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The Role of Business Conduct in Agriculture – Competition Concerns Gauteng Food Summit 10 July 2008 PowerPoint Presentation
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The Role of Business Conduct in Agriculture – Competition Concerns Gauteng Food Summit 10 July 2008. Overview of Presentation. Competition policy, the competition authorities and their functions C ommission’s approach to agriculture and food as a priority area Competition Concerns

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slide1

The Role of Business Conduct in Agriculture – Competition Concerns

Gauteng Food Summit

10 July 2008

slide2

Overview of Presentation

  • Competition policy, the competition authorities and their functions
  • Commission’s approach to agriculture and food as a priority area
  • Competition Concerns
  • Conclusion and Implications
slide3

Main sections of the

  • Competition Act
  • Merger review: whether merger likely to substantially prevent or lessen competition
  • Collusion between competitors prohibited
  • Restrictive vertical practices prohibited – vertical agreements that substantially prevent or lessen competition
  • Abuse of a dominant position prohibited, e.g. :
    • Excessive pricing
    • Refusing access to an essential facility
    • Exclusionary acts
    • Price discrimination
slide4

Approach to agriculture & food

  • Prioritisation process undertaken by Commission focused on:
    • Accelerated and Shared Growth
    • Poor consumers
    • Where strong indications of anti-competitive conduct
  • Food and agro-processing identified as very important focus – critical for social welfare
  • Others: banking; infrastructure & construction; intermediate industrial products
slide5

Context to agriculture & food

  • Anti-competitive conduct in bread, milling, dairy, poultry
  • Wider debates - liberalisation of agricultural markets with expectation of improved efficiency and lower consumer prices
  • Mixed outcomes at best, partly because of low levels of effective competition:
    • High concentration levels across the supply chain
    • High barriers to entry
    • Anti-competitive Conduct
  • Previous studies found no anti-competitive behaviour
slide6

Bread Cartel Case Study

  • Commission initiated complaint in Western Cape
  • Leniency application received from Premier Foods
  • As cartels tend to be secretive, leniency assists Commission in prosecuting
  • Found that Premier (Blue Ribbon), Foodcorp, Tiger Brands (Albany) and Pioneer (Sasko) had agreed:
    • to increase price of bread to customers;
    • to fix their discounts to distributors; and
    • Close down certain bakeries
    • not to poach each others independent
    • distributors
  • Effect: prices higher than they would have been under competition
  • Ongoing investigation in baking and milling
    • Same four as in baking
    • Vertical integration: milling, bread & grain products
    • Animal feed milling: Rainbow Epol, Astral Meadow,
    • Senwesco
competition concerns current cases
Competition concerns & current cases?
  • Inputs: fertilizer
    • Complaints received alleging collusive behaviour and abuse of dominance on part of producers resulting in import parity pricing to detriment of farmers
    • Fertilizer largest input to grain production
  • Bulk storage (Silos)
    • Former cooperatives – now privatised
    • Referred complaint on exclusionary acts and inducement
    • Dominated by three main firms (Senwes, OTK/Afrgi, Noordwes)
    • Regional dominance
    • Also involved in trading activities in the derivative market (Safex)
slide9
Dairy
    • Initiated by the Commission following information received from a milk producer
    • Respondents: Clover (granted immunity), Parmalat, Ladismith Cheese, Woodlands Dairy, Lancewood,

Nestle and Milkwood

    • Collusion, including price suppression, and surplus extraction
  • Poultry
    • Recently referred to Tribunal
    • Respondents: Astral and Elite
    • Collusion to fix trading conditions, allocate markets

and also abuse of dominance by Astral

conclusions implications
Conclusions & Implications
  • High concentrations levels prevail, leading to poor competitive outcomes:
    • still significant concentration, high barriers to entry and oligopolistic market structures across the value chains
  • State regulation appears to have been replaced by private regulation in many sectors  liberalisation has benefited processors
  • Directly contributes to higher food prices
  • Anti-competitive conduct affecting farmers contributes to lower production
  • Impact on poorest households
  • Sector is an ongoing focus for the Commission