Guiltless pioneers?

Pioneer Foods faces the largest fine imposed to date by the Competition Tribunal but is determined to clear its name.

If the company fails to convince the tribunal in hearings that began this week that it is innocent of price fixing, it could face a fine just short of R1.2-billion.

Legislation allows for the Competition Commission to request a fine of up to 10% of the parent company’s annual turnover, but the commission has previously tended to impose fines based on the affected turnover, which is the turnover of the subsidiary that breached the competition legislation.

Tiger Brands and Foodcorp, two of the bread cartel members who have already admitted guilt and settled with the commission, paid fines that were calculated on the national turnover of their bread operations.

But Pioneer Foods remains the only alleged member of the bread cartel not to have settled with the commission, and it appears that the commission aims to send a tough message by pushing for the maximum fine because Tiger Brands, Foodcorp and Premier Foods have all fingered Pioneer as a member of the cartel.

If Pioneer had agreed to settle with the commission, its fines would probably have been calculated on the R3.4-billion turnover of its baking and milling division from the 2007 financial year—an effective fine of R340-million if the full 10% had been sought, which would have been unlikely.

But the company’s managing director, Andre Hanekom, is adamant that it has a strong case and it is determined to clear its name.

This means that if the tribunal finds Pioneer guilty it could face a fine of 10% of its R11.7-billion group turnover for the 2007 financial year.

Shareholder activist Theo Botha said Pioneer Foods has a right to go before the tribunal and make its case. But, he added, if the company is found guilty its shareholders would be after blood.

“They must have some really strong evidence to say that they didn’t collude, because the fines are horrendous,” said Botha. “The magnitude of the fine is scary and if they get it wrong, there will be wholesale slaughter.”

The largest fine so far imposed by the Competition Tribunal is Sasol’s R251-million for cartel activity in its fertiliser business. The tribunal did fine ArcelorMittal South Africa R692-million for excessive pricing, but this is under review after the Competition Appeal Court upheld ArcelorMittal’s appeal and referred the matter back to the tribunal to be reassessed.

The commission’s referral affidavit details numerous meetings and agreements that took place between 1999 and 2006, where staffers from the four baking businesses are alleged to have agreed on fixing bread prices, dates to increases prices at the same time and the division of markets by allocation of territories. (See online link.)

Premier Foods was the first to break ranks with the bread cartel and to cooperate with the Competition Commission’s investigation. It received corporate leniency for this.

In November 2007 Tiger Brands was the next to cooperate, receiving a fine of R99-million—or 5.7% of its national turnover—for bread operations for its additional evidence about the milling industry.

In January 2009 Foodcorp settled with the Commission and paid a penalty of R45-million, representing 6.7% of its turnover for baking operations.

Hanekom told the Mail & Guardian this week that Pioneer is convinced it has a strong case. “The legal opinion we have says that we have a case to put forward,” said Hanekom. “Obviously we are worried about the fine, but what can we do? What the other guys did is their story. We also have our side of the story.”

Lloyd Gedye

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