/ 29 July 2008

State blamed for milky way

The milk surplus removal system, which the Competition Commission alleges is anticompetitive, was the Department of Trade and Industry’s idea, claim dairy processors.

Eight South African dairy processors face various charges before the Competition Tribunal relating to alleged cartel and collusive practices.

Clover said the milk surplus removal system was a recommendation of a blueprint policy document drawn up by the Trade and Industry Department after consultation with industry stakeholders.

The Competition Commission claims that the removal of surplus milk resulted in indirect price-fixing — surplus milk is usually processed into a by-product — causing normal supply to decrease.

Clover deputy chief executive Manie Roode said the surplus removal system was proposed in a document drawn up by the Trade and Industry Department in 1998 after two workshops in Durban with dairy industry stakeholders.

The document, titled The Dairy Development Initiative, proposed that a South Africa Milk Federation (Samfed) task team should look at “a national system to handle surpluses and shortages in such a manner that the market (and producer prices) are not disrupted”.

The document, which the dairy processors refer to as the “industry’s Bible”, was seen as the blueprint for the structure of the dairy industry in South Africa.

Roode said the recommendation became part of the milk processors’ strategy and gave rise to the milk surplus removal strategy that was implemented in 2002.

“We were told to get our house in order by the department,” said Roode. “We always assumed that it was for the benefit of the industry; in hindsight we were wrong.”

The Mail & Guardian understands that the strategies and principles enshrined in The Dairy Development Initiative are still widely applied in the industry.

The department said that because the document was drawn up more than 10 years ago — under an entirely different minister, director general and senior management team — it is not familiar with it.

Chief director of industrial policy Nimrod Zalk said the department would be happy to respond in full to the claims by the dairy industry once it had seen the document.

“However, taking the above into account, no purported discussion or document could in any way override the provisions of the Competition Act,” said Zalk. “Indeed, there is a provision in the Act for parties to seek formal exemption from the provisions of the Act. This would be the route to pursue if any company wanted exemption from provisions of the Act.”

Competition commissioner Shan Ramburuth said the document would have predated the Competition Act and that the commission is an independent institution that applies its mind within the parameters of the Act.

“Increasingly, the work of the Competition Commission has to do with advising government departments in constructing pro-competitive policies,” said Ramburuth.

Zalk said he was unaware of the existence of such an agreement and of any recent approach by dairy industry members to the department to discuss the matter.

“We are in the process of urgently tracking down any internal documentation that may relate to this claim,” he said. “Once we have had sight of any relevant documents we will be in a position to provide a fuller response.”

The legal jostling between the Competition Commission and the dairy processors reached new heights last week. Clover filed an appeal before the Competition Tribunal Appeal Court after the tribunal ruled against its attempts to have the charges dismissed on a technicality.

Clover argued before the tribunal that a letter sent to the commission by a dairy farmer in the southern Cape constituted a complaint and the commission had let the one-year time period for dealing with complaints lapse, Clover argued, so as a result all charges against it should be dropped.

The tribunal disagreed with Clover’s version of events and ruled in the commission’s favour, allowing the tribunal hearing to go ahead.

Clover said it had not been granted corporate leniency for the c-milk (surplus milk) quota system. This system allows processors to buy surplus milk at a price that is lower than market price the producers would get if they sold it to third parties, which they are forbidden to do.

Clover told the tribunal it was being treated unfairly. It said the Competition Commission had granted it corporate leniency for violations of the Act in a horizontal relationship (the surplus removal scheme) but not for anticompetitive practices in a vertical relationship with suppliers (the quota system).

Clover’s argument was that both the surplus removal system and the quota system were “integral parts of the same conduct”.

“The quota system was an instrument of the surplus removal scheme,” said Roode.

He said because the two systems are linked, Clover’s executives, who will testify as commission witnesses, will implicate Clover in charges relating to the quota system. This was procedurally unfair and sent out the wrong message about the corporate leniency policy, he said.

The commission’s view was that the corporate leniency programme is in place to deal with cartel behaviour, such as anticompetitive practices between competitors, and not for anticompetitive practices in vertical relationships.

“Upfront it was made clear that they [Clover] would get corporate leniency for one and not the other and they agreed to it,” said Ramburuth.

The tribunal found that it was premature to rule on questions of fairness and that only once the hearing had begun and evidence about both systems was led could any prejudice that Clover might suffer be ascertained and dealt with.