Egg and poultry cartels in the wings

Never mind the bread cartel, wheat cartel and flour cartel, while we’re at it let’s throw in an egg cartel and a poultry cartel for good measure.

Pioneer Foods’s whopping R1-billion fine for anti-competitive practices may have grabbed the headlines, but the real story was hidden in the detail—Pioneer Foods has not only been involved in bread, flour and wheat cartels, but also in poultry and egg cartels.

The Competition Commission’s statement on the settlement reached between it and Pioneer, detailed for the first time investigations into the poultry and egg markets.

The statement made it clear that the fine imposed on Pioneer was also aimed at settling these matters, which are under investigation, and that Pioneer would rat on alleged colluders in the egg and poultry cartels.

The commission’s investigation into the poultry market was initiated in April last year and its statement claims that Rainbow Chickens, Astral Foods, Country Birds Holdings, Afgri, the South African Poultry Association and the Animal Feed Manufacturers’ Association played a part in the cartel.

Paying too much
They are alleged to have divided up markets and shared information and the statement suggests that South Africans could be paying 25% too much for chicken as a result.

The egg cartel investigation was launched in May this year and 20 egg producers are being investigated—Nulaid, Hy-line South Africa, Avichick, Eggbert, Top Lay, Fair Acres, Heidel Eggs, Lund Eggs, Waterglen Pluimvee, Paardeberg Flinkwink, Golden Yolk ND Lay Well, Rodendal, Nantes Eggs, Eikenhof, Elkana, Windmeul Eggs, Morningside, Sunrise Eggs, Eden Rock and Cocorico.

Pioneer has applied for corporate leniency for the involvement of its subsidiary, Nulaid, in collusion in the egg market and so it will help the commission prosecute the other members of the cartel.

Pioneer’s involvement in these alleged cartels has highlighted the fact that, while the agreed settlement of more than R1-billion is the largest settlement in South African history, Pioneer still got off fairly lightly.

According to current legislation, the commission could ask for a maximum fine of 10% of the Pioneer Foods Group’s annual turnover for each individual case it chose to prosecute involving Pioneer Foods.

‘Pioneer could have faced a maximum fine’
So, with a turnover for the 2009 financial year of R16,3-billion and anti-competitive practices flagged in the bread, wheat milling, flour milling, egg and poultry markets, Pioneer could have faced a maximum fine in the region of R8-billion, which is 80% of the company’s market capitalisation.

The Black Sash took umbrage over the fine this week, arguing that it was not high enough.

“Not only did Pioneer Foods fix the price of bread, a staple food, but it inflated and profited illegally from the sale of other basic goods, including wheat, maize, poultry and eggs,” said the Black Sash in a statement.

Pioneer Foods have been locked in negotiations with the commission for months, trying to bring to an end its reputation-damaging involvement in the bread and milling cartels.

In May 2008 the commission referred its case against bakers Sasko and Duens (Pioneer Foods), Albany (Tiger Brands), Blue Ribbon (Premier Foods) and Sunbake Bakeries (Foodcorp) to the Competition Tribunal, alleging that they had colluded in a bread cartel.

Later three of them admitted guilt and settled with the commission, but Pioneer decided to take the commission on, claiming it was not part of a bread cartel.

Determined to clear their name
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, André Hanekom, was adamant that it had a strong case and that it was determined to clear its name.

In the end Pioneer’s defence came unstuck, with Sasko general manager Andries Goosen admitting to perjuring himself before the tribunal.

The commission was looking into laying perjury charges against Goosen, which could result in jail time, but it is unclear how the current settlement will affect those charges.

KK Combi, the Premier chairperson, refused to comment on Goosen, saying Goosen was facing action from the National Prosecuting Authority.

In February this year the tribunal announced its ruling, fining Pioneer R195-million. But the commission was not impressed with the fine and took the matter on appeal to the Competition Appeal Court to get it increased, which sparked the round of negotiations that resulted in the settlement.

Tribunal hearing
Pioneer also had a tribunal hearing into its milling business hanging over its head after the commission referred charges against it to the tribunal in March this year.

As agreed in the settlement, which has to be approved by the tribunal, Pioneer will pay a R250-million fine to the National Revenue Fund and R250-million to a new agro-processing competitiveness fund, which will be administered by the Industrial Development Corporation to promote competitiveness, employment and growth in food value chains.

Pioneer has also agreed to adjust its flour and bread prices over a defined period, which will cost it about R160-million.

Ebrahim Patel, the minister of economic development, told Parliament this week that it was anticipated that this would “stimulate price competition in the bread and wheat market”.

“I take this opportunity, subject to confirmation by the Competition Tribunal of the settlement, to call on bakeries, supermarkets and the retail trade to pass the price reduction on to consumers,” said Patel.

Capital expenditure to be increased
Pioneer has also agreed to increase its capital expenditure by R150-million over a two-year period, to R1,35-billion.

Patel said this commitment was intended to support efforts to improve the company’s competitiveness through innovation and the upgrading of equipment and expansion of operations, instead of relying on price-fixing and collusion with competitors.

This was on top of the R195-million fine that was handed down by the tribunal in February, taking the total to just over R1-billion.

Commissioner Shan Ramburuth said the settlement with Pioneer went beyond just a penalty and included price adjustment for the benefit of consumers and a fund to promote competition in the agro-processing industry.

“The commission welcomes Pioneer’s approach, as evidenced in this agreement, to resolving the matters and agreeing to undertakings aimed at a more competitive and dynamic economy in these crucial sectors,” said Ramburuth.

Lloyd Gedye

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