Inquiry into the poultry sector has a foul smell about it
Imagine being the finance minister at a cabinet meeting, staring at a R600bn gap between what you collect in tax revenues and what your colleagues want to spend.
You know you can’t persuade anyone around the table to cut budgets further. No, growth is the only hope. And sitting across from you is trade, industry & competition minister Ebrahim Patel. What chance do you have?
Spare a thought this week for the poultry sector CEOs, who — having spent countless hours with Patel’s department bedding down a “master plan”, which has at its heart a commitment to salvage the local industry and rescue what remains of its jobs — are now confronted with a wide-ranging study that may (according to the Competition Commission) result in binding determinations that industry players change their contracts or pricing, or even sell some business units.
It seems the modus operandi is to use the master plan process as a fishing expedition for more targeted attacks via the legally far more invasive exercise of a market inquiry. The commission’s terms of reference say the master plan is “complementary” to a market inquiry. So much for the hardfought deal with government if the commission decides after an 18-month dip of the toe that things should change.
This market inquiry is even harder to understand than the ones now being conducted in the fresh produce and steel sectors, but they share a key feature: most, if not all, of the problems they identify are closely linked to failures by the state. But the commission can’t (even in its own version) force government to do (or not do) anything. Its recommendations cannot bind Eskom, the International Trade Administration Commission, the roads agencies or Transnet. Or the minister for that matter. If previous inquiries (into banking, private healthcare and public transport) are any indication, no-one in government even reads these reports.
Starting from such a ludicrously lopsided and incomplete position, the commission’s findings will be entirely focused on the private sector. Companies identified as large or that “dominate” will be instructed to cough up.
If the remedial actions proposed by the commission in the online platform inquiry are anything to go by, the chicken industry should brace for a stuffing. The tech giants were asked to change their contracts, fundamentally changing how they interact with consumers and businesses (Takealot, Uber Eats, Booking.com, Apple) and in some instances make services available for free (Apple, Booking.com) and even sell off their platform (estate agencies). They were also ordered to make “substantial” funds available to “historically disadvantaged persons”.
Market inquiries are an extractive exercise, as the commission’s chief economist made clear at a recent conference in Brussels: in the commission’s view, these companies don’t invest or pay enough tax in SA, and this is its means to make them pay.
The commission’s terms of reference give some indications of how it intends to pluck the chicken value chain: it identifies that there are a few large, vertically integrated players. Expect demands for separation of their upstream (feed, chick production) and downstream (retail) operations, or that they divest some operations to empowerment partners or worker trusts (despite the economic reality that scale is critical in the poultry business, and “elevated levels of concentration” may simply reflect that only the largest survive in this brutally competitive game).
The efficiencies inherent in vertical integration will be lost in the name of fostering “participation”. There will be demands for “fair” terms for contract growers (modelled on the US) and “reasonably” priced inputs. Expect debates about reducing “dependency” and “inequality” between private contracting parties (even if they haven’t contravened the Competition Act), and even price regulation.
The commission also identifies that the large producers have managed to import high-quality stock from the large international breeders (there are only about three globally). These offshore players are likely to face demands to cut special deals for historically disadvantaged producers in SA. That they run a global business and will be expected to hand out freebies when they don’t do the same in any other part of the world will likely fall on deaf ears. Just ask Google.
The public (and the government) have so far seemed largely agnostic to the commission’s attempts to extract rents from offshore-headquartered companies.
The consensus seems to be that these global giants have plenty of cash and if this is an opportunity for SA to fleece them, we should. That the commission’s openly hostile approach is a serious disincentive to global tech companies to invest further doesn’t seem to have registered.
It will be interesting to see if this inquiry is met with the same lethargy. Or whether this will be the time the minister calls off his dog.