South Africa’s largest rooibos producer Rooibos Limited has been referred to the Competition Tribunal for prosecution, for allegedly abusing its dominance and engaging in uncompetitive behaviour.
Historically, rooibos tea processors obtained their supply from farmers through one-year supply agreements.
However, in 2014, Rooibos Limited introduced two exclusionary contracting strategies to lock-in or foreclose the supply of rooibos tea from farmers, starving its competitors of access to a product that only grows in a small geographic region.
In a recent investigation, the Competition Commission found that Rooibos Limited entered into long-term supply agreements with farmers for 2014 to 2018, with farmers required to supply stipulated volumes of rooibos tea.
The company also introduced a supply commitment in exchange for farmers gaining access to its production research output, with farmers required to supply up to half of their production to Rooibos Limited.
The commission’s investigation further found that Rooibos Limited exploited its research output to lock in the supply of rooibos tea from farmers after the collapse of the research function undertaken by the South African Research Agricultural Council in 2014.
Because of the lock-in, Rooibos Limited’s bought volumes significantly escalated, while its main rivals’ supplies were further constrained by the drought.
Rooibos tea only grows in the Mediterranean climate of the Cederberg region’s acidic soils in areas such as Clanwilliam, Graafwater, Citrusdal and others, which means that its source of supply is limited and access to it by rooibos tea processors is critical to remain competitive in the market.
Although there are about 220 commercial rooibos tea farmers, only a limited number contribute the bulk of total production supplied to tea processors.
These processors buy rooibos tea from farmers in bulk and then dry and treat the 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.
Rooibos Limited remains a dominant player in the processing of rooibos tea as it inherited the assets and the monopoly position previously occupied by the Rooibos Tea Control Board, which was established in 1954 by the previous government to regulate the marketing, pricing and research in the rooibos tea industry.
The commission is now seeking that Rooibos Limited pay an administrative penalty equal to 10% of its annual turnover.
“The commission is concerned by Rooibos Limited’s ongoing anticompetitive conduct, particularly as this hampers the growth of the agroprocessing industry in South Africa. Dominant firms have a special responsibility to ensure they do not stifle competition,” Competition Commission deputy commissioner Hardin Ratshisusu said.