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09 Jun 2008 11:22
That Bruce Lyle and his built-from-scratch fertiliser business, Nutri-Flo, has survived its nine-year fight against Sasol with the competition authorities so far is remarkable. But the success of his innovative strategy to counter the alleged Sasol-led cartel’s stranglehold on the supply of nitrogen should become part of South African entrepreneurship lore.
When the nitrogen cartel started putting the squeeze on Nutri-Flo in the late 1990s, Lyle and his business partners perfected a new kind of organic fertiliser based on the effluent of the ethanol-from-sugarcane process.
Although they are still a tiny player in an industry of giants, their success enables Nutri-Flo to continue its fight against Sasol, which has cost them R5-million in legal fees so far and is far from over.
Lyle reckons that with more delaying tactics and appeals, the case still has about five years to go. With the food prices on the rise, Lyle is more hopeful that his case will garner the backing and pressure needed to break a big-business cartel.
A former sugar-cane farmer and fertiliser representative, Lyle went to the United States in the early 1990s to study the model of community-based fertiliser dealerships. These buy chemicals from large firms, mix them into liquid or granular fertiliser and sell to farms as a service. They apply the fertiliser on behalf of the farmers.
Back in South Africa most big chemical companies produce fertiliser themselves and sell it straight to the farmers without application services.
Lyle started Nutri-Flo with a loan of R95 000 from the then Small Business Development Corporation.
He recalls meeting the head of Sasol fertiliser at the time. “He said to me: ‘Bruce, you’re 10 years before your time in this country.’ Maybe that was a warning. Maybe I should have backed off,” he says.
Lyle says his first taste of Sasol’s aggression came when he stumbled upon the new source of organic fertiliser, condensed molasses solubles (CMS), derived from the cane-to-ethanol effluent.
The effluent, although rich in micro-nutrients, can also contain harmful substances. Analytical and processing systems were developed and years of tests done at the South African Sugar Research Institute. It was a massive task for an under-resourced owner-managed business to undertake.
“Contrary to what Sasol says, we run a disciplined organisation. We built a lot of our equipment from scratch. We bought wisely. Instead of buying new tractors, we bought them second-hand and all our tanks were second-hand.”
Lyle started supplying the CMS for sugar-cane farmers in Swaziland. “Sasol heard about this and they stopped the supply of nitrogen to our South African company until we made a deal with their company with shares in Swaziland.
“I still have a partner there who I didn’t really want. They did that in the early days and from there on, I was very reluctant to do anything contrary to what they wanted.”
But Nutri-Flo’s fertiliser-and-application offering to sugar cane farmers in northern KwaZulu-Natal was so successful, that it soon made a major dent in the market share of the region’s fertiliser cartel.
“My competitors complained to (the cartel) saying ‘sort this oke out’ and they pushed the price up for me,” says Lyle. Suddenly, the price of nitrogen that Nutri-Flo bought from Sasol escalated.
Lyle says it took some convincing to persuade his business partners that laying a complaint against Sasol at the newly formed Competition Commission under the new Competition Act was the right move. They hoped that, as Nutri-Flo grew and bought more nitrogen, they would get better prices.
Lyle argued that the competition authorities would enthusiastically take up their case and that other sectors of society would rally to their cause. For about a year before submitting the complaint he collaborated with his lawyers and “went through every single invoice, every single letter”. His health suffered because of the increased workload, but in 1999 he was able to lay a complaint at the commission.
It was a disaster. “The [Competition Commission’s] investigator kept on asking about predatory pricing—where a dominant firm sells at below cost to flood the market and kill opposition—which wasn’t one of the complaints that we’d made. We complained about excessive pricing.”
The commission, still in its infancy, found that Nutri-Flo did not have a case and rejected the complaint. Sasol got wind of the complaint and abruptly increased prices and cut off their credit facilities using the excuse that Nutri-Flo’s account was in arrears, says Lyle.
Nutri-Flo’s turnover tumbled as it was forced to scrounge for chemicals. It serviced farmers at fees 30% higher than the going rate. Had it not been for their original business model—a community-based fertiliser service provider with strong ties to its clients—they would have had to close down altogether.
Lyle says Sasol’s aggression led to two things. He started focusing on developing CMS and he pursued his complaint at the commission with greater outrage.
The Competition Commission came under new management and Lyle’s resubmitted complaint was taken seriously. They put him in contact with a Wits economist, Simon Roberts, who now works for the commission after becoming involved in the Nutri-Flo case. This is evidence of how the commission has strengthened over the years, says Lyle
The commission decided to take the case forward to the Competition Tribunal, but only after several hitches. Lyle spent large amounts of money on legal fees to argue that a charge of excessive pricing be joined with a charge of collusion, the only one which the commission at one stage wanted to pursue.
Theoretically, when the Competition Commission refers a complaint to the tribunal it means that the commission will argue the complaint on the complainant’s behalf.
But Lyle discovered that in practice this is actually where the real pressure and legal expenses start. Sasol hit back with one stalling tactic after another, including applications for access to his documents, says Lyle.
In this way, he was constantly drawn into the fray, with each appearance of his legal team costing him as much as R300 000.
Also weighing on him is the experience of former business owner Jim Foot, who in 2005 lost an epic struggle against Sasol to prove a case of price discrimination. The Competition Tribunal found in favour of Foot, but he lost at the Competition Appeal Court where he argued his own case, without an advocate, against Sasol’s formidable team of lawyers.
While the Competition Commission will argue a case on behalf of a complainant at the tribunal, the small complainant is on his own when the case goes to the Competition Appeal Court, where the tribunal is not allowed to defend its own verdicts. The Competition Act system is the battleground of large companies. It simply does not cater for small complainants against large firms.
Lyle now finds himself in a position where his investment in the case has gone way beyond business sense. But at the same time, he has spent so much time and energy on the case that it seems ridiculous to stop now.
“The thing is, we as small business can’t be martyrs all the time. This world is governed by finance and if you haven’t got it, you haven’t got it. At some point you’ve got to pull out.”
Lyle’s main strategy against the cartel is to run his businesses well, countering Sasol’s argument that Nutri-Flo is a victim of its own bad management.
Sasol is going to have to swallow their words, says Lyle, because not only is he still around, but his growth outside South Africa will keep on proving them wrong.
Sasol did not respond to requests for comment.
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