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.
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.
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.