Presentation to the Portfolio Committee on Agriculture, Fisheries and Forestry TEMBINKOSI BONAKELE Deputy Commissioner, Competition Commission 08 July 2009 To w a rd s a fai r and effi c i ent ec onomy for al l Background • Regulation – Agricultural marketing boards, co-ops • Deregulation effects since after 1996: closing down of boards; market concentration; dominant private corporations and private co-ops To w a rd s a fai r and effi c i ent ec onomy for al l Price increases, selected food products (StatsSA) 700g Brown Bread 2.5kg Mealie Meal 1kg Fresh Beef Mince 1kg Fresh Chicken Portions 2L Fresh Milk 500g Brick Margarine 750ml Sunflower Oil 1kg White Sugar Jan 2008-Jan 2009 34.2% 6.6% 12.3% 13.8% April 2008-April 2009 22.4% 6.3% 13.2% 16.0% 7.7% 53.2% 28.9% 10.5% 7.5% 34.4% -9.7% 16.4% 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 5.00 4.00 3.00 2.00 1.00 0.00 700g brown loaf, CPI, Rand High food prices - contributory factors • Availability of grains worldwide • Unfavorable climatic conditions • Increased demand for animal proteins • Increasing energy and fuel costs – transport • Increasing input costs – fertilizer • Anti-competitive conduct in the agro-food chain To w a rd s a fai r and effi c i ent ec onomy for al l The agro-food chain Inputs Primary production Processing/Packaging Distribution/Retail (local and exports) Consumers To w a rd s a fai r and effi c i ent ec onomy for al l Commission’s interventions • Prioritisation of the food value chain Impact on low income consumers A number of complaints Research and scoping exercises show strong indications of anti-competitive conduct To w a rd s a fai r and effi c i ent ec onomy for al l Major Cases • Retail • Bread and milling • Grain storage and trading • Dairy • Poultry • Pelagic Fish • Animal feed • Fertilizer and other input sectors • Fats and Oils To w a rd s a fai r and effi c i ent ec onomy for al l Supermarkets • What led to the investigation? Public outcry re food prices = preliminary study Buyer Power – rebates & listing costs Long term lease agreements – raising entry barriers Category Management – facilitating collusion Information Exchange – Role of market intelligence consultants Complaint from Milk Producers Organisation To w a rd s a fai r and effi c i ent ec onomy for al l Bread investigation • Commission tipped off of simultaneous price increases, initiated an investigation • Blue Ribbon (Premier), Albany (Tiger), Sasko (Pioneer) & Foodcorp • Price fixing & market allocation • Progress: Premier: leniency in terms of Commission’s Corporate Leniency Policy Tiger: penalty of R98 784 869.90 Foodcorp: penalty of R45 406 359.82 Pioneer: defending case, June 2009 • Initiated investigation in milling To w a rd s a fai r and effi c i ent ec onomy for al l Grain storage and trading • Complaint received by trader against Senwes • Abuse of dominance in the storage & handling of grain • Tribunal ruled exclusionary conduct – sec 8(c) • Matter is being appealed • Other cases in grain storage under investigation TOW A T oR wD aSr dAs FaA If R a i rA Na D n d E eF fFf Ii C c iI eE nNt T e Ec C o nO oNmOyM fYo rF O a lRl A L L 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 TOW A T oR wD aSr dAs FaA If R a i rA Na D n d E eF fFf Ii C c iI eE nNt T e Ec C o nO oNmOyM fYo rF O a lRl A L L Poultry • Commission referred case against Astral in 2008 • Abuse of dominance, especially in breeding by engaging in exclusionary conduct. • Poultry industry main source of protein for majority • Increasing vertical integration and concentration • Concerns around exclusionary conduct at different levels (breeding – broiler) • Case is at the pleadings stage TOW A T oR wD aSr dAs FaA If R a i rA Na D n d E eF fFf Ii C c iI eE nNt T e Ec C o nO oNmOyM fYo rF O a lRl A L L Fertilizer • • • • • • High levels of concentration in many inputs to farming, including fertilizer Fertilizer is the single largest input cost in production of crops such as maize, wheat; competitive pricing crucial for increased food production SA makes two of the three main ‘building blocks’ for fertilizer: Nitrogen (in form of ammonia) and Phosphate Long running cartel from 1990s fixing prices and allocating customers and markets – Sasol reached settlement with Commission, with penalty of R250mn; case proceeding against Omnia and Kynoch/Yara Sasol is local monopoly in ammonia production, charges inland import parity prices; cases proceeding of abuse of dominance Foskor is local monopoly supplier of phosphate rock – reaching settlement with Commission TOW A T oR wD aSr dAs FaA If R a i rA Na D n d E eF fFf Ii C c iI eE nNt T e Ec C o nO oNmOyM fYo rF O a lRl A L L Commission's work • High concentration levels prevail, barriers to entry, poor competitive outcomes • Need to: undermine cartels, opportunities for new entry Increase agricultural production by addressing effects of anti-competitive conduct on costs Improve understanding across govt and relevant public institutions • It will take time for markets to adjust TOW A T oR wD aSr dAs FaA If R a i rA Na D n d E eF fFf Ii C c iI eE nNt T e Ec C o nO oNmOyM fYo rF O a lRl A L L How can you help? • Business, labour, community, government • Proactive action, collective responsibility • Improve understanding • Pressure on companies to comply • Monitoring market conditions • Reporting anti-competitive conduct TOW A T oR wD aSr dAs FaA If R a i rA Na D n d E eF fFf Ii C c iI eE nNt T e Ec C o nO oNmOyM fYo rF O a lRl A L L Thank you! Tel: 012 394 3294 Fax:012 394 4294 email: tembinkosib@compcom.co.za TOW A T oR wD aSr dAs FaA If R a i rA Na D n d E eF fFf Ii C c iI eE nNt T e Ec C o nO oNmOyM fYo rF O a lRl A L L