DRAFT RELEASE
Milk Cartel hearings set
7 February 2008
The
Competition Commission is pleased that the Competition Tribunal has set a date for
the hearing in the cartel case against eight dairy processors commencing in
September 2008.
The
dairy processors involved are: Clover Industries Ltd, Clover SA (Pty) Ltd,
Parmalat (Pty) Ltd, Ladismith Cheese (Pty) Ltd, Woodlands Dairy (Pty) Ltd,
Lancewood (Pty) Ltd, and Nestle SA (Pty) Ltd and Milkwood Dairy (Pty) Ltd.
Shan
Ramburuth, Commissioner at the Competition Commission says because collusion
between competing businesses is one of the most egregious of anti-competitive
practices, the matter must be taken very seriously.
“Collusion perverts the normal and healthy
functioning of a competitive market by creating an artificial environment for
the setting of prices to rip-off consumers, in this case in respect of a basic
foodstuff: milk.”
Ramburuth
says as a law enforcement agency, not only will the Commission be seeking an
order from the Tribunal prohibiting these parties from continuing these
practices, but also a fine which sends the appropriate message to other
businesses involved in similar conduct. “This is a very effective form of
deterrent used around the world,” he said.
“The fine should be severe enough for parties
involved in cartel activity to desist or approach the Commission with a view to
participating in our corporate leniency policy. This is essentially a
whistle-blowing programme which allows the ‘first through the door’ to be
considered for exclusion from prosecution in respect of the collusive
activities.”
Ramburuth says the administrative penalty is
not a remedial tool, but rather one that seeks to ensure general compliance
with the law by the firms involved as well as other firms.
“Following prosecution, we hope that the
companies and their shareholders see any fines imposed as a punishment they are
required to bear for contravening the Act, and not pass on the costs to
consumers. Shareholders who are concerned about the maintenance of profit
margins should consider that those margins were an artificial consequence of
the anti-competitive behaviour, and the market needs to correct itself to its
true levels.”
The Competition Act allows the Tribunal to set
administrative penalties of up to 10% of the business’s turnover, and its sets
out a range of factors to consider when deciding on the magnitude of the fine.
These include:
·
The nature, duration,
gravity and extent of the contravention;
·
Any loss or damage
suffered as a result of the contravention;
·
The behaviour of the
respondent;
·
The market circumstances
in which the contravention took place;
·
The level of profit
derived from the contravention;
·
The degree to which the
respondent has cooperated with the Competition Commission and the Competition
Tribunal; and
·
Whether the respondent
has previously been found in contravention of the Competition Act.
Background
The Commission initiated an investigation into
anticompetitive behaviour in the milk industry in February 2005. Its
investigation found evidence of price fixing for raw and processed milk and the
manipulation of the market to restrict competition.
Specifically, the Commission has referred the
following findings to the Competition Tribunal for determination:
1.
Clover, Parmalat, Ladismith
Cheese, Woodlands, Lancewood and Nestle exchanged sensitive information on
procurement prices of raw milk in various ways. Exchange of pricing information
enabled competitors to co-ordinate their pricing strategies to fix the purchase
price of raw milk.
2.
Clover, Parmalat,
Woodlands and Nestle entered into long term milk supply and exchange agreements
to sell their surplus raw milk to each other rather than processing the milk
and selling it at lower prices. This arrangement enabled colluding firms to
maintain the price of milk at artificially high levels.
3.
Clover and Parmalat
abused their respective dominant positions by entering exclusive agreements
that compelled producers to supply them their total milk production. Producers
were prevented from selling surplus raw milk at competitive prices to third
parties or consumers directly. This practice also prevented the entry of
smaller milk processors and distributors into the market.
4.
Clover
SA and Woodlands reached an agreement regarding the
selling price of UHT “long life” milk ultimately resulting in the consumer
paying higher prices for UHT Milk.
5. Woodlands and Milkwood agreed to fix the selling price of UHT milk and
allocated geographic areas in which they would not compete in selling UHT milk.
This eliminated price competition resulting in consumers paying more.
6.
Clover,
Woodlands and Parmalat co-ordinated the removal of surplus milk from the
market. Surplus removal of milk, decreases supply and this keeps prices high.
It therefore constitutes indirect price fixing. Clover successfully applied for
leniency under the Commission’s Corporate Leniency Programme and will not be
prosecuted for this offence.
ENDS
Prepared by: FD
Beachhead
Dani Cohen
Jennifer Cohen
On behalf of: The Competition Commission
Further
info:
Mark Worsley, Manager of
Legal Services
Thulani Kunene, Head of
Enforcements and Exemptions