availability 
(1 – 2) 
1 – 2 
2 
2 
Technology 
- Cost 
- Quality 
- Availability 
(1 – 2) 
1 
2 
1 – 2 
Average score for factor conditions  (1 – 2) 
1 = Constraint                                 2 = Neutral                       3 = Enhancement  
( ) = Average 
Source: Own database 
 
Demand conditions: In Table 2 demand conditions, as determinants of the 
competitiveness of the South African agro-food and fibre complex are shown.  
With an average score of 2, demand conditions as a whole have a neutral 
impact on the competitiveness of the complex, which means that demand 
conditions as a whole are neither constraining nor enhancing 
competitiveness.  A demand condition with a constraining impact is the local 
market size, while quality of products has an enhancing impact. 
  
 Table 2: Demand conditions as determinants of competitiveness  
Demand conditions  Rate 
Market size  1 
Market information 
- Quality 
- Availability 
- Cost 
(1 – 2) 
1 – 2 
1 – 2 
1 – 2 
Quality of products  3 
Market growth  1 – 2 
Average score for demand conditions  (2) 
1 = Constraint                                 2 = Neutral                       3 = Enhancement  
( ) = Average 
Source: Own database 
 
Related and supporting industries: In Table 3 related and supporting 
industries are rated according to perceptions of their impact on 
competitiveness.  Most of the supporting industries are rated by firms as 
having contributed positively to the competitiveness of the complex in South 
Africa.   
 
Table 3: Related and supporting industries as determinants of 
competitiveness  
Related and supporting industries  Rate 
Financial institutions  2 – 3 
Research institutions  2 – 3 
Transport companies  2 – 3 
Suppliers of packaging material  2 – 3 
Electricity supplies  3 
Agricultural suppliers 
- Competitiveness 
- Sustainability 
- Linkage 
(2) 
1 – 2 
1 – 2 
2 – 3 
Related industries  2 
Average score for related and supporting 
industries 
(2 – 3) 
1 = Constraint                                 2 = Neutral                       3 = Enhancement  
( ) = Average 
Source: Own database 
 
Firm strategy, structure and rivalry: In Table 4 the impact of firms’ strategy, 
structure and competitive rivalry, as determinants of the competitiveness of the South African agro-food and fibre complex, are indicated.  The adaptability 
of agribusinesses and the managerial capabilities of agribusinesses are 
enhancing the competitiveness of the industry in South Africa, while the threat 
of substitutes constrains it.  With an average score of 2 to 3, firm strategy, 
structure and rivalry as a whole, have a positive impact on competitiveness.   
 
Table 4: Firm strategy, structure and rivalry as determinants of 
competitiveness  
Firm strategy, structure and rivalry  Rate 
Adaptability 3 
Culture  2 – 3 
Structure  2 – 3 
Flexibility  2 – 3 
Pricing strategy  2 – 3 
Managerial capabilities 3   
Market power of suppliers  1 – 2 
Market power of buyers  1 – 2 
Threat of substitutes  1 
Threat of new entrants  1 – 2 
Average score for firm strategy, structure and 
rivalry 
(2 – 3) 
1 = Constraint                                 2 = Neutral                       3 = Enhancement  
( ) = Average 
Source: Own database 
 
Government support: In Table 5 the impact of government through 
government policy and attitude, as determinants of the competitiveness of the 
agro-food industry, is rated according to its constraining, enhancing or neutral 
effect on competitiveness.  With an average score of 1, government and 
government policy are definitely constraining the competitiveness of the agro-
food industry in South Africa.     
 Table 5: Government support as determinant of the competitiveness of 
the South African agro-food industry 
Government Rate 
Indirect support  1 
Trade policy  1 – 2 
Land reform policy  1 
Labour policy  1 
Fiscal policy  2 
Average score for government  (1) 
1 = Constraint                                 2 = Neutral                       3 = Enhancement  
( ) = Average 
Source: Own database 
 
Chance factors: In Table 6 the impact of the stability of the environment and 
also factors that are difficult for agribusiness to control, on the 
competitiveness of the complex, is indicated.  Aids, crime and price stability 
are chance factors which have a constraining impact on competitiveness in 
the agro-food and fibre complex.    
 
Table 6: Chance as determinant of  competitiveness  
Chance Rate 
Economic stability 1  –2 
Aids 1 
Political stability  2 
Price stability  1 
Crime 1 
Average score for chance  (1) 
1 = Constraint                                 2 = Neutral                       3 = Enhancement  
( ) = Average 
Source: Own database 
 
From the tables it is clear that the critical key success factors to the 
competitiveness of the agro-food industry are the quality of the products, 
electricity supply and the adaptability  and managerial capabilities of 
agribusinesses.  
 
All the participants in the agro-food and fibre complex have to pay special 
attention to these critical success factors in order to develop and sustain 
competitive advantage as successfully as possible in the years to come.  
4.   DETERMINANTS OF COMPETITIVENESS FOR SOUTH AFRICAN 
AGRIBUSINESS 
In Table 7 the fifteen most important factors influencing the competitive 
success of the agro-food and fibre complex are indicated.  The respondents 
indicated that the quality of their products (ie value for money) is currently the 
most important driver influencing the competitive success of their firms; 
84.38% of the respondents indicated that the labour policy is a very important 
factor; 83.08% of respondents indicated that crime is a very important factor 
influencing the agro-food industries’ competitiveness. 
 
Respectively 76.19% and 78.13% of the respondents indicated that 
managerial capabilities and the market power of buyers are very important 
factors in the competitive success of the agro-food industry.   
 
Other factors indicated by the respondents as playing a very important role in 
the competitive success of the agro-food industry are the cost and availability 
of capital, the cost of skilled labour, the cost of production, economic stability, 
the quality of physical infrastructure and the pricing strategy of 
agribusinesses.  The competitiveness and sustainability of agricultural 
suppliers are considered to be very important to the respondents. 
  Table 7: The fifteen most important factors currently influencing the 
competitive success of the agro-food and fibre complex   
Factors Ave  Very 
important 
(% 
respondents) 
Important 
(% 
respondents) 
Less 
important 
(%  
respondents) 
1) Quality of products  2.83 86.15  10.77  3.08 
2) Labour policy  2.81 84.38  12.50  3.13 
3) Crime  2.78 83.08  12.31  4.62 
4) Managerial capabilities  2.75 76.19  22.22  1.59 
5) Market power of buyers  2.73 78.13  17.19  4.69 
6) Local market growth  2.72 75.38  21.54  3.08 
7) Cost of capital   2.70 78.13  14.06  7.81 
8) Local economic stability  2.69 72.31  24.62  3.08 
9) Cost of production  2.65 71.43  22.22  6.35 
10) Availability of capital  2.65 69.23  26.15  4.62 
11) The competitiveness of 
agricultural suppliers 
2.65 66.13  32.26  1.61 
12) Quality of physical 
infrastructure 
2.62 66.15  29.23  4.62 
13) Sustainability of 
agricultural suppliers 
2.61 63.93  32.79  3.28 
14) Pricing strategy of 
companies 
2.60 65.08  30.16  4.76 
15) The cost of skilled labour  2.59 64.06  31.25  4.69 
1 = less important                                                2 = important                                             3 
= very important 
Source: Own database 
 
 
5. CONCLUSION: TOWARDS AGRIBUSINESS COMPETITIVENESS 
Labour regulations, crime, the quality of physical infrastructure and labour 
costs are externally manipulated factors over which agribusiness have 
relatively little control. Product quality, cost of production and managerial 
capacity and labour skills, however, are factors over which firms have a large 
degree of control. This division provides the basis for a two pronged approach 
to render agribusiness in South Africa more competitiveness.   
 
Firstly, a firm level strategy will focus on the following operational  aspects 
over which a firm has some control: 
 
Supply Chain Management: Management is currently rated as highly 
competent by the firms in the agro-business and fibre complex. However, from the analysis it is also clear that firms are concerned about the relative 
market power of buyers and suppliers (Table 7) and the competitiveness of 
suppliers. An important strategy to deal with this matter will be the introduction 
of “supply chain” structures so that the relationship between buyers and 
sellers, within the value added chain, can be managed in a more productive 
and trustful manner (Zuurbier, 1999). The recent interest in supply chain 
management in South Africa indicates that managers are alert to this 
particular challenge.  This factor, however, will require more attention (Van 
Rooyen, et al , 2000) 
 
Cost of production: Rationalisation, cost cutting and labour management and 
cost effectiveness are important factors. The high cost of acquiring technology 
is cause for concern. Joint ventures with the R&D and the technology industry 
need to be prioritised to allow firms to maintain “cutting edge” positions in a 
competitive world. 
 
Pricing strategies: With supply chain interactions expected to dominate future 
agribusiness relationships (Zuurbier, 1999) the nature of pricing strategies will 
change. Long-term contractual pricing will replace “spot-market” pricing and 
day-to-day bargaining, especially in high value product markets. 
 
Macro issues: The management of external or macro factors such as quality 
of infrastructure and technology, economic and labour policy, availability of 
capital, development of more “even” economic playing fields in the global 
environment, aids, etc will continue to be important. For this purpose, the 
agro-food complex should push for an “Agribusiness Development Policy”. 
Currently business development in the agro-food and fibre complex falls 
between agriculture, trade and industry policy. No clear agribusiness policy 
focus exists. A more focussed approach to policy development and 
implementation is likely to provide a more favourable environment for firms in 
the agro-food and fibre complex to perform more competitively. 
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ISMEA, (1999).  The European Agro-Food System and the Challenge of 
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VAN ROOYEN, C.  J. & CARSTENS,  J. (1996) The role of the agriculture 
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DETERMINANTS OF COMPETITIVENESS IN THE SOUTH AFRICAN AGRO-FOOD AND FIBRE COMPLEX

DETERMINANTS OF COMPETITIVENESS IN THE SOUTH AFRICAN AGRO-FOOD AND FIBRE COMPLEX

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