The Role of Business Conduct in Agriculture – Competition Concerns Gauteng Food Summit 10 July 2008

1. The Role of Business Conduct in Agriculture – Competition Concerns Gauteng Food Summit 10 July 2008

2. 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

3. 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

4. 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

5. 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

6. 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

7. Bread, flour and wheat prices

8. 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)

9. 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

10. 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