Hon Speaker and hon members, in the New Growth Path adopted by Cabinet a week ago, government drew attention to the high levels of economic concentration and price collusion that characterise parts of the South African economy.
We committed to ensure greater competition as a means to draw new entrants to the market and to grow employment in order to achieve the target of five million new jobs within the next 10 years.
Over the past number of months, and in support of the new framework that was emerging, the competition authorities have intensified their focus on anticompetitive action in the local market. An important aspect of this is the investigation into the food sector. Currently, the Competition Commission is investigating several cases along the food value chain ranging from inputs such as fertiliser and tin plate used for tinned foods; to products such as vegetable oils and fats, wheat and maize, poultry and fish; and to storage and retail, including silos and supermarkets. In particular, the commission has investigated five areas of relevance to today's statement.
The first case involves an investigation of the milling industry; that includes wheat flour and maize meal. During the probe into bread price- fixing and the market allocation cartel in 2006, the commission received information that the firms involved in the bread cartel were also involved in price-fixing and market allocation for flour.
Two of the millers confessed their involvement and provided further evidence of a cartel and were granted conditional immunity.
Investigations into the flour market revealed that the firms involved agreed to fix prices of milled wheat products; to create uniform price lists for wholesale, retail and general trade customers; to allocate customers among themselves; and to agree on the timing of the price increases and their implementation.
Similarly, the agreements were used to secure co-ordination at both national and regional levels. The agreements were reached through meetings and telephone discussions. The cases of price-fixing were referred to the Competition Tribunal for adjudication by the commission in 2009.
In the second instance, the commission investigated and referred a case in maize milling. The maize milling case was separated from the flour one because the two cartels did not involve exactly the same members. Although the main milling companies were involved in both cartels, the maize milling cartel implicates a larger number of firms. The investigation revealed that from 1999 to at least 2007, competitors were involved in conduct that contravened the Competition Act by fixing prices of white maize products; by creating uniform lists for wholesale, retail and general trade customers; and by agreeing to the timing of the price increases.
The third case centres around information exchanged in the wheat flour and bread market. The commission initiated an investigation against current and former members of the National Chamber of Milling and South African Chamber of Baking. The complaint was initiated after the commission observed that, although the prohibited practices that I cited earlier had apparently ceased, the market had not become more competitive.
The commission's investigation revealed that firms in the industry submitted commercially sensitive information to the two chambers. In turn, the firms received detailed, disaggregated information from the chambers. This information exchange appears to have enabled members to sustain collusive outcomes without the necessity of meeting. The detailed information exchanges enabled the firms to align their behaviour in the market and thus reduce competition.
A similar case was initiated in the maize industry when it was found that competition outcomes were not observable despite the breaking up of the cartel. This case also centres around the exchange of information between the National Chamber of Milling and its current and former members. These practices have now stopped after the intervention by the commission.
The fourth case involved exclusionary conduct against independent bakeries. The commission received a complaint in December 2008 from an independent bakery in Mossel Bay alleging that Pioneer Foods, through its Sasko division, had threatened it with a price war if it did not adhere to the fixed price. One of the means employed to exclude independent bakeries was the introduction of Sasko's so-called "fighting brands" to undermine independent competitors who had entered such areas.
The commission found that Pioneer Foods is dominant in the relevant markets and its aggressive behaviour prevented competitors from entering into or expanding in the markets. The object of the price war was to force these independent bakeries to charge prices similar to Pioneer Foods, at above competitive levels or, failing which, to force them out of the market. This is in contravention of section 8 of the Competition Act.
Finally, the competition authorities investigated four cases in the poultry market. In April 2009, the commission initiated an investigation into anticompetitive conduct in the market for poultry breeding stock and broiler production, poultry products and poultry feed.
This followed initial research that pointed to the existence of anticompetitive behaviour by firms and industry associations. In addition, the commission is investigating allegations of collusion in the egg industry after Pioneer Foods confessed its involvement in a cartel.
The main allegations against particular firms are as follows: They agreed not to compete in an open market, but instead divided markets by allocating territories and/or customers to each other. As a result of the collusion, these companies charged significantly higher prices than the independent or small manufacturers even though their cost bases are similar. These prices were, in some instances, 25% higher than those of the smaller poultry feed producers. This collusion also reinforced and was sustained through extensive information sharing via industry associations.
Hon members, I have provided details of these different investigations to contextualise a significant competition settlement that was reached earlier today.
The Competition Act provides for parties to enter into settlement agreements with the competition authorities. Following a few months of negotiations, Pioneer Foods, one of South Africa's largest food-processing companies, and the Competition Commission signed a consent and settlement agreement in regard to contraventions of various sections of the Competition Act. Pioneer Foods may not produce under brands such as Sasko Bakeries and Sasko Flour, Duens Bakeries, Weetbix, Ceres Fruit Juices, and others. Not all these products are implicated in the investigations.
The settlement reached today addresses Pioneer Foods' cases in the wheat, maize, poultry and eggs market and constitutes a resolution of all the current investigations against the company. The agreement will be lodged with the Competition Tribunal by 15:00 today, for its consideration and confirmation in terms of section 49(d) read with sections 58(1)(b) and 59(1)(a) of the Competition Act.
It is expected that the Competition Tribunal will decide the matter within the next two weeks and the terms are, of course, subject to the final decision of the Competition Tribunal.
In view of its significance, I wish to provide the House with details of the terms of the settlement and its intended impact.
Pioneer Foods undertakes to immediately desist from collusion and price- fixing, not to participate in any activities of any cartel in the sector and to comply fully with the Competition Act in future.
Pioneer Foods undertakes to co-operate fully with the authorities in the prosecution of any other parties who are the subject of the current investigation by the commission; and to provide evidence and testify against members of any cartel it has been involved in. The company will pay an administrative penalty of R250 million into the National Revenue Fund. The aim of the administrative penalty is to serve as a deterrent and disincentive against anticompetitive conduct.
Pioneer Foods will pay a further sum of R250 million towards a special agroprocessing competitiveness fund that will be established and managed by the Industrial Development Corporation. The aim of the fund is to promote competition in the food value chain by supporting the entry and expansion of enterprises, including small and medium enterprises. Pioneer Foods will not be able to access any of the money in the fund for its own operations. The rules applicable to the fund will be published by December this year.
Pioneer Foods will reduce the net selling prices of selected bread and flour products by a total of R160 million, to benefit consumers who have suffered as a result of anticompetitive behaviour. This will bring much- needed relief to consumers who have paid above competitive prices for bread and wheaten products. It is anticipated that this will stimulate price competition in the bread and wheaten market; and the modalities of the price reduction will be announced by the company and the Competition Commission, and Pioneer Foods' compliance with these undertakings will be audited.
Pioneer Foods has undertaken to increase its planned capital expenditure by an additional R150 million over a two-year period. This is over and above the company's planned capital expenditure of R1,2 billion. This commitment is intended to focus efforts to improve the company's competitiveness through innovation, upgrading of equipment and expansion of operations, instead of reliance on price-fixing and collusion with competitors.
Finally, Pioneer Foods agreed to drop its cross-appeal against the R195 million penalties levied against it by the Competition Tribunal, earlier this year.
Hon members, the effect of this settlement, if confirmed by the Competition Tribunal, is that the company would pay, inclusive of the fine levied earlier this year, penalties totaling R445 million and it would transfer R250 million to a competitiveness fund for the agroprocessing industry, and it would commit to reducing the net selling prices of selected products by a total of R160 million.
These three components amount to R855 million in commitments that are for the benefit of the fiscus, competitors and consumers. Added to this is the commitment to increase capital expenditure by a further R150 million above the company's previous decisions, bringing the total commitments as a result of this settlement to slightly over R1 billion.
This constitutes the largest settlement in the history of the Competition Commission involving any one company. Taken together with the bread penalty, it amounts to the largest penalty ever imposed on a single company, which is R445 million.
It contains provision for a novel mechanism to promote competition and new enterprise development in the agroprocessing sector by committing funds from the perpetrator of anticompetitive conduct, to finance new competition in the sector. It also provides, for the first time, relief to consumers through a commitment to reduce prices on specified products up to a total of R160 million. These products are bread and flour, key staple products that ordinary South Africans rely on.
I take this opportunity, subject to confirmation by the Competition Tribunal of the settlement, to call on bakeries, supermarkets and the retail trade to pass the price reduction on to consumers. Government wants to see that bakeries and retailers do not divert price reductions into higher margins.
I have asked the Competition Commission to monitor the actions of bakeries and retailers to ensure that the benefit reaches the intended beneficiaries. It must also provide me with a written report that I intend to table in Parliament.
In the New Growth Path, government identified the agricultural value chain, which includes agroprocessing, as a key driver of new job creation. However, to achieve the jobs we expect, we need to get a number of policies right in the sector, including reducing input costs and putting an end to the cartels and price-fixing that keep new entrants, particularly small businesses, out of the market.
This settlement shows the resolve of the competition authorities to act swiftly and effectively to promote a competitive food-processing sector. Vertically integrated firms in the milling and poultry markets leverage their control of critical inputs like wheat or poultry feed to exclude other firms or to sustain cartel arrangements.
For this reason, both structural and behavioural measures are important to bring new players into the value chain. The new, proactive stance of the competition authorities, coupled with a strong investigative capacity, makes it harder for companies to escape with anticompetitive conduct.
The action I have highlighted today follows on a number of other recent steps taken by the authorities, including actions to address monopoly conduct in the fertiliser market, which resulted in a fine of R250 million levied against Sasol; the selling off of five of Sasol's six fertiliser blending plants to new competitors; and action against Foskor that resulted in price reductions in their fertiliser products.
In addition to these actions, the commission will continue its investigations against other companies implicated in the cases that involved Pioneer Foods. We call on other perpetrators to follow the example of Pioneer Foods and come forward and settle with the competition authorities.
The free ride that some companies had at the expense of consumers and jobs in South Africa for many decades is over. Our resolve is firm to act against contraventions of the Competition Act.
In the New Growth Path, government recognises the fact that anticompetitive conduct is pervasive and entrenched in certain sectors of the economy. Where this is the case, consumers, including downstream enterprises, face high prices and limited product choices; and competitors are denied entry to or forced out of the market. Firms focus less on innovative strategies to compete than on co-ordinating their activities or abusing their dominance.
Anticompetitive conduct seeks profits from narrow and backward-looking strategies based on inherited positions of market power. Such conduct ultimately implies lower levels of output, investment and employment.
For this reason, the commission's investigations in the food sector go beyond the scope of the cases that involve Pioneer Foods and the cartels in which it was involved. The commission will accelerate existing investigations into market conduct in supermarkets and in regard to poultry, fish, vegetable oil, tin plate and storage.
Outside of the food sector the commission is now focusing on other key priorities of government, including investigations into collusion and unlawful behaviour in construction and infrastructure, inter-mediate industrial products and finance and banking.
In conclusion, may I on behalf of government congratulate the competition authorities for the excellent work they are doing. [Applause.]
A properly resourced, professional and effective competition authority is critical to the achievement of the economic and employment goals of the New Growth Path. We are committed to providing the competition authorities with the support they require to undertake this important mandate.
Madam Deputy Speaker, on a point of order: I have no problem at all with the Minister's statement - in fact, vigorous competition is the very essence of the market system. I do, however, want to draw the Deputy Speaker's attention to Rule 106(3), which says:
Whenever possible, a copy of an executive statement must be delivered to the leader of each party, or that leader's representative, at or before the time the statement is made in the Assembly.
That is there for a purpose: to encourage a coherent response to a very important statement made by the Minister. I would draw your attention, the Speaker's attention and, indeed, the Chief Whip's attention to this Rule of the House so that we can, in fact, abide by the Rules in the future. Thank you.
Deputy Speaker, may I address you on the same point of order? The hon member has clearly read the Rule; it says, "whenever possible". It is clear that some of the elements of the statement are so recent - a matter of hours - that I do not see how the hon Minister could reasonably have complied fully with that Rule. Thank you.
Madam Deputy Speaker, on a point of order: I just have to respond to the hon member. We were given notice - in fact, in the Announcements, Tablings and Committee Reports - that indeed there was going to be a statement on competition issues. We could have been briefed at that stage about such a statement so the member's statement is, in fact, not a statement at all. [Interjections.]
May we move on and may I plead with members that we definitely have Rule 63 on unbecoming language. I know that the Speaker is looking at that, but I would really plead with you to refrain from using language that is unparliamentary, please. I've just heard "rubbish", somewhere; unless we are saying "rubbish" and "nonsense" is not unbecoming language.
Deputy Speaker, I really do appreciate your ruling in that regard, but I would ask you to vent an opinion on the point that I indeed raised ... [Interjections.] [Inaudible.] ... is a matter of importance ...
No, no! Hon Ellis, I don't know if it was you who just said "rubbish" as I was talking. I was talking generally about when somebody is talking, let's resist from using words that are unbecoming. I'm not saying that the point of order was wrong.
Madam Deputy Speaker, I agree with you and I apologise for having used the word again this afternoon, but sometimes certain members provoke a response. [Interjections.] The important point is: You've not made any ruling whatsoever with regard to what the hon Chief Whip of the Opposition has said. Are we going to hear anything more about this?
No, I've noted the question. I'm not going to make a ruling. It really does not require a ruling. I've noted it and I'm sure members here have also noted that. Please, I'm not going to make a ruling on that.
Chairperson, we know that we need a more globally competitive economy to improve our market position as a catalyst for growing our domestic economic activities, including promoting local entrepreneurship, especially small, medium and micro enterprises, SMMEs, and improving our attractiveness as a preferred foreign investment destination, especially for foreign direct investments, FDIs.
For our economy to grow and develop exponentially and to ensure that we will have more South Africans earning salaries and wages, and thus paying taxes, we need to strive towards creating more real and sustainable jobs in a competitive environment.
However, to create five million jobs, as the Minister has indicated, by 2020, we need a 7% growth in GDP per year, which is unlikely if we look at the Medium-Term Budget Policy Statement, just delivered last week. More specific actions are needed from the Minister in that regard.
Government, however, has a very important role to play in developing such an environment; not only to create the required jobs, but to also encourage more businesses to enter the global market. This in turn will lead to competition between suppliers of services and products, which will improve consumer choices and result in more value for money.
Competition in every sector of our economy, especially those identified to drive our economic recovery, should be encouraged and supported. Unfair competitive activities and practices, however, like price collusion and black economic empowerment, BEE, fronting, must be opposed fiercely. The Competition Commission is best positioned to ensure that such a competitive environment is maintained.
The settlement agreement by Pioneer Foods, as announced by the Minister, must surely be complimented. I think that is a great step by Pioneer Foods, and I am sure that they will again return to their previous position and enormously add to the economic growth potential of South Africa.
The competition authorities must consider various actions in support of competition. Allow mergers and acquisitions which lead to better choices and value for money for consumers. In this regard, the possible merger between Walmart and Massmart should be encouraged. This is an example of a foreign direct investment transaction with economic development benefits that our economy needs.
The authorities must also ensure that provisions of the Broad-Based Black Economic Empowerment, Act are not misused with fronting as a practice that benefits a few elite tenderpreneurs with mostly excellent political and governmental connections. Any possibility of such transgressions should be investigated and punitive action taken.
In this regard, the widely publicised transaction between ArcelorMittal and Imperial Crown Trading, ICT, must be investigated. The perception from reports and submissions is that this transaction is certainly not intended to be beneficial to a broad base, but rather to enrich a few of the elite with excellent political connections.
It also constitutes fronting as per the BBBEE Act, which in itself is a punitive transgression. The impression is also that ICT has no knowledge of or track record in iron ore mining activities and has no operational mining assets. This certainly adds no value.
A strong message should be sent out by fighting illegal fronting activities, especially as this is not only taking away benefits from historically disadvantaged individuals, but it also places the eventual funding burden on the consumers. It should be classified as anticompetitive behaviour if the result is higher prices and not necessarily more choices and better value for money for the consumers.
We need to develop appropriate strategies and competitive economic development plans that will enjoy the full support of government, labour, business and foreign investors. This will contribute not only to optimal employment opportunities, but also to consumer beneficiation opportunities. It will also improve strategic global competitiveness and sustainability, and it will certainly promote an open opportunity society for all. Thank you. [Applause.]
Madam Deputy Speaker, Cope commends the Competition Commission. It has achieved outstanding results. The benefits of these results for South African consumers and poor people, in particular, have been considerable.
What is remarkable about this agency is that it works so efficiently with such limited resources at its disposal. Its key managers are performance oriented, and even though it has a budget of about R120 million, its output is huge.
The commission has scored major successes against monopolies, oligopolies and cartels. All of these distort market forces. Furthermore, they keep new entrants from emerging on the scene. Their influence on marginalised people has been as insidious as the apartheid-era politics. Therefore, we salute the settlement by the Competition Commission with Pioneer Foods.
However, the key question that we want to put is: How much of the settlement will cascade down to the Competition Commission? How much? We are asking this because at the present moment we have a problem of capacity with regard to the Competition Commission and the tribunal.
The second issue is with regard to the amount of money that the poor have been robbed of by the very same companies. How much of that money will find its way back to those communities?
Lastly, we would like to make a point about ArcelorMittal. Currently in South Africa manufacturing is shrinking. We have serious problems with regard to steel pricing. How much influence does the Industrial Development Corporation, IDC, in particular, have together with the relevant departments in ensuring that the price of steel is reduced?
Cope would like to salute the achievement of the Competition Commission. We say that it has to be assisted - and in many ways. Thank you. [Applause.]
Madam Deputy Speaker, thank you to the Minister for giving us a piece of good news from the tip of the iceberg. I think, however, that attention should be given to dealing with the rest of the iceberg. South Africa is still a country characterised by cartels and monopolies, and is still flying on the autopilot left by the National Party. If we are serious about dealing with these problems we cannot rely on the Competition Commission alone. We must look at amending the law to introduce private actions, triple damages and a strong motivation for private companies to take on and break monopolies.
They are all over the place. The entire distribution of goods and services in this country is a cartel; so are the fertiliser and insurance sectors, the banks, the petrol and tyre industry, electricity and the other utilities and the ports and harbours. Even the IDC itself is becoming an industrial conglomerate with a very anticompetitive effect in its lending practices. We received submissions in one of our committees on this matter.
Again, with regard to the issue of tariff barriers and what type of competitive effect they have, we are facing a situation where the South African marketplace could soon become a putrid pond within which there is insufficient international competition to ensure proper pricing.
There are foundational problems, structural problems for market dynamics and competition dynamics, which cannot be addressed exclusively through the sluggish, lengthy processes of the Competition Commission. We need more effective government action, especially to eliminate the many areas in which anticompetitive practices are entrenched in existing legislation and regulations.
We must enable the private sector to sue whenever it is necessary and be rewarded for its capacity to sue and break monopolies. We need to open up the market to international competition so that we stop paying twice as much for goods sold internationally. Thank you very much.
Madam Deputy Speaker, the National Economic, Development and Labour Council's framework response to the international economic crisis highlighted this aspect of food cartels and emphasised that one should act against these cartels and any collusion that resulted in inflated food prices.
This matter was also emphasised during the Minister's first budget speech earlier this year. Today we see the fruits that the strengthening of the competition authorities has borne.
We, as the ACDP, welcome today's announcement on the R855 million settlement with Pioneer Foods: the largest such settlement in South Africa's history. Besides the large administrative fine, which Treasury will no doubt welcome, we, as the ACDP, particularly support the innovation of the agroprocessing competitiveness fund to improve competitiveness in this food sector.
The reduction in the price of bread flour is to be welcomed. Bread is the key staple food for many millions of South Africans. However, we as parliamentarians, as the Minister indicated, must ensure that the benefits are passed on to the consumer.
Lastly, we commend the competition authorities on this landmark historic settlement. Thank you.
Deputy Speaker, the picture the hon Minister has outlined today is indeed a very sorry one and reveals the depths to which big economic players in South Africa are prepared to sink in order to maximise their profits. We have to call this exactly what it is: large-scale theft from the poor!
The ID applauds the Competition Commission for exposing this kind of theft, and we welcome the settlement that has been negotiated. Our only regret though is that criminal charges do not seem to have been brought against anyone for this crime against the poor.
In the future, the ID would hope that these unscrupulous actors will face the full force of the law as opposed to simply punitive fines. The ID supports all measures that aim to create a more competitive economy in which new entrants can emerge and consumers can get a fair deal. Thank you.
Madam Deputy Speaker, the first thing that we want to do, as the ANC, is to express our excitement about the fact that all the political parties that spoke here today agree that there is no such thing as a free market and that, if left to its own devices, it proves to be extremely dangerous. With its traits and characteristics of greed intended mainly to benefit a few shareholders, it would use any opportunity to ensure that it enriches only a few.
We agree that this statement made today is about a situation that constitutes the gravest theft from the working and middle classes in terms of the inflated prices or fixed prices with regard to fish, bread and flour, as these are the basic foodstuffs that many households need.
We also believe that this exposes the notion and the mantra that corruption only exists in the public sector, and that there is indeed corruption in the private sector, which is almost a criminal activity, and that we have to deal with it in the same way. There is no other name that we should call it. We know that many will be saying it is white-collar crime and all of those things. It is crime to the majority of our people, and those who are responsible have to be brought to book.
We also want to emphasise, as the ANC, the need for more resources for the Competition Commission and the Competition Tribunal in order for the two institutions to be able to do their jobs more effectively. This is precisely because these cartels are prepared to match the Competition Commission and tribunal pound for pound when it comes to the courts. We believe that this justifies the need for more resources.
We also believe that this had a huge impact on food security as millions could not afford these basic foods. It has also destroyed small and medium enterprises, and spaza shops which have supported the livelihoods of millions of South Africans, and has obviously encroached on the commitment of the ANC-led government to create jobs in our economy.
We have to emphasise that the announcement, by the Cabinet, of five million jobs is possible, and it is not a thumb suck. It is the agendas of these cartels that distract government's programme of job creation. We also want to emphasise the point that this had an effect on distorting the economy and the market, and that it is important that both the Competition Commission and the Competition Tribunal continue to deal with such behaviour.
As part of the way forward, we believe that there needs to be a firm commitment to exposing those who are left and are still resisting co- operating with the institution. There are companies such as Foodcorp that are still continuing with legal action. We also need to be firm in our resolve to ensure that companies feel the impact on their profits and also on their businesses.
We are quite happy that part of the commitment of this deal is to ensure that it will facilitate new entrants into the market through the capital investment that has been incorporated into this particular deal. There will be benefits for those who have been robbed, that is the poor, the working class and the middle class, through the R160 million that has been committed and will go towards price reductions. We believe that that will also have an impact on the other players in this particular section of the market.
What is also important is that this establishes a norm. When Tiger Brands, about three or four years ago, was fined more than R90 million there were no visible returns to the consumers. This particular deal guarantees and sets a trend for benefits for the consumers. We see this as a very important development.
Finally, we believe that some of these actions for stopping cartels and monopolistic behaviour are in line with the New Growth Path as announced, and are also in line with employment creation. It also shows that the regulatory framework that government has put in place and the policing mechanisms of private companies are actually working and are actually effective.
We also believe that this will strengthen the approach in terms of ensuring that through agroprocessing we create more jobs and food security. It shows we support small and medium enterprises and co-operatives, and also ensures that millions of our people are taken out of poverty and unemployment.
We note what the hon member from the DA was saying about the merger between Massmart and Walmart, and obviously the approach of the ANC-led government would be to ensure that any mergers and acquisitions comply with the Constitution of the Republic, including with regard to protection of workers' rights.
In conclusion, this sends a sign to those industries such as the construction and infrastructure sector, the telecommunications sector - including the mobile cellphone operators - and the financial institutions that their days of fixing prices and maintaining a monopoly are coming to an end.
The tribunal and the commission are growing some teeth. We would like to take this opportunity to applaud those who played an important role and those who pioneered this particular deal. Thank you very much. [Applause.]
Debate concluded.