Towards a fair and efficient economy for all Competition challenges in food and agro-processing Presentation to Parliament’s Portfolio Committee on Economic.

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


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


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


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

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 anti-competitive conduct


Major cases

• Fertilizer

• Tinplate and other inputs

• Bread and milling

• Grain storage and trading

• Dairy

• Poultry

• Fish

• Fats and Oils

• Food retailTowards a fair and efficient economy for all

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


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 pipingTowards a fair and efficient economy for all

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


Bread, flour and wheat prices, Rand per 700g brown loaf


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Mark-up of bread over wheat, Rand per loaf556g wheat SAFEX, Rand500g flour, CPI, Rand700g brown loaf, CPI, Rand

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)


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


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


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


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


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


Progress on major cases


InputsAnimal feed Poultry feedYeastTin plateDiesel

FertilizerWire fencingPlastic irrigation piping

Fertilizer

Production PoultryMilling

Poultry

Storage/Trading

Grain Grain Grain

Processing BreadFishFats and oils

BreadDairy

BreadDairy

Dairy

Retailing FishDairySupermarketsFats and oilsInvestigation Hearing Settlement Decision 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 anti-

competitive conduct on costs

improve understanding across govt and relevant public institutions


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

Thank you!

Tel: 012 394 3332Fax: 012 394 4332

email: [email protected]


mailto:[email protected]

Towards a fair and efficient economy for all Competition challenges in food and agro-processing Presentation to Parliament’s Portfolio Committee on Economic.

Documents

efficient economy

local production

agricultural production

agrofood chain

food value chain impact

production of crops

canned fruit

coops liberalisation