Contravention and collusion
The Competition Commission has recently identified and investigated a range of South African companies for worrying behaviour
The Competition Commission is not just a ghostly entity, but extremely proactive when it comes to following up on complaints around companies, researching and investigating them and boosting competitiveness. There has been plenty of controversy surrounding the so-called bread cartels, construction cartel, and even a cycle shop cartel.
In August this year, the Competition Commission filed six complaints to the Competition Tribunal for various contraventions of section 4(1)(b) of the Competition Act, following the Commission’s investigations, which uncovered evidence implicating the respective firms in following collusive practices. These complaints are still being mediated, but are good examples of the work being done by the Commission.
Alleged contravening companies include Caxton and the Natal Witness printing and publishing companies, which are being investigated for dividing the market for community newspapers in the Howick area in KwaZulu Natal – where they agreed to allocating territories.
P l a s s e r R a i l w a y Ma c h i n e r y , Railway Mechanised Maintenance Company and Lennings Dec Services were also referred for colluding between each other when bidding for rail maintenance tenders issued by Transnet.
Seardel Group Trading, trading as Berg River Textiles, and Eye Way Trading were also investigated for allegedly colluding by agreeing on prices they would use when bidding for two tenders issued by the National Treasury for the supply of fabric used to manufacture uniforms for the then Department of Correctional Services, the South African Air Force and the South African Military Health Services.
More tender shenanigans have been suspected between Today’s Destiny Trading, Project 81, and Raite Security Services and Consulting for colluding when bidding for a tender issued by the Council for Geoscience for the pro- vision of security services at the Geoscience Council’s offices in Pretoria. The Commission found that Today’s Destiny and Raite also agreed on prices they would use when bidding for this tender.
Hudaco Trading and Fermel are suspected of colluding when supplying Casappa branded gear pumps to customers in the after-sales market, agreeing to divide markets by allocating customers among themselves, constituting market division.
Also apparently colluding when selling coffee capsules to retailers, Global Coffee Exports Ltd (GCE) and Secret River Trading (trading as Caffeluxe) were found to agree on distributor pricing.
Preventing a harmful merger
The Competition Commission also prohibited the tiles and sanitaryware merger involving the proposed acquisition of Ceramic Industries (CIL) and and Ezee Tile Adhesive Manufacturers by Italtile. According to the Commission, CIL, Ezee Tile and Italtile are directly and indirectly controlled by Rallen (Pty) Ltd. CIL is directly controlled by Rallen and after the merger it will be directly controlled by Italtile.
T h e C o mmi s s i o n ’ s c o n c e r n s around the proposed transaction involve the merger creating a vertical overlap in the activities of the parties in relation to the market for the manufacture and retail sale of tiling, sanitaryware and related products in South Africa. The Commission found that CIL has high market share in South Africa in the identified upstream and downstream markets.
The Commission found that the merging parties would, post-merger, have the ability and the incentive to self-supply, resulting in foreclosure of supplies to their rivals.
“Tiles, sanitaryware and related products are essential in the construction sector, particularly in residential and non-residential buildings, which markets are expected to grow significantly in the medium- to long-term,” said acting deputy commissioner, Hardin Ratshisusu.
“The Commission is concerned that the merger is in markets that are already highly concentrated,” he continued. The merger would significantly consolidate the market position of the merged entity such that there are incentives to deny competitors of the merging parties in the retail space access to products such as tiles and sanitaryware. It is important that customers of these products enjoy competitive prices and choice.”
Difficult decisions
Not all of the Commission’s complaints to the Tribunal are slam dunk approvals. The Commission recently took the decision not to prosecute a complaint it had initiated on 10 December 2014 against Parmalat SA, a milk processor which purchases raw milk from farmers for further processing into various products such as fresh milk, butter, yogurt, cheese and milk powder. The processed products are then distributed to local retailers for sale to consumers or exported to other countries.
The complaint initiated by the Commission related to a bonus scheme which was introduced by Parmalat in 2013, which was used to reward raw milk farmers for their continuous supply of raw milk to the company in the Eastern and Western Cape Provinces. Milk farmers who supplied raw milk to Parmalat for an uninterrupted period of 12 months qualified to receive a bonus payment.
Essentially, the bonus scheme was an additional payment received by milk farmers for their continued loyalty to Parmalat. Parmalat applied the bonus scheme retrospectively, effective from January 2013 until it was discontinued in January 2015.
The Commission ultimately found that milk processors that compete with Parmalat were able to grow and expand the volume of raw milk procured from the farmers, even during the operation of the bonus scheme, demonstrating insufficient evidence that competition between milk processors was substantially lessened or prevented.
From whisper to bang
Since 1999, Competition Authorities have tackled anticompetitive conduct in basic food products affecting the poor, such as bread, maize meal and baking flour, critical inputs to infrastructure development such as steel, cement and construction bid rigging and made essential inputs to manufacturing such as basic chemicals and polymers, among other network industries essential for economic growth.
According to Norman Manoim, chairperson of the Competition Tribunal: “When the Tribunal opened its doors for the first time, it expected a deluge of cases to come in, such had been the pent-up excitement generated by the passage of the new legislation through Parliament.
“To our disappointment, nothing came in. In fact it would still be a few weeks before the Tribunal would see any action. The first sortie between two opposing parties turned out to be a whimper, not a bang.
“Since then competition law enforcement has grown exponentially, if usage of the Tribunal is anything to gauge it by.
“The Competition Authorities are also maturing in their response to their operational environment. After being stuck for years addressing technical methodological issues, there are now a few ground-breaking decisions on substantive matters in both contested cartels and abuse of dominance cases.
“The fines have steadily been increasing, recording a ten-fold increase over the past five years to more than R5-billion.
“But even though we now have quantity, I am pleased to say we have quality as well. The whimper has become a growing bang,” he concluded.