Uncertainty and red tape strangle the small guy

Small food-processing companies face significant barriers to entry and, even when firmly established, find the going tough.

Professor Justin Barnes, director of B&M Analysts, believes massive opportunities for job and wealth creation have been foregone.

Any form of manufacturing requires investment, but decisions to invest in food processing are torpedoed by uncertainty.

Land restitution is a major obstacle, according to Barnes, not because the policy is right or wrong, but because its implementation has dragged on for so long.

"The uncertainty brings risks into the investment decision," said Barnes. This deters farmers and other entrepreneurs from building plants and adding value to agricultural products.

Even when they are brave enough to put their money where many other people's mouths will be, the environment is difficult.

Gerard van der Laarse, who has a garlic processing business that employs 15 people, says small manufacturers are squeezed because they have to adhere to the same regulations as large ones.

Complying with the Consumer Protection Act - a prerequisite for doing business with any large retailer - adds costs and takes time. This bites deeper into the margins of a small business than it does in a large one.

Another food processor, who did not want to be named, described food safety audits as a "thriller".

In supplying vegetables to a major retailer, he employs 48 people.

"You pay fully for everything and getting verification from third parties makes costs balloon," he said.

Pick n Pay chairman Gareth Ackerman said last week that small suppliers were particularly vulnerable because of the costs of complying with regulations.

Barnes thinks foreign suppliers have an advantage because of their sheer size.

"Absorbing those costs when you have economies of scale is easier."

He said the major retailers in South Africa had a "blunt mechanism" for determining whether products complied with regulations.

"Setting those standards is not a bad thing," he said, but there could be more "house-appropriate" standards that gave small companies a break to get going.