The Competition Commission says that the Competition Tribunal has set a date for the hearing in the cartel case against eight dairy processors, investigated for alleged price fixing of milk products. The hearing will start in September this year.
The dairy processors involved in the investigation are Clover Industries, Clover South Africa, Parmalat, Ladismith Cheese, Wood- lands Dairy, Lancewood, Nestlé South Africa, and Milkwood Dairy.
Competition Commission commissioner Shan Ramburuth states that, because collusion between competing businesses is one of the most egregious of anticompetitive practices, the matter must be taken very seriously.
He says, “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.”
He adds that the commission will not only seek an order from the tribunal prohibiting these parties from continuing these practices, but will also seek a fine, which would send the appropriate message to other businesses involved in similar conduct.
“This is a very effective form of deterrent used around the world,” he says. “The fine should be severe enough for parties involved in cartel activity to desist, or to 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 seeks to ensure general compliance with the law by the firms involved as well as other firms.
The Competition Act allows the tribunal to set administrative penalties of up to 10% of the business’s turnover, and it 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.
The commission initiated an investigation into anticompetitive behaviour in the milk industry in February 2005. The commission says 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 a number of its findings to the Competition Tribunal for deter- mination.
Firstly, Clover, Parmalat, Ladi- smith Cheese, Woodlands, Lance-wood and Nestlé exchanged sensitive information on procurement prices of raw milk in various ways. This exchange of pricing information enabled competitors to coordinate their pricing strategies to fix the purchase price of raw milk.
Secondly, Clover, Parmalat, Woodlands and Nestlé 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.
Thirdly, Clover and Parmalat abused their respective dominant positions by entering into exclusive agreements that compelled producers to supply them with their total milk production. Producers were prevented from selling surplus raw milk at competitive prices to third parties or directly to consumers. This practice also prevented the entry of smaller milk processors and distributors into the market.
In addition, Clover South Africa and Woodlands reached an agreement regarding the selling price of ultrahigh temperature (UHT) long-life milk, ultimately resulting in the consumer paying higher prices for UHT milk.
Also, Woodlands and Milkwood agreed to fix the selling price of UHT milk and allocated geographical areas in which they would not compete in selling UHT milk. This eliminated price competition resulting in consumers paying more.
Lastly, Clover, Woodlands and Parmalat coordinated the removal of surplus milk from the market. Surplus removal of milk decreases supply and 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.