Competition challenges in
food and agro-processing
Presentation to Parliament’s
Portfolio Committee on Economic Development
Shan Ramburuth
Commissioner, Competition Commission
10 November 2009
Towards a fair and efficient economy for all
Overview
• Background
• High food prices
• Structure of the food market
• Commission’s interventions
• Major cases
• Role of the state
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Background
• Regulation – Agricultural marketing boards, co-ops
• Liberalisation in 1996, tariff reform & trade agreements
• Effects of liberalisation since after 1996:
 closing down of boards
 market concentration
 dominant private companies and co-ops

surge in imports in processed foods

SAFEX established
 cartels replaced public regulation
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High food prices –
contributory factors
•
Availability of grains worldwide
•
Increasing demand including from economic growth and
biofuels
•
Unfavorable climatic conditions
•
Increasing energy and fuel costs – transport
•
Anti-competitive conduct in the agro-food chain including
inputs
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The structure of food markets
• Historical oligopolies and virtual monopolies
• Increasing vertical integration and horizontal concentration
• Limited new entrants due to barriers such as access to capital
and competing against established brands
• Transformation at the level of ownership in the established
firms
• Incumbent firms leverage historical positions to extract profits
and impose standards
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Commission’s interventions
•
Within mandate of the Competition Act
•
Enforcement and exemptions, merger analysis, advocacy and
market inquiries
•
Prioritisation of the food value chain

Impact on low income consumers

A number of complaints

Government interventions: monitoring prices, task teams, industrial
policy

Research and scoping exercises show strong indications of anticompetitive conduct
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Major cases
•
Fertilizer
•
Tinplate and other inputs
•
Bread and milling
•
Grain storage and trading
•
Dairy
•
Poultry
•
Fish
•
Fats and Oils
•
Food retail
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Fertilizer
• High levels of concentration in inputs to farming
• Fertilizer is the single largest input cost in production of
crops such as maize, wheat
• Long-running cartel:
 Foskor applied for leniency;
 Sasol reached settlement with Commission, penalty of R250m;
 Case proceeding against Omnia and Kynoch/Yara
• Local monopolies in main inputs (abuse of dominance ):

Ammonia production- Sasol charges inland import parity prices

Phosphate rock- Foskor is settling
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Tinplate and other inputs
Tinplate
• Tinplate is major cost in canned foods for local and export markets
• Tinplate pricing impacts heavily on:
 local production by farmers e.g. in tinned tomatoes competing with
imports, and canned fruit in export markets
 consumer prices of canned foods
• Sole local producer, ArcelorMittal SA, increased tinplate prices by
around 70% in April 2009; Commission investigation underway
Other inputs to agricultural production being investigated
• Diesel
• Fencing wire
• Plastic irrigation piping
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Bread and milling
•
•
•
•
CC initiated & received a complaint
Blue Ribbon (Premier), Albany (Tiger), Sasko (Pioneer), Sunbake (Foodcorp)
Price fixing & market allocation –Western Cape & national
Progress:




Premier: leniency in terms of CLP
Tiger: penalty of R98.8 m
Foodcorp: penalty of R45.4 m
Pioneer: defending case, closing arguments were heard in Sept. 2009
• Research findings that margins increased at processing and retail of milled
products
• Initiated investigation in milling of wheat and maize, leniency application
received, investigations being concluded
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Bread, flour and wheat prices,
Rand per 700g brown loaf
8.00
7.00
Mark-up of bread over wheat, Rand per loaf
556g wheat SAFEX, Rand
500g flour, CPI, Rand
6.00
700g brown loaf, CPI, Rand
5.00
4.00
3.00
2.00
1.00
0.00
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Grain storage and trading
•
Complaint received by trader against Senwes
•
Abuse of dominance in the storage & handling of grain linked with
virtual monopoly positions of privatised co-ops
•
Tribunal found exclusionary conduct related to independent traders
of grain
•
Tribunal decision being appealed at CAC – awaiting CAC decision
•
Other cases in grain storage under investigation

Setting of storage prices for futures contracts in the industry association (GSI)

RMB and Noordwes Kooperasie (alleged market allocation and price fixing)
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Dairy
•
Commission referred complaint -Dec 2006
•
Collusion & abuse of dominance by processors: (Clover, Parmalat,
Lancewood, Woodlands, Nestle, Milkwood)
• Appear to have regulated the markets themselves following
governments de-regulation
•
Suppressing raw milk prices, raising barriers to entry through
exclusive arrangements
•
Case is currently tied up in legal processes
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Poultry
•
Poultry industry main source of protein for majority
•
Commission referred case against Astral and Elite in 2008
•
Abuse of dominance, especially in breeding by engaging in
exclusionary conduct
•
Following extensive background research, investigations into
different levels of the market including feed, breeding stock, broiler
production, and poultry products
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Fish
•
Pelagic fish – historical single marketing channel in the 1990’s
known as Federal Marine. Deregulation led to competitors
allocating brands through auction
•
Initiation into pelagic fish at different levels of the market – fishing,
processing and retail
•
Key concerns include exclusive agreements and alleged collusion
•
Investigating allegation of export cartel in hake
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Edible vegetable fats and oils
• Initiated investigation against Unilever and 14 others
• Retail price of cooking oil increased by 116% between 2006 and
2008
• Allegations of collusion in vegetable oil
• Allegations of Unilever abusing dominance in margarine
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Supermarkets
• Public outcry about high food prices
• Complaint from Milk Producers Organisation
• Preliminary study
• Initiated complaint against major retail stores: including Pick ‘n Pay,
Shoprite Checkers & Spar
• Buyer Power: Rebates & listing costs
• Long term lease agreements: raising entry barriers
• Category Management: facilitating collusion
• Information Exchange: role of market intelligence consultants
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Progress on major cases
Animal feed
Poultry feed
Yeast
Tin plate
Diesel
Fertilizer
Wire fencing
Plastic irrigation
piping
Production
Poultry
Milling
Poultry
Storage/
Trading
Grain
Processing
Bread
Fish
Fats and oils
Retailing
Fish
Dairy
Supermarkets
Fats and oils
Investigation
Inputs
Fertilizer
Grain
Bread
Dairy
Bread
Dairy
Hearing
Settlement
Grain
Dairy
Decision
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Appeal/Review
Commission’s work
• High concentration levels prevail, barriers to entry, poor
competitive outcomes
• Need to:
 undermine cartels, opportunities for new entry
 examine the role of industry associations
 increase agricultural production by addressing effects of anticompetitive conduct on costs
 improve understanding across govt and relevant public institutions
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The role of the state
• Commission investigations uncover past conduct and its consequences
• Proactive measures required to increase competition and change
outcomes
• This requires coordination on the part of government and public
institutions, including:





Development finance to support new entry
Leveraging government shareholding and support to encourage
competitive conduct
Supportive government interventions in economic infrastructure, R&D,
and skills development
Procurement to support new entry
Industrial and trade policy; and regulation
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Thank you!
Tel: 012 394 3332
Fax: 012 394 4332
email: shanr@compcom.co.za
Towards a fair and efficient economy for all