Astral's rule of the roost challenged

Find a food industry in South Africa these days and it appears that one or more players are conspiring to control more than their fair share.

Take the case of Astral Operations, a division of Astral Foods, and its subsidiary, Elite, a company that supplies poultry breeding stock.

The Competition Commission has referred Astral and Elite to the Competition Tribunal on allegations that they breached the Competition Act and recommended both companies be fined 10% of their annual turnover.

According to the referral documents submitted by the commission, Astral, through Elite is abusing its dominance in the poultry breeding market.

In this case, the competition is Supreme, formerly known as Country Bird.

Supreme is an “integrated” player in the poultry market: breeding chickens; processes fresh and frozen poultry products; and is involved in the broiler market.

Elite was set up as a joint venture company to supply parent breeding stock to a number of joint venture partners, including Astral and Country Bird (now Supreme).

Parent breeding stock refers to the chickens that produce broilers, or the birds that are reared specifically for slaughter and end up in the cooking pot.

Through various mergers, Astral acquired 82% of Elite while Supreme was left with 18%, making the terms of the joint venture agreement (JVA) increasingly anti-competitive.

The Competition Commission says that the JVA contravened the Competition Act, because it allocates market share to prevent competition. Supreme received conditional immunity under the commissions’ corporate leniency programme.

Under the terms of the JVA, Supreme is required to source 90% of all its parent stock from Elite. Supreme could also not secure the rights to bring in any competing breeding stock into South Africa.

Supreme is prevented from being “an effective competitor at the breeder level against Astral and Elite,” states the commission.

The company is also prevented from “being an effective competitor at the broiler level due to the restrictions as the sourcing of parent stock from Elite”.

Astral is “an effective quasi-monopolist” when it comes to supplying the poultry market with breeding stock, says the commission. Its only competitor is Rainbow Chickens. But the document indicates that Rainbow Chickens only supplies other firms once it has seen to its own internal needs.

Supreme side-stepped its JVA in June 2007 to secure breeding rights for breeding stock from an overseas company in an attempt to become an alternative supplier.

This is still a subject of litigation between the parties according to documents.

The commission alleges that in early 2007 Astral required one of its customers not to supply broiler chicks to Supreme.

“This was clearly in response to the fact that the complainant posed and actual or potential competitive threat to Astral,” says the referral.

Astral, through its control of Elite, also tied the company to securing all its feed requirements from Meadow Feed, another Astral Operations subsidiary, preventing competing feed suppliers from supplying Elite.

Astral however denies it has done anything wrong.

It made the following announcement last week to the JSE: “Astral disagrees with the views of the Commission — It will raise, at the appropriate time, substantial factual and legal issues material to the matter which has not been dealt with by the Commission in its referral. Astral is in the process of preparing its answering papers, which will be filed with the Competition Tribunal in due course. ”

Astral Foods chief executive Nick Wentzel was not available for comment.

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