Big Food was scrambling for cover this week with the announcement that the Competition Commission has proposed fining Tiger Brands a whopping R98-million for its participation in cartel behaviour in the bread and milling industries.
The custodians of some of South Africa’s most popular food brands have been colluding on a national level to set prices in an attempt to remove competition from their market.
The commission’s investigation involves Tiger Brands, Premier Foods and Pioneer Foods, which together look after iconic brands such as All Gold, Black Cat, Koo, Snowflake, Nyala, Blue Ribbon, Albany, Sasko, Iwisa, Impala, Heinz, Marmite and Weet-Bix.
Just two of these companies, Tiger Brands and Pioneer, had combined annual food sales of more than R26-billion last year.
The senior management of Premier Foods, Tiger Brands and Pioneer Foods can count themselves lucky they don’t do business in the United States or Europe where price-fixing is punishable with jail time.
Thulani Kunene, the Competition Commission’s manager of enforcements and exemptions, says price fixing is “tantamount to theft” and that the commission had evidence that collusion had been going on since 1994.
Kunene says the South African competition authorities do not have the administrative sanction to pursue criminal convictions for price fixing and that the Competition Tribunal could only apply a maximum fine of 10% of annual turnover.
The scandal has seen concerns raised that collusion is occurring in the manufacturing of other food products.
Imraahn Ismail Mukaddam, one of the bread retailers that lodged a complaint with the commission about suspected collusion, has called on competition authorities to eradicate price-fixing in all sectors and to consider that price-fixing may be occurring in other food products.
“We believe that cartel activities and price-fixing do not only involve just bread and maize meal and could easily affect most of our essential daily items, such as breakfast cereals, canned fruit and cooking oils,” says Mukaddam. The problem, he says, is that South Africa has a small number of companies controlling almost 60% of top consumer brands.
Mukaddam says that following his complaint about suspected collusion in the Western Cape the competition authorities discovered that it was happening on a national scale.
Both Premier Foods and Tiger Brands told the Mail & Guardian that the employees involved in the collusion were operating without the knowledge of the senior management and that action would be taken.
Tiger Brands CEO Nick Dennis, who according to the Mabili Directors’ remuneration report of 2007 earned R11-million and cashed in R28-million of options in the past financial year, has accepted full responsibility for the actions of his employees.
The Mabili report shows that the six Tiger Brands executive directors took home a combined R72-million in salaries, bonuses and cashed-in share options during 2006.
Tiger Brands head of corporate affairs Jimmy Manyi says “the buck stops with the senior management and the chief executive”.
“The individuals who participated in these meetings did not inform all their superiors of the content of the meetings and what was discussed,” says Manyi. “Staff were trained in competition law, but on reflection we could have done more.”
Premier Foods’s corporate affairs manager, Steve Mallach, told the M&G that senior management had no idea the collusion was taking place and that it had no oversight over the price setting. “The moment we heard about the collusion we started an internal investigation and agreed to cooperate with the Competition Commission.”
But Mukaddam says that is not good enough and the buck must stop with the directors. “They are the ones making the millions. Just the fact that they say they didn’t know is enough for them to be dismissed.”
“I am disgusted with Nick Dennis. If I was a major shareholder I would demand his resignation,” says Mukaddam. “We take issue with Nick Dennis when he says nobody was affected. You ask the little boy going to sleep without bread if he was affected.”
Cosatu has also condemned the food companies involved stating that it is “intolerable” for companies to line their pockets at the expense of the poor.
“Now that it has been proved that manufacturers have been fixing their prices, the government and the Competition Commission should broaden their investigations to cover all firms involved in the whole food manufacturing and retailing chain to check whether there is more collusion,” says Cosatu spokesperson Patrick Craven.
The union federation also supported calls from Lillibeth Moolman, chairperson of the National Consumer Union, who said the fines were “too lenient a punishment” and called for criminal charges.
The Competition Commission launched an investigation into collusion and price fixing by Premier Foods, Tiger Brands and Pioneer Foods after a number of complaints were filed by bread distributors in the Western Cape.
The bread retailers complained after all three companies simultaneously raised their bread prices by between 30c and 35c a loaf last year, while cutting retailer discounts from R1,20 to 75c.
After the investigation was launched Premier Foods and Tiger Brands approached the commission applying for leniency in exchange for their full cooperation in the investigation.
Premier Foods, as the first to approach the commission, was granted full leniency (and no fine) and Tiger Brands, which provided additional information about collusion in the milling industry, was also given lenient treatment, but still received a fine for the collusion in its baking operations.
Nico Hawkins, of the National Maize Producers’ Organisation, says input prices for bread have risen considerably in the past year, but this did not excuse the companies involved from sitting around and fixing prices.
Pioneer Foods has not been treated leniently by the competition authorities. If it is fined 10% of its turnover the fine would amount to R960-million, which would eclipse the R670-million fine the competition authorities imposed on steel-maker Mittal.
Pioneer’s Tertius Carstens says the company is engaging with the commission.