South Africa: South African Competition Commission Cracks Down On Cartels

Last Updated: 25 January 2008
Article by Heather Irvine

The South African antitrust authorities kept their promise to combat cartel activity in 2007. A number of cases involving price fixing and market division in key sectors of the South African economy were referred by the Competition Commission to the Competition Tribunal for adjudication.

In February last year, for example, the Commission initiated an investigation into price fixing and market division in the bread industry by Pioneer Foods (Sasko and Duens Bakeries), Premier Foods (trading as Blue Ribbon Bakery) and Tiger Brands (Albany Bakeries) after it received telephone complaints from several independent distributors of bread in the Western Cape. The Commission extended its investigation nationwide and also initiated a separate investigation into various practices in the milling industry. In November last year, the Tribunal confirmed a settlement agreement in which one of the cartel members, Tiger Brands, agreed to pay an administrative penalty of nearly ZAR 99 million (approximately $14.1 million, or 5.7% of its national turnover for bread operations for the 2006 financial year) and to implement a compliance programme.

The Commission also proceeded with its prosecution of dairy producers Clover, Parmalat, Ladismith Cheese, Woodlands Dairy, Lancewood, Nestle and Milkwood Dairy after its investigations suggested that these firms were involved in fixing the prices of raw and retail milk and in the manipulation of trading conditions in these markets. The Milk Producers' Organisation of South Africa has since lodged a complaint against several major South African supermarket chains, alleging fixing of milk prices and the discounts and promotion fees paid by retailers. This complaint is being investigated by the Commission.

The Commission's latest Annual Report shows a significant increase in the number of complaints initiated by the Commission – whereas only three complaints were initiated by the Commission in 2005/6, six such complaints were initiated in 2006/7. The Commission is thus increasingly in a position to initiate investigations rather than to wait for complaints from customers or competitors.

The bread and milk cases indicate that the Commission's Corporate Leniency Policy is starting to yield results. In the milk case, the Commission obtained information from Clover about the co-ordinated removal of surplus milk from the market by Woodlands, Clover and Parmalat (a form of indirect price fixing). The Commission granted Clover immunity from prosecution in terms of the leniency policy. In the bread and milling investigation, the Commission was assisted by Premier Foods (trading as Blue Ribbon Bakery) after it was granted conditional immunity from prosecution.

Although the leniency policy has been in effect since 2004, only 14 applications have been received by the Commission to date. As a result, last year the Commission released a discussion paper setting out proposed amendments to the policy. The proposed amendments are intended to make the policy more user-friendly and effective and include its incorporation into the Competition Act (it is currently only a guideline). The discussion paper also suggests the introduction of a 'marker system' to allow leniency applicants to secure a place in the queue on the basis of limited information provided that they submit complete information later, allowing firms which have instigated cartel conduct to qualify for leniency and permitting oral leniency applications (to avoid information used in leniency applications being subject to discovery in subsequent civil legal proceedings such as damages actions by customers or competitors).

In August last year, the Minister of Trade and Industry indicated at a briefing on the Economic, Investment and Employment Cluster's Programme of Action that further amendments to the Competition Act would be presented for consideration by Cabinet in 2008. No draft proposals have yet been circulated, but it is expected that the amendments will be aimed at increasing the powers of the Commission to investigate and prosecute anticompetitive conduct, particularly in sectors of the economy where there are "inherited" or "complex monopolies". In particular, there has been speculation that the amendments will introduce criminal liability for directors of companies which participate in cartel conduct. Sanctions of this nature were recently enforced against executives involved in cartel activities in the United Kingdom and America and amendments to introduce liability of this kind were proposed late last year by the newly elected Australian government. It seems that this proposed amendment might find favour with the Chair of the Competition Tribunal, David Lewis. He commented during the recent Tribunal hearing in the bread investigation that although the South African legislature had cogent reasons for not criminalising individual participation in cartel conduct when the Act was introduced in 1999, it is "increasingly held in competition law that the only penalty sufficient to deter cartel conduct is prison time... and [that] is a view, quite honestly, that we share."

The Commission's efforts to expose and penalise firms involved in anticompetitive practices are likely to intensify in 2008. In particular, the Commission has said that it will prioritize investigations into the construction sector ahead of the Soccer World Cup in South Africa in 2010. A preliminary review of this sector last year indicated possible bid rigging and fixing of input prices. The Commission will also focus on key industries which impact on the daily lives of South African consumers such as basic foodstuffs, telecommunications and the intermediate goods used in manufacturing like polymers, steel, chemicals and fertilisers. The Commission is also expected to release its report on the banking industry later this year, and this may trigger further investigations in the financial services sector.

These developments highlight the need for companies trading in South Africa to maintain an effective competition law compliance programme which educates employees about the Competition Act and establishes reporting procedures in order to detect possible contraventions and bring them to the attention of in-house legal counsel as soon as possible.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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