Rooi­bos Ltd.: Not everyone’s cuppa

Rooi­bos tea pro­ces­sors have ac­cused the coun­try’s largest pro­ces­sor of the prod­uct of anti-com­pet­i­tive be­hav­iour. The case is cur­rently be­fore the Com­pe­ti­tion Tri­bunal.

Finweek English Edition - - THE WEEK IN THE NEWS - By Lloyd Gedye ed­i­to­rial@fin­week.co.za

rooi­bos Ltd.’s man­ag­ing di­rec­tor Martin Bergh says that “never in his wildest dreams” did he think the tea pro­ducer would be ac­cused of an­ti­com­pet­i­tive con­duct. A day af­ter the Com­pe­ti­tion Com­mis­sion re­ferred the com­pany for prose­cu­tion to the Com­pe­ti­tion Tri­bunal late in June for al­leged abuse of mar­ket dom­i­nance, Bergh said he had been con­sult­ing with the “le­gal ea­gles” and he doesn’t be­lieve that Rooi­bos Ltd. is guilty.

He says the tea pro­ducer needs a “deeper un­der­stand­ing” of what the com­mis­sion al­leges it has done wrong.

Rooi­bos Ltd., the largest pro­ces­sor of rooi­bos tea in South Africa, stands ac­cused of in­duc­ing rooi­bos tea farm­ers not to deal with rooi­bos tea pro­ces­sors it com­petes with.

The com­mis­sion’s in­ves­ti­ga­tion was launched af­ter it re­ceived a com­plaint from a rooi­bos tea pro­ces­sor in 2015. “The com­mis­sion’s in­ves­ti­ga­tion fo­cused on Rooi­bos Ltd.’s mo­nop­o­li­sa­tion of rooi­bos tea sup­ply from rooi­bos tea com­mer­cial farm­ers, in or­der to fore­close its com­peti­tors in the pro­cess­ing level of the value chain or pre­vent the ex­pan­sion of its ri­vals in the mar­ket,” ar­gued the com­mis­sion when re­fer­ring the mat­ter to the tri­bunal.

Deputy Com­mis­sioner Hardin Rat­shis­usu said the com­mis­sion was “con­cerned” with Rooi­bos Ltd.’s “on­go­ing” anti-com­pet­i­tive con­duct, which ham­pers growth in the agro­pro­cess­ing in­dus­try in SA.

“Dom­i­nant firms have a spe­cial re­spon­si­bil­ity to en­sure they do not sti­fle com­pe­ti­tion,” said Rat­shis­usu.

Chang­ing con­tracts

The com­mis­sion says that his­tor­i­cally rooi­bos tea pro­ces­sors ob­tained their sup­ply of rooi­bos tea from farm­ers through one-year sup­ply agree­ments.

In 2014 Rooi­bos Ltd. un­der­took con­duct that the com­mis­sion ar­gues “locked in” farm­ers and de­nied sup­ply to com­peti­tors.

The first was the in­tro­duc­tion of fouryear sup­ply agree­ments, where farm­ers were re­quired to sup­ply stip­u­lated vol­umes of rooi­bos tea to Rooi­bos Ltd. Sec­ond, in ex­change for com­mit­ting up to half of their pro­duc­tion to Rooi­bos Ltd., the com­pany agreed to give farm­ers ac­cess to its pro­duc­tion re­search.

“The in­tro­duc­tion of these ex­clu­sion­ary con­tract­ing strate­gies locked in sig­nif­i­cant vol­umes of rooi­bos tea pro­duc­tion from com­mer­cial farm­ers in favour of Rooi­bos Man­ag­ing di­rec­tor at Rooi­bos Ltd. Ltd. and neg­a­tively af­fected its com­peti­tors in the mar­ket for the bulk pro­cess­ing of rooi­bos tea,” ar­gues the com­mis­sion.

“Sub­se­quently, Rooi­bos Ltd.’s vol­umes of rooi­bos tea pur­chased from farm­ers, which were in se­ri­ous de­cline at the time, sig­nif­i­cantly es­ca­lated and its main ri­val’s pur­chases of rooi­bos tea ei­ther de­clined or stag­nated, thus threat­en­ing the com­pet­i­tive process in this mar­ket.”

Bergh says that the in­tro­duc­tion of the four-year con­tracts hap­pened af­ter one of Rooi­bos Ltd.’s clients ap­proached the com­pany in 2013, re­quest­ing a long-term sup­ply agree­ment.

Bergh says he told the client that they would have to ap­proach the farm­ers as he only con­tracted with them an­nu­ally. “So we went to the farm­ers and said, ‘Here is an of­fer from our client,’” he ex­plained. “Some farm­ers said yes and some farm­ers said they were not in­ter­ested in any­thing more than a one-year agree­ment.”

The rooi­bos tea mar­ket

“The in­tro­duc­tion of these ex­clu­sion­ary con­tract­ing strate­gies locked in sig­nif­i­cant vol­umes of rooi­bos tea pro­duc­tion from com­mer­cial farm­ers in favour of Rooi­bos Ltd. and neg­a­tively af­fected its com­peti­tors.”

In 1948, rooi­bos pro­duc­ers in the Ceder­berg re­gion es­tab­lished the Clan­william Tea Co­op­er­a­tive. It was this co­op­er­a­tive that lob­bied the min­is­ter of agri­cul­ture in 1954 to ap­point the Rooi­bos Tea Con­trol Board, which was es­tab­lished to reg­u­late mar­ket­ing, pric­ing and re­search in the rooi­bos tea in­dus­try. In 1993 the board was con­verted into a pri­vate com­pany, Rooi­bos Ltd., which in­her­ited the as­sets and monopoly po­si­tion of the board. The com­mis­sion ar­gues that this has made it a “dom­i­nant” player in the pro­cess­ing of rooi­bos tea. The com­mis­sion says that some of the new en­trants in the rooi­bos tea pro­cess­ing mar­ket were formed by farm­ers who were “dis­con­tent” with Rooi­bos Ltd.’s monopoly. Rooi­bos tea only grows in a few areas in the Western and North­ern Cape. This means the sup­ply sources are very lim­ited. The com­mis­sion says that there are about 220 com­mer­cial rooi­bos tea farm­ers, but a lim­ited num­ber of those con­trib­ute to the to­tal pro­duc­tion of rooi­bos tea that is sup­plied to rooi­bos tea pro­ces­sors. “Rooi­bos tea pro­ces­sors pur­chase rooi­bos tea from rooi­bos tea com­mer­cial farm­ers in bulk and then dry and treat the rooi­bos tea, which is then on-sold to the lo­cal pack­ers and the ex­port mar­ket as a bulk prod­uct for pack­ag­ing into fi­nal prod­ucts and other value-added prod­ucts,” says the com­mis­sion.

Martin Bergh

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