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More dough for less bread

How much should a loaf of bread cost? The answer is unclear since the Competition Commission announced details of two more cartels, which have had a direct impact on the price of bread.

What is clear is that South Africans are paying too much for bread because corporate South Africa has rigged prices at every level, from grain trading to bread production. The fixing of the bread price by major bakers shocked the country. Now the commission’s investigations into wheat milling, grain storage and grain trading show that cartels at four different levels have inflated the price.

Details of cartels in the grain storage and grain trading sectors emerged this week when the commission announced that it had settled with some of the colluders. “When the Competition Commission prioritised food a few years ago, there was public debate that we need to look at all the different layers of the value chain,” Shan Ramburuth, the competition commissioner, said. “The uncovering of these cartels, from bread manufacturers to milling to grain storage, shows how widespread such conduct is and the best way of tackling this problem is tackling the anti-competitive behaviour at each layer.”

Many companies in the bread, milling and grain sectors have already paid multimillion rand fines, the most being the R1-billion fine paid by Pioneer Foods for its involvement in a bread cartel, wheat milling cartel, white maize milling cartel, egg cartel and poultry cartel.

In total, the companies involved in the baking, milling and grain cartels have paid more than R1.25-billion in fines, and there are still 27 companies who have not settled with the commission and could be charged in the Competition Tribunal. The majority of these are in the milling and grain storage sectors.

The milling sector is divided into white maize milling and wheat milling. Wheat milling has an impact on the bread price and white maize milling has an impact on maize meal, another staple food.

‘Favourable settlement
The collusion and cartel activity in the milling sector was so widespread that the commission announced in June last year that it was offering favourable settlement terms to any milling firm that declared all violations of the Competition Act and cooperated with the commission in its investigation.

“Since the commission’s referral of the two cartel cases against millers of flour and white maize to the Competition Tribunal it has received numerous approaches from the firms that were involved in what seems like endemic cartel arrangements at many regions in the country,” the commission said. “These regional arrangements involved a lot of new players that were not cited in the cases referred to the tribunal.

“It appears that the regional arrangements reinforced, overlapped and completed the national cartel arrangements,” said the commission. “As such, the milling cartel is much wider and involves many firms that were previously uncovered.”

The commission gave the milling firms a month to come forward but very few did — three settled and two received corporate leniency; 12 have not settled.

Let’s not forget that the millers responsible for fixing the wheat price referred to their meetings as kerk vergaderings or church meetings. In the Free State they even held meetings in the Viljoenskroon NG Kerk and began them with a prayer. As the commission observed in its referral affidavit, what “divine blessing” they were seeking was “unclear”.

Last week the commission turned the spotlight on the grain sector, settling with firms that colluded in the grain storage and grain trading markets.

The first were four members of the grain storage industry who have admitted to agreeing jointly to storage tariffs for the South African Futures Market (Safex) and the physical grain storage market, which amounts to price fixing.

The second were two companies that divided the grain trade market between them by allocating territories and customers.

The six companies have agreed to pay fines totalling R21.2-million. The grain storage company, Afgri Operations Limited (Afgri), was hit hardest with a fine of R15.6-million. Those firms that colluded with Afgri were Kaap Agri Bedryf Ltd (Kaap Agri), MGK Bedryfmaatskappy (Pty) Ltd (MGK), and Suidwes Agriculture (Pty) Ltd (Suidwes), who were handed fines of R1.2-million, R226 800 and R1.5-million respectively.

Thirteen other grain storage companies suspected of being part of the grain storage cartel have been notified that the commission’s case against them has been finalised but not yet referred to the tribunal and none of them has come forward to settle with the commission.

In the grain trading cartel case, Rand Merchant Bank (RMB) and NWK Ltd (NWK) were the guilty parties and were fined R2.1-million and R520 290 respectively.

The collusion between RMB and NWK related to an agreement they entered into in 2005 in respect of grain owned by RMB and stored in NWK silos. “In terms of the agreements all the respondents have committed to cooperating with the commission in prosecuting these cases, to cease and desist from engaging in anti-competitive conduct and to develop and implement competition compliance programmes,” said the commission’s statement released this week.

“All respondents have also admitted to contravening the Competition Act.” The commission initiated an investigation of the grain silo industry in March 2009.

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Lloyd Gedye
Lloyd Gedye
Lloyd Gedye is a freelance journalist and one of the founders of The Con.

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