Following hot on the heels of the competition authorities’ investigation into price fixing in the bread industry comes the announcement that dairy processors are set to appear in the dock for collusion. The Competition Tribunal announced this week that it would be holding a pre-hearing into alleged collusion by eight dairy processors next Thursday, during which evidence will be assessed and hearing dates set.
The dairy processors stand accused of operating a cartel aimed at fixing prices for raw and retail milk and manipulating trading conditions in the respective markets. Some of the dairy processors stand accused of colluding to control the flow of excess milk supply so that they could stifle competition and artificially maintain high prices. The accused processors are Clover Industries, Clover SA, Parmalat, Ladismith Cheese, Woodlands Dairy, Nestlé, Lancewood and Milkwood Dairy. Clover Industries was granted indemnity for providing information about the cartel’s activities under the commission’s corporat leniency policy.
The competition authorities are refusing to comment on the prehearing next week, but commissioner Shan Ramburuth was quoted saying that they have a very strong case. If found guilty, the dairy processors could face fines of up to 10% of their annual turnover. For a company as big as Clover SA, with a turnover last year of R4,48-billion, that could be as much as R448-million. Meanwhile the Competition Commission is still investigating bread manufacturers. It is going after the remaining cartel members after it fined Tiger Brands R98-million. With two high-profile food collusion cases within a matter of months, there is bound to be renewed calls for a full investigation into all food supply chains.
In addition to the coming hearing,the competition authorities are investigating a further complaint laid by the Milk Producers’ Organisation of South Africa (MPOSA) into South African supermarket chains using their dominance to squeeze the margins of milk producers. Alwyn Kraamwinkel, the chief executive of the South African Milk Processors’ Organisation, says the competition authorities contacted the organisation and requested its cooperation. “We were asked to submit certain information and we complied with their request,” said Kraamwinkel.
“They must now investigate and reach their own conclusions.” In early December the Competition Commission released a statement confirming it had referred a cartel case against the eight dairy processors to the tribunal. The statement said the commission
found that Clover, Parmalat, Ladismith, Woodlands, Lancewood and Nestlé had exchanged sensitive information about procurement
prices for raw milk, which enabled the fixing of the purchase price. It also found that Clover, Parmalat, Woodlands and Nestlé had agreed to sell surplus milk to one another rather than to end users so that the milk price could be maintained at “artificially high levels”.
Clover and Parmalat are accused of abusing their respective dominant positions by forcing producers to sell their total milk production
to them using exclusivity contracts that prevented smaller milk processors and distributors from entering the market. Clover SA, Woodlands and Milkwood are accused of fixing the price of UHT “long life” milk and Woodlands and Milkwood of allocating geographical areas to ensure they would not compete against each other.
In a separate complaint MPOSA told the Mail & Guardian that competition authorities were investigating a complaint it lodged against South African supermarket chains which, it claims, used subsidised dairy products from Europe to force down local prices. MPOSA chief executive Bertus de Jongh said the cases are related because they had a cause-and-effect relationship, but that the competition authorities are still gathering information for the second complaint. De Jongh said that in late 2004 there was an investigation into
South African supermarkets importing cheese from Ireland, which was being subsidised by the Irish government through the Irish Dairy Board.
De Jongh said the cheap Irish cheese was used to force down local cheese prices even though the local prices were below international price standards. The result was an investigation by the International Trade Administration Commission of South Africa which found the Irish Dairy Board guilty of “unfair practices” and placed a duty on Irish cheese imports. “Supermarkets are dominating so we can’t get market-related prices through to them,” said De Jongh.