| Tue 2 Nov 2010, 14:52 | | THEE - The Competition Commission - Competition Commission settles with Pioneer |
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THEE - The Competition Commission - Competition Commission settles with Pioneer
Foods
Media Release
02 November 2010
Competition Commission settles with Pioneer Foods
The Competition Commission has reached a settlement with Pioneer Foods (Pty) Ltd
(Pioneer Foods) in several cases under investigation by the Commission or before
the Competition Tribunal. The cases relate to Pioneer Foods` activities in
maize and wheat milling, baking, poultry and eggs.
In broad terms, anti-competitive conduct in these important food sectors has
impacted negatively on consumers and the ability of small and medium firms to
enter and grow in these markets. The consent and settlement agreement is
designed with these effects in mind.
In terms of the agreement Pioneer is committed to:
- pay R250 million as an administrative penalty to National Revenue Fund;
- pay R250 million to create an Agro-processing Competitiveness Fund to be
administered by the Industrial Development Corporation (IDC). The aim of
this fund is to promote competitiveness, employment and growth in food
value chains. The Fund will provide finance on favourable terms to small
and medium enterprises;
- adjusting its pricing of flour and bread (i.e. 600g and 700g standard white
and brown loaves) over a defined period such as to reduce its gross margin
by R160 million when compared to the similar period in 2009/10 by;
- increasing its capital expenditure by R150 million over and above its
currently approved capital expenditure (capex) budget;
- cooperating with the Competition Commission in the ongoing investigations
and prosecutions of the cases that are the subject of this settlement; and
- stopping anti-competitive conduct and implementing a competition compliance
programme.
These commitments exclude the R195,7 million penalty imposed on Pioneer by the
Competition Tribunal in February 2010 over its involvement in the bread cartel.
The current agreement settles the following cases with Pioneer:
- price fixing and market allocation in flour and maize.
- collusion in flour, bread and maize, through information exchange involving
the National Chamber of Milling and the South African Chamber of Baking.
- exclusionary conduct against small independent bakeries in the Southern
Cape.
- anti-competitive conduct at various levels throughout the poultry and egg
supply chains.
Competition Commissioner Shan Ramburuth said: "This agreement has gone beyond
just a penalty and includes price adjustment for the benefit of consumers and a
Fund to promote competition in the agro-processing industry. The Commission
welcomes Pioneer`s approach, as evidenced in this agreement, to resolving the
matters and agreeing to undertakings aimed at a more competitive and dynamic
economy in these crucial sectors."
The settlement agreement is subject to confirmation by the Tribunal.
The Minister of Economic Development and the Industrial Development Corporation
will announce details on the Agro-processing Competitiveness Fund following the
confirmation of this agreement. The IDC will administer the funds in compliance
with agreed criteria and its corporate governance protocols.
The Competition Commission will continue with its current investigations and
prosecutions against the remaining respondents in the various cases.
Background
The Commission has since 2006 prioritised food and agro-processing because of
the prevalence of cartels in the sector and the impact of anti competitive
behaviour in this sector on consumers, especially the poor. The Commission`s
work in this area involved research on selected markets and initiation of
investigations where information uncovered indicated the likelihood of a
contravention of the Competition Act. The Commission also received complaints
from members of the public and information from firms who applied for corporate
leniency for participating in cartels.
Following a decision of the Tribunal on 3 February 2010 where Pioneer Foods was
found guilty of price fixing and market allocation for bread and an
administrative penalty in the sum of R195.7million was imposed, the Commission
filed a notice of appeal to the Competition Appeal Court to have the penalty
revised upwards. Pioneer Foods, having paid the penalty, filed a cross appeal
against the decision but also approached the Commission to settle all
outstanding cases against it. The parties have since withdrawn the appeal and
cross appeal on the bread matter.
The following are the cases that are outstanding involving Pioneer Foods and are
the subject matter of the settlement discussions.
Flour Price Fixing and Market Allocation
During the investigation of the bread price fixing and market allocation cartel
in 2006 the Commission received information that the firms involved in the bread
cartel, who were also the county`s major wheat millers, were also involved in
price fixing and market allocation for flour. The Commission initiated an
investigation in March 2007 against Pioneer Foods and other millers for this
conduct. Premier Foods (Pty) Ltd and Tiger Brands Limited confessed their
involvement and provided the Commission with further evidence of this cartel and
were granted conditional immunity for their role.
The investigation revealed that through meetings and telephone discussions the
firms agreed to fix prices of milled wheat products; create uniform price lists
for wholesale, retail and general trade customers; agreed on the timing of the
price increases and the implementation; and allocated customers among
themselves. Similarly the agreements were used to secure coordination at both
national and regional level. On 15 March 2010 the Commission referred the case
to the Tribunal for the contravention of section 4(1)(b)(i) and 4(1)(b)(ii) of
the Competition Act. Pioneer has admitted a contravention of section
4(1)(b)(i).
Foodcorp (Pty) Ltd and Godrich Milling (Pty) Ltd are the only firms currently
defending this case at the Tribunal.
White Maize Meal Price Fixing
The main milling companies, namely Pioneer Foods, Foodcorp, Tiger Brands and
Premier were involved in a cartel in white maize meal in addition to wheat
flour. The maize milling cartel, however, involves many more firms competing in
various regions. Similar to the wheaten products cartel the investigation
revealed that during 1999 to at least 2007 competitors were involved in conduct
that contravened section 4(1)(b)(i) by fixing prices of white maize products
creating a uniform price lists for wholesale, retail and general trade
customers; and by agreeing to the timing of the price increases and their
implementation. These agreements were used to secure coordination at both
national and regional levels. The Commission referred this contravention to the
Tribunal on 31 March 2010. Premier and Tiger`s conditional immunity includes
this contravention. Pioneer has admitted a contravention of 4(1)(b)(i). The case
against the rest of the respondents continues.
Collusion through information exchange on Bread and Flour
In 02 November 2009 (case 2009Nov4744) the Commission initiated an investigation
against current and former members of the National Chamber of Milling and South
African Chamber of Baking. The complaint was initiated after the Commission
observed that, although prohibited practices cited above had allegedly ceased,
the market had seemingly not become more competitive.
The Commission`s investigation to date has revealed that firms in the industry
submitted commercially sensitive information to the two chambers. In turn, the
members received, for each category of information submitted to the chambers, an
industry aggregate value. This included industry data on monthly sales volumes,
disaggregated by product, pack size, province and customer category; and annual
average costing data. The Commission contends that this type of information
exchange enables members to sustain coordinated outcomes without the necessity
of meeting.
The case is currently under investigation for the contravention of section 4 of
the Competition Act. The Commission understands that the information exchange
has now largely ceased as a result of the Commission`s expressed concerns.
Collusion through information exchange on Milled Maize Products
This case addresses similar conduct to that for bread and flour. The case is
still under investigation against current and former members of the Chamber of
Milling for the contravention of section 4 of the Competition Act. The case was
initiated on 8 December 2009 under case number 2009Dec4819. The Commission
understands that the information exchange has now largely ceased as a result of
the Commission`s concerns.
Exclusionary Conduct against Independent Bakeries Complaint
The Commission received a complaint in December 2008 from an independent bakery
in Mossel Bay alleging that Pioneer Foods, through its Sasko Division, had
threatened it with a price war if it did not stick to the fixed prices. The
investigations confirmed that Pioneer Food staff had threatened competitors
with, and had engaged in, a price war in the areas of Worcester, Mossel Bay,
Oudsthoorn and Beaufort West. One of the strategies used was the introduction of
Sasko fighting brands, Vita and Econo, to undermine independent competitors who
had entered in such areas. The Commission found that Pioneer Foods is dominant
in the relevant markets and its aggressive behaviour prevented competitors from
entering into or expanding within the markets. The object of this price war was
to force these independent bakeries to charge prices similar to Pioneer, or
failing which to force them out of the market, in either case to sustain supra-
competitive prices in the medium term.
The Commission investigated this case as an abuse of dominance in contravention
of section 8(c) and/or 8(d)(iv) of the Competition Act. Pioneer has admitted a
contravention of 8(c).
Poultry Investigations
In April 2009 the Commission initiated complaints to investigate anti-
competitive conduct in the market for poultry breeding stock and broiler
production (case 2009Apr4389), poultry products (case 2009Apr4391) as well as
poultry feed (case 2009Apr4390) following initial research that pointed to the
existence of anti-competitive behavior by firms and industry associations in the
poultry industry. The investigations were initiated against the South African
Poultry Association, Animal Feed Manufacturers Association, Rainbow Chickens
Ltd, Astral Foods Ltd, Pioneer, Country Bird Holdings Ltd and Afgri Ltd. These
investigations are currently ongoing and the main allegations against the
respondents include:
- The respondents agreed not to compete in an open market but instead divided
the market by allocating to each other territories and/or customers.
- As a result of the collusion the respondents charged significantly higher
prices than the independent or small manufacturers even though their cost
bases are similar. Their prices were in some instances 25% higher than
those of the smaller poultry feed producers.
- Collusion is also reinforced and sustained through the sharing of extensive
information sharing through above mentioned industry associations.
- The respondents restrict broiler breeders from sourcing breeding stock from
alternative suppliers. They also supply day-old chicks to independent
broiler breeders on condition that they also purchase poultry feed from the
relevant supplier or its subsidiary.
These allegations are being investigated as collusion in contravention of
section 4 and supply restraints in contravention of section 5(1) as well as
abuse of dominance through excessive pricing and exclusionary conduct in
contravention of section 8.
Pioneer Foods has applied for and been granted conditional immunity in respect
of certain conduct relating to contraventions of section 4(1)(b) of the
Competition Act. The Commission`s preliminary findings are that Pioneer Foods is
not dominant in the implicated markets.
Eggs Investigation
In May 2010 the Commission initiated an investigation for collusion and supply
restraints in the markets for the sale of whole fresh eggs, sale of the day old
chicks to be reared as egg layers, sale of point of lay hens which are mature
hens capable of laying eggs and sale of cull which are live chickens that are
past their production cycle. The investigation is against Nulaid, Hy-line South
Africa, Avichick, Eggbert, Top Lay, Fair Acres, Heidel Eggs, Lund Eggs, Evan
Joubert t/a Waterglen Pluimvee, Parrdeberg Flinkwink, Outeniqua Eggs Succes
Ventures t/a Golden Yolk ND Lay Well, Rosendal, Nantes Eggs, Eikenhof, Elkana,
Windmeul Eggs, Morningside, Sunrise Eggs, Eden Rock and Cocorico.
Pioneer Foods applied for and was granted conditional leniency in respect of the
role of its Nulaid division in conduct in contravention of section 4(1)(b) in
the markets for the sale of whole, fresh eggs and the sale of day old chicks to
be reared as egg layers. The Commission`s investigation into these allegations
is still ongoing.
END
Further info:
Oupa Bodibe, Manager: Advocacy & Stakeholder Relations
012 394 3267 / 082 563 6970/ oupab@compcom.co.za
Keitumetse Letebele, Head: Communications
012 394 3183/082 783 3397/ keitumetsel@compcom.co.za
Date: 02/11/2010 14:52:01 Produced by the JSE SENS Department.
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