Oceana Group, the South African fishing company, tried to have its cake and eat it last week. Caught in the crossfire of a Competition Commission investigation into the pelagic fishing market, Oceana decided to admit guilt and settle with the commission, thus getting a smaller fine.
Pelagic fish includes three species: anchovy, pilchards and red-eye herring.
Ultimately, Oceana paid R34.7-million, which equates to 5% of its turnover from the pelagic fish market for 2010. Its pelagic fishing business brought in revenue of R695-million that year.
However, according to the strictest letter of the law, Oceana’s fine could have been a lot more significant, which makes its claims that its violations of the Competition Act were “technical” in nature and that “no harm” was done to any consumers worrisome.
As explained this week by the commission’s divisional manager of advocacy and stakeholder relations, Trudi Makhaya, cartel conduct is inherently anticompetitive.
“All economic theory points to the fact that cartel behaviour always causes consumer harm,” said Makhaya.
She confirmed that the commission was in the process of referring the entire investigation to the Competition Tribunal, which will result in other fishing companies pointed out in the cartel facing the music too.
The Competition Act allows the Competition Tribunal to levy a 10% penalty on total group earnings. It means that Oceana’s total fine, if it had not settled, could have been as much as R342-million, which equates to 10% of the group’s 2010 turnover of R3.4-billion.
To measure the full impact of a fine of this magnitude, it would equate to 49% of turnover for 2010 of Oceana’s affected business, pelagic fishing.
It seems clear that Oceana’s decision to settle makes good business sense and its recent announcement of a 21% increase in headline earnings per share reinforces the point.
However, its desire to deflect blame from itself smacks of arrogance.
So what exactly did Oceana do? According to the settlement agreement, it has admitted to price fixing, information sharing, market division, customer allocation and even its shareholders drafting a contract that had a non-competition clause in it.
With its competitors, on which it is spilling the beans as part of its settlement, Oceana agreed to fix the prices paid to vessel owners and operators, skippers and crew for the service of catching pelagic fish.
Oceana also entered into agreements with its competitors in the processing and canning of fish in terms of which they shared competitively sensitive information that gave rise to indirect fixing of the price of canned fish sold to consumers.
Another charge relates to Oceana agreeing with a competitor not to compete with each other for suppliers of fish in Mossel Bay.
During 2006, Oceana entered into an agreement with a competitor to fix the quota rental fees payable to three companies in Port Elizabeth for the use of their pilchard quota for the 2006 fishing season. Oceana also entered into agreements to allocate fishmeal customers and to fix the prices of fishmeal with a competitor.
The final violation of the Competition Act to which Oceana admitted was the inclusion of a “non-compete clause” in a shareholders’ agreement for Sea Harvest, a company that used to count Tiger Brands as a significant shareholder. Remember the company from the bread cartel?
“The commission concluded that the shareholders’ agreement prevented Sea Harvest and Oceana from competing in the hake and pelagic fish markets respectively between 2000 and 2008,” said the commission’s statement on announcement of the settlement.
However, Oceana’s response was trying to imply that no consumers were harmed in the running of this cartel. The Mail & Guardian spoke to Oceana chief executive Francois Kuttel this week to understand Oceana’s perspective expressed in its press release. Kuttle, who was sensitive about not being seen to be denying guilt, seemed to suggest that the violations never actually led to consumers being affected.
“I am not saying that we didn’t infringe the Act,” said Kuttel. “We accept that we contravened the Act.”
But he kept pointing out that the violations related to “small parts” of Oceana’s business and stated that the company had never honoured the agreements that violated the Competition Act. Unfortunately for Oceana, it is not a defence.
According to the Act, you have fallen foul of the law if you collude, and even if you never implemented the collusive agreements you are still guilty.
Oceana’s shareholder, Tiger Brands, denied any wrongdoing with the disputed clause in the Sea Harvest shareholders’ agreement.
Tiger Brands group company secretary Ian Isdale said the clause in the contract was standard and aimed at preventing Tiger Brands’ fellow shareholder Brimstone Investments Corporation from investing in other fishing companies that competed against Sea Harvest.
Isdale pointed out that Brimstone had already invested in Oceana at this point. However, he said he would not debate the legality of the clause in the media and that Tiger Brands would engage with the commission on the matter.
Last week, Tiger Brands put out a Stock Exchange News Service announcement to investors about the matter.
“Having taken legal advice, Tiger Brands is of the view that the shareholders’ agreement did not contravene any provision of the Competition Act,” said the statement.
Brimstone chief executive Mustaq Brey said the commission had contacted the company and asked it to settle.
“Settle what?” said Brey over the phone this week. “They must show me what we’ve done wrong.”
Brey said the shareholders’ agreement in question had been submitted to the commission numerous times when Brimstone had upped its shareholding in Sea Harvest and he found it surprising that it had never raised any concerns at the time.
The participants are making light of their involvement in anticompetitive practices, which economic theory would suggest has had an negative effect on the price of canned fish.
Their illegal behavior means consumers, including the poor, are paying more.