Competition Commission on competition challenges in food and agro-processing; Meeting with Zimbabwe Parliamentary Delegation

Economic Development

09 November 2009
Chairperson: Ms E Coleman (ANC)
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Meeting Summary

The Competition Commission briefed the Committee on their review of their investigation, research, and plans regarding the high cost of food, some of which they believed stemmed from anti-competitive conduct. They discussed their major cases in the food and agro-processing sectors as their mandate dictated, citing the long processes of investigations, the apparent limitations of the Competition Act, and the relatively new infrastructure of the organisation for the slow turnaround. The Committee was very anxious about the speed at which the Commission was completing its work and the impact it had on consumers seemed slight. They were happy with what had already been achieved, but the Commission still had a great deal of work. The Committee made several recommendations for the Commission and entertained the idea of reassessing the Competition Act.

The Portfolio Committee of Economic Development then briefed the Parliamentary Delegation from Zimbabwe on their functions and their basic modus operandi. The two entities then exchanged a few questions, and compared their processes in their respective parliaments. The delegation from Zimbabwe proposed that they establish a joint forum between the Economic Parliamentary Committees of Southern African Development and Economic Community (SADC) so that they could exchange their ideas and implement initiatives cohesively.


Meeting report

Competition challenges in food and agro-processing
Mr Shan Ramburuth, Commissioner of the Competition Commission, briefed the Committee on his Commission’s review of the state of competition in the economy. The economic background of South Africa was noted, centring on the liberalisation in 1996 that involved tariff reform and trade agreements. The effects of liberalisation were given, including the rise of dominant private companies, a surge in imports in processed foods, and the establishment of SAFEX (South African Futures Exchange). The structure and prices of the food market was explained.

The high cost of food was due to the low availability of grains worldwide, increasingly unfavourable climatic conditions, increasing energy and fuel costs and anti-competitive conduct in the agro-food chain. There were problems with the structure of the food market that needed to be addressed. These structural problems included virtual monopolies, limited new entrants, incumbent firms leveraging historical positions to extract profits and impose standards, and transformation at the level of ownership in the established firms.

The Commission discussed their interventions to address the problems that they had discovered, acting within the mandate of the Competition Act. They recognised that the people most vulnerable were the low-income consumers. Their major intervention was involved in an investigation of monopolisation and collusion leading to anti-competitive conduct. They had received a number of complaints and spent a great deal of resources in investigating these. Certain cases regarding Clover, margarine companies and other bodies were discussed as examples of this. The research that they had done showed strong indications of anti-competitive conduct. The major cases which were investigated dealt with Fertilizer; Tinplate; Bread and Milling; Grain Storage and trading; Dairy; Poultry; Fish; Fats and Oils; and Food retail. Each case shared the problem that it created anti-competitive conduct and/or high retail prices.

He ended by explaining the role of the state in addressing the issues. The Government played a key role in both ensuring that their investigations were unimpeded and that the results of their investigations would amount to positive outcomes. It was very expensive to pursue litigation and so there was a constraint on resources.

The Chairperson noted that some companies were not comfortable with having their details released. However, they had to be judged by the Constitution, and so they should want to be as transparent as possible. The Constitution compelled the Commission to get all the information they sought when auditing/investigating companies.

Mr X Mabaso (ANC) asked what mechanisms the Commission had to arm citizens so that they were aware of the value of the Competition Commission. If they were not appreciated, then the potential of using the public would not be optimised. Where companies were found guilty, was the punishment enough to discourage that risk-taking?

Mr Ramburuth replied that fines were not always a sufficient deterrent. Some companies budgeted for penalties because they were better off continuing with their anti-competitive behaviour. The fines that were in place were not ‘punishment’ fines, they were rather ‘deterrent’ fines. They were not criminal transgressions according to the construction of the Competition Act. The thinking that the Commission was entertaining was turning penalties for anti competitive behaviour into being a criminal or serious offence. They were readdressing their protocols for determining fines. They were moving higher up the hierarchy of the corporate structure in their investigations. The way that they determined a settlement, was if the settlement got them about the same amount that they would get if they won the case.

Mr Z Ntuli (ANC) said that the Committee was protected by the rules of Parliament. He asked about possible intervention by the state. He then spoke about the impact of the farmers who had changed agricultural farms to animal farms after land expropriation. This had resulted in having huge pieces of land without production. What could the state have done about this?

Mr Simon Roberts, Chief Economist: Competition Commission, said that there were issues other than land use that were important. Food was produced through land and labour etc. Farmers used to be well supported during Apartheid, in modern times this had stopped. More power was seen moving towards the processing level. Fertilizer providers and grain supplies had become centralised. South African farmers had been paying cartel prices for fertilizer. Their biggest problem was excessive fertilizer prices. When farming became less profitable, land usage changed. He commented that there was an initiative in the Eastern Cape to invest in silos for storage and milling.

Dr S Huang (ANC) agreed with the Chairperson that transparency was important. The Commission was limited in their powers. The penalties that these companies were given was relatively insignificant. Their turnovers were too great for these fines to have a significant effect. The real concern was whether the Commission had the power to solve the high food price issue.

Mr Ramburuth said that the success of the work of the Competition Commission must be measured by the extent to which it benefited consumers, increased the number of new entrants entering the market and broke the stranglehold of monopolies. The Commission understood this, and in their last strategic planning they had put into place an assessment of the impact of their work.

Dr P Rabie (DA) asked about fish. He said that hake was being exported because they got double the amount of money than they did on the domestic market. It was important to retain fish stock for the local market, particularly in light of 2010.

Mr Roberts said that solving the issue around fish exports would have meant that they had to look at their trade policy. The responsibility rested in the hands of the Department of Trade and Industry.

Mr S Ngonyama (COPE) said that there was a great deal of work for the Commission. He asked if they were in the proper position to handle it all, considering the expectations. The impact of this kind of irregularity had a huge effect on food prices. Liberalisation seemed to have caused many problems. The penalties that were given were not harsh enough. Perhaps there should be other measures.

Mr Ramburuth replied that they were not able to do all the things that the Committee was asking of them as they did not have the capacity to achieve them. The Commission’s chief objective was to ‘unravel’ and expose what was happening. There was a whole range of other institutions that should be helping the Commission solve the problem.

The Chairperson said that he did not understand the point of these investigations in terms of the penalties that they arrived at. She commented on the high price of bread. There was no use spending so much money on settlements if the people who they were trying to help suffered anyway. She asked for clarity over the objective of investigations and what they meant by what their ‘cost-drivers’ were. The plight of the people was at stake, and the Commission might not have the power to ensure break the stranglehold. The Chairperson asked if it was about winning the case, or reversing the problem, which was the suffering of the consumer.

Mr Ramburuth said that he took her point. If there was a choice between pursuing a case in court or settling, then a decision was made based on the difference between the outcomes. If the settlement was as significant as a victory in court, then they would choose to settle. A non-negotiable part of the settlement was that the unacceptable behaviour must not continue.

The Chairperson said that the real issue was that it did not solve the problem. Prices were still getting higher and the consumer was still suffering. The Commission did expose wrongdoing, but did nothing about it in terms of what the solution would be for the public.

Ms P Bhengu (ANC) said that inspectors should be near to small local traders to regulate the high prices charged by local traders. This was important because consumers could not afford to go to larger retailers and buy in bulk. They were therefore reliant on local traders, who in turn, exploited consumers with high prices. Without regulation, the status quo of these communities would not change and the people would not benefit.

Mr Ngonyama said that the Competition Commission did a good job in unravelling all the collusion in the economy. Exposing it was not enough. They needed to address it properly, because it might only lead to the wrongdoers changing their methodologies in light of the Commission’s work. Their primary concern was benefiting the people. He suggested that in addition to a penalty, they should cap the price of their goods. The issue of consulting with ordinary people was important. Big companies tended to be immune to the same financial and legal vulnerabilities that smaller companies faced. Did the Commission really have the capacity to address these issues?

The Commission wanted to create higher levels of fairness and competition in the marketplace. They did not see their role as fixing prices. That was not their responsibility. Their role was to free up the market to ensure that there were fair prices for consumers.

Mr Roberts said that they had spent a lot of time on the bread price issue. The Act prevented people from colluding, so they had to investigate to find if there was some kind of an agreement amongst companies. They were constantly monitoring costs to understand the margins which were been made by companies. They were also looking at facilitating conduct, as companies that were prohibited from meeting would find some other way to collude. They were looking at the activities of control, and information exchanging, which allowed them to continue to collude. The goal of the Commission was to see prices fall, through instability in the market, and price wars. It was important for the Commission to be humble of their successes, because they had not yet uncovered all the processes of collusion amongst those in the ‘old boys club’. Price regulation was not a power that the Commission was able to impose.

The Chairperson said that it was important that they use their authority properly with whatever power that they had.

Mr Tembinkosi Bonakele, Deputy Commissioner: Competition Commission, said that this was not their debate alone. There were serious implications and policy questions posed to other bodies as well. It was important to reflect on the competition law. There was a big assumption that competition made prices fall, perhaps this was not enough. Uncovering and leveraging was limited by the law. If that was inadequate then they must address the law. There may need to be a price cap. It was important to look at what consumers were doing about the problem. It was within the powers of the consumer to do something about bread cartels that were exposed. There were harder questions that still needed to be asked. Policy makers needed to engage with the issues that had been discussed.

The Chairperson said uncovering the problem was a good thing. After having done so much work, however there was no follow up. In the process of negotiating, the Commission could have set up conditions and taken additional measures, which possibly would make it easier for consumers. The other important role-players should have been informed of the processes in which the Commission was involved. They should have goals beyond simply fining companies guilty of misconduct.

Mr Ramburuth said that the more success that they had, the more work and responsibilities were thrust upon them. It was important to recognise the limited capacity of the Commission. He agreed that it was important to involve other entities, particularly those in the corporate sectors, who played a role in facilitating their objectives. They did attempt to integrate their functions with other entities that shared their objectives, as far as the law allowed them to.

The Chairperson said that this engagement was very important. The Committee wanted to understand the problems that they faced.

An ANC member said that the involvement of other institutions, including civil society, was crucial. The priority was to stop corruption at the highest level, in the biggest companies. The Committee was anxious about this kind of anti-competitive behaviour.

The Chairperson said that they wanted to push the Commission to the limit. They realised that good work was done, but that there was the possibility of doing more.

The Commission shared the Committee’s sentiments.

The Chairperson said that the Commission had been in existence for a decade. They should have learnt enough from previous experiences to know that they should be doing more. The Commission was not using all the powers given to them by the Competition Act. The Committee wanted to see the impact of their work.

Mr Ramburuth said that they did target constituencies with their advocacy work. With the general public the best advocacy that they could get was through the media. They were pleased to share their strategic planning exercise with the Committee. It was a slow process to build their institution and gain authority - so that they could achieve their objectives.

A Committee member asked what sort of follow-up was there after penalties were given.

Mr Bonakele said that repeat offenders were likely to get a higher fine. This returned them to the issue of whether fines were adequate or not. The real deterrent should be the damages that people could claim.

Mr Huang said that the Commission was like a small cat trying to catch big lions, even though they were ten years old.

Mr Bonakele again spoke of the limitations of the law. Government had recognised the importance of coordination in the interventions to create a positive overall impact. This would have yielded a more sustainable intervention than simple litigation. The Committee could have a look at the legislation in order to give the Commission more powers.

Mr Mabaso asked if there was a way that communities could be assisted to claim for damages, and whether there was a way of tackling the habit that bigger food stores had of dumping expired food in township stores.

Mr Ramburuth said that they might have had assumptions about their legal culture. Poor people found it difficult to get access to the law, so claiming for damages was a problem. The higher cost of litigation did put strain on the Commission’s resources.

Mr Bonakele said the issue around the dumping of expired food in townships was something that did not fall within their mandate.

Mr Ntuli acted as Chairperson and said that should speak directly on the questions in order to save time.

Mr Bonakele agreed that they should reassess the set of tools that they had at their disposal.

The Chairperson said that the meeting had been very necessary. It was to focus on the needs of the consumer. Partnership with other role players who could support the work of the Commission was very important. Strengthening the Commission so that it could work better and achieve even more was the goal of the Committee. They appreciated the work that was being done.

Mr Ramburuth thanked the Committee for the meeting. He said that he was happy to follow up on their suggestions.

Meeting with the Delegation from Zimbabwe
The Hon Paddy Zhanda, the Chairperson of the Budget, Finance & Investment Promotion Committee of the Zimbabwean Parliament introduced his delegation and said that the goal of their meeting was to improve their functions through research and integration.

The Chairperson welcomed the delegation. She said that they were still a new Committee and many members of the Committee were involved with other Committees, such as the Standing Committee for Appropriations. They were a multi-party Committee. The role of the Committee was to oversee and monitor the implementation of governmental initiatives for the economic development of the country. The Committee did not take part in any legislation deliberations. Together with the Committee on Appropriations, they would look at the resources given to each department after the budget was drawn up.

The Chairperson then briefed the delegation on the budgetary processes of the Government. She explained the tabling of the budget by the Finance Minister, including the Medium Term Budget Term Policy Statement, and how the parliamentary committees were involved with these processes. Evaluations of the mid-year performance were done through the Finance and Appropriations Standing Committees who were given a chance to raise issues about the Finance Minister’s proposed budget.    

Mr Ntuli explained that the Committee performed oversight and monitored bodies which were tasked with implementing the legislation which was passed. They also took ‘Parliament to the People’ which involved bringing their meetings out of Parliament, and making these accessible to ordinary people. The Executive was invited attend the meetings.

Dr Huang said that Zimbabwe and South Africa shared a special relationship and the meeting was a good opportunity to exchange their experiences.

Dr Rabie asked the Zimbabwen delegation why there were no female members and opposition members in their delegation.

A member of the Zimbabwean delegation replied that there was one female member in the Budget Committee, but she had had business in Ghana. They were sensitive to the issue of gender. It might be useful for Economic Parliamentary Committees of Southern African Development and Economic Community (SADC) to exchange ideas and experiences, making it a SADC association.

Mr Paddy Zhanda said that they were in the process of writing a new constitution that placed more emphasis on the rights of woman. Women in their parliamentary committees had a major influence. The process of getting more women in Parliament was a long process. Certain constituencies in Zimbabwe could only have been contested by women alone. Committees in Zimbabwe did not address issues along party lines, but rather along a more professional perspective. The issues were addressed with the idea that their responsibility was to the people of Zimbabwe, rather than to their respective parties.

He said that their Committees did get involved in the formulation of the budget. They had not however, gotten to the stage where they had strong authority to return bills or budget proposals back to the Ministers for review.

The Chairperson said that some interesting propositions had been raised. The meeting was very important, and it was clear that the various parliamentary committees of Zimbabwe and South Africa could benefit greatly from meeting in the future in some kind of forum.

The Chairperson thanked the Zimbabwean delegation on behalf of the Portfolio Committee on Economic Development.

The meeting was adjourned.


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