Towards a fair and efficient economy for all

1. Competition challenges in food and agro-processing Towards a fair and efficient economy for all

2. Overview • High food prices • Structure of the food market • Commission’s interventions • Major cases • Role of the state Towards a fair and efficient economy for all

3. High food prices – contributory factors • Availability of grains worldwide • Increasing demand including from economic growth and biofuels • Unfavorable climatic conditions • Increasing energy and fuel costs – transport • Anti-competitive conduct in the agro-food chain including inputs Towards a fair and efficient economy for all

4. The structure of food markets • Historical oligopolies and virtual monopolies • Increasing vertical integration and horizontal concentration • Limited new entrants due to barriers such as access to capital and competing against established brands • Transformation at the level of ownership in the established firms • Incumbent firms leverage historical positions to extract profits and impose standards Towards a fair and efficient economy for all

5. Commission’s interventions • Within mandate of the Competition Act • Enforcement and exemptions, merger analysis, advocacy and market inquiries • Prioritisation of the food value chain • Impact on low income consumers • A number of complaints • Government interventions: monitoring prices, task teams, industrial policy • Research and scoping exercises show strong indications of anti-competitive conduct Towards a fair and efficient economy for all

6. Major cases • Fertilizer • Tinplate and other inputs • Bread and milling • Grain storage and trading • Dairy • Poultry • Fish • Fats and Oils • Food retail Towards a fair and efficient economy for all

7. Fertilizer • High levels of concentration in inputs to farming • Fertilizer is the single largest input cost in production of crops such as maize, wheat • Long-running cartel: • Foskor applied for leniency; • Sasol reached settlement with Commission, penalty of R250m; • Case proceeding against Omnia and Kynoch/Yara • Local monopolies in main inputs (abuse of dominance ): • Ammonia production- Sasol charges inland import parity prices • Phosphate rock- Foskor is settling Towards a fair and efficient economy for all

8. Tinplate and other inputs Tinplate • Tinplate is major cost in canned foods for local and export markets • Tinplate pricing impacts heavily on: • local production by farmers e.g. in tinned tomatoes competing with imports, and canned fruit in export markets • consumer prices of canned foods • Sole local producer, ArcelorMittal SA, increased tinplate prices by around 70% in April 2009; Commission investigation underway Other inputs to agricultural production being investigated • Diesel • Fencing wire • Plastic irrigation piping Towards a fair and efficient economy for all

9. Bread and milling • CC initiated & received a complaint • Blue Ribbon (Premier), Albany (Tiger), Sasko (Pioneer), Sunbake (Foodcorp) • Price fixing & market allocation –Western Cape & national • Progress: • Premier: leniency in terms of CLP • Tiger: penalty of R98.8 m • Foodcorp: penalty of R45.4 m • Pioneer: defending case, closing arguments were heard in Sept. 2009 • Research findings that margins increased at processing and retail of milled products • Initiated investigation in milling of wheat and maize, leniency application received, investigations being concluded Towards a fair and efficient economy for all

10. Bread, flour and wheat prices, Rand per 700g brown loaf Towards a fair and efficient economy for all

11. Grain storage and trading • Complaint received by trader against Senwes • Abuse of dominance in the storage & handling of grain linked with virtual monopoly positions of privatised co-ops • Tribunal found exclusionary conduct related to independent traders of grain • Tribunal decision being appealed at CAC • Other cases in grain storage under investigation • Setting of storage prices for futures contracts in the industry association (GSI) • RMB and NoordwesKooperasie (alleged market allocation and price fixing) Towards a fair and efficient economy for all

12. Dairy • Commission referred complaint -Dec 2006 • Collusion & abuse of dominance by processors: (Clover, Parmalat, Lancewood, Woodlands, Nestle, Milkwood) • Appear to have regulated the markets themselves following governments de-regulation • Suppressing raw milk prices, raising barriers to entry through exclusive arrangements • Case is currently tied up in legal processes Towards a fair and efficient economy for all

13. Poultry • Poultry industry main source of protein for majority • Commission referred case against Astral and Elite in 2008 • Abuse of dominance, especially in breeding by engaging in exclusionary conduct • Following extensive background research, investigations into different levels of the market including feed, breeding stock, broiler production, and poultry products Towards a fair and efficient economy for all

14. Fish • Pelagic fish – historical single marketing channel in the 1990’s known as Federal Marine. Deregulation led to competitors allocating brands through auction • Initiation into pelagic fish at different levels of the market – fishing, processing and retail • Key concerns include exclusive agreements and alleged collusion • Investigating allegation of export cartel in hake Towards a fair and efficient economy for all

15. Edible vegetable fats and oils • Initiated investigation against Unilever and 14 others • Retail price of cooking oil increased by 116% between 2006 and 2008 • Allegations of collusion in vegetable oil • Allegations of Unilever abusing dominance in margarine Towards a fair and efficient economy for all

16. Supermarkets • Public outcry about high food prices • Complaint from Milk Producers Organisation • Preliminary study • Initiated complaint against major retail stores: including Pick ‘n Pay, Shoprite Checkers & Spar • Buyer Power: Rebates & listing costs • Long term lease agreements: raising entry barriers • Category Management: facilitating collusion • Information Exchange: role of market intelligence consultants Towards a fair and efficient economy for all

17. Commission’s work • High concentration levels prevail, barriers to entry, poor competitive outcomes • Need to: • undermine cartels, opportunities for new entry • examine the role of industry associations • increase agricultural production by addressing effects of anti-competitive conduct on costs • improve understanding across govt and relevant public institutions Towards a fair and efficient economy for all

18. The role of the state • Commission investigations uncover past conduct and its consequences • Proactive measures required to increase competition and change outcomes • This requires coordination on the part of government and public institutions, including: • Development finance to support new entry • Leveraging government shareholding and support to encourage competitive conduct • Supportive government interventions in economic infrastructure, R&D, and skills development • Procurement to support new entry • Industrial and trade policy; and regulation Towards a fair and efficient economy for all