Milking the market share

Lloyd Gedye outlines the Competition Commission’s case against milk processors.

South Africa’s milk processors appear to have missed few opportunities to protect market share and stifle competition, according to the Competition Commission.

The commission’s referring affidavit details a litany of alleged contraventions of the Competition Act among eight of South Africa’s dairy processors between 2003 and 2006.

But it seems the dairy processors are trying to use a technicality to have the investigation into their alleged collusive practices scrapped and all legal proceedings against them dropped.

In December 2006 the Competition Commission referred charges against eight dairy processors — alleged to be operating a cartel — to the Competition Tribunal.

The Competition Commission claimed it found evidence of price-fixing for raw and retail milk and that the processors manipulated trading conditions in their respective markets.

Some of the dairy processors were also accused of colluding to control the flow of excess milk supply so that they could stifle competition and maintain artificially high prices.

The referring affidavit lists six different charges laid against the dairy processors, which include Clover Industries, Clover SA, Parmalat, Ladismith Cheese, Woodlands Dairy, Nestlé, Lancewood and Milkwood Dairy.

In the first charge Clover, Parmalat, Ladismith, Woodlands, Lancewood and Nestlé are accused of exchanging sensitive information on procurement prices of raw milk in various ways, allowing for price-fixing.

In the second charge Clover, Parmalat, Woodlands and Nestlé are accused of entering into long-term milk supply and exchange agreements to sell their surplus milk to one another rather than at lower prices to end users.

In the third charge Clover and Parmalat are accused of abusing their respective dominant positions in exclusive agreements that compelled producers to supply them with their total milk production. This prevented producers from selling surplus raw milk at competitive prices to third parties or consumers directly.

In the fourth charge Clover SA and Woodlands are accused of reaching an agreement regarding the selling price of UHT “long life” milk, which ultimately resulted in the consumer paying higher prices for UHT milk.

In the fifth charge Woodlands and Milkwood are accused of agreeing to fix the selling price of UHT milk and allocating geographic areas in which they would not compete in selling UHT milk.

In the sixth charge Clover, Woodlands and Parmalat are accused of coordinating the removal of surplus milk from the market, keeping prices artificially high.

Clover wants hearing to be quashed

South Africa’s dairy processors, accused of operating a cartel and collusion, may be trying to get off scot-free on a technicality.

During a pre-hearing held at the Competition Tribunal last week Clover, which was granted immunity under the commission’s corporate leniency policy for lifting the lid on the alleged cartel’s operations, made representations to the tribunal arguing that all the charges be dropped and the entire tribunal hearing set for September be quashed.

The Competition Act stipulates the commission has one year from the initiation of an investigation to make a referral to the tribunal.

The crux of Clover’s argument is that, following a complaint by a small milk producer in the southern Cape named Louise Malherbe, the commission had let the one-year time period lapse without requesting an extension.

The one-year time period was included in the Competition Act to protect a complainant like Malherbe because it allows such complainants to take civil action if the commission does not make a referral within the year.

But now Clover and the other dairy processors, which also stand to gain if the tribunal hearing into the claimed cartel is struck from the roll, are trying to use this clause to dismiss the case against them.

The commission argues that the letter from Malherbe did not spark the investigation into the dairy processors’ industry. The investigation was launched separately. “The letter from the small producer was no more than a suggestion that an investigation be launched into the milk price for producers in comparison to what consumers have to pay,” says the commission’s legal papers.

The Competition Tribunal panellists did not seem swayed by Clover’s argument. Norman Manoim suggested that Clover would not be prejudiced if the hearing went ahead because Clover would have its day in court and “if it was innocent it will be found so”. Clover’s advocate, David Unterhalter, said the tribunal could not reinterpret the Act because of the drastic consequences that would flow from it.

“However unpalatable you may find the consequences, the fact is the commission has failed to square up what they were doing,” said Unterhalter.

Unterhalter also suggested that there was a possibility that Clover would take its argument to the Competition Tribunal Appeal Court or the High Court if the tribunal could not rule on their objections.

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