Abstract
This chapter discusses the persistence of cartels in South Africa. In 1996, South Africa’s first democratic administration took significant steps to liberalize many of the formerly price regulated markets. Deregulation and liberalisation led to the break-up of regulated cartels. We argue in this chapter that liberalisation may have inadvertently, by increasing competition in formerly protected markets, have increased the incentives for firms to participate in cartels.
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Notes
- 1.
See Section 7 Committee Evaluating the Deregulation Process: the wheat to bread value chain report, 1999. National Agricultural Marketing Council.
- 2.
The increasing population of settlers coupled with the discovery of the diamond and gold fields, led to significant growth in wheat production in South Africa. In addition, the development of railways, in conjunction with reduced freight charges, resulted in wheat cultivation being restricted to areas where natural conditions were most suitable, while shortages were imported from overseas.
- 3.
The costs and risks attached to these efforts were borne by the co-operative producers.
- 4.
Under Section 19 of Act No 58 of 1935.
- 5.
During the first two years of its existence the Wheat Board had a difficult task as a bumper crop was reaped in 1935/36 and there was a surplus on hand in 1936/37. By utilising its levy revenue on wheat milled in the country and with the aid of Government, the Wheat Board succeeded in preventing a price collapse, although a decline in prices did take place. Wheat growing was the most profitable branch of farming during the depression years.
- 6.
Co-operatives and other agents were engaged at a commission, to receive, grade and finance the wheat, and store and deliver it to millers on the instruction of the Wheat Board. The apartheid Government used to protectionist policies to support favoured firms. See also Groenewald (1964). In September 1949, the Wheat Control Scheme became the Winter Cereal Scheme with control extended to include barley, oats and rye.
- 7.
See Commission press release, 13 December 2012 Competition Commission settles milling case with Foodcorp. Available at http://www.compcom.co.za/assets/Uploads/AttachedFiles/MyDocuments/Commission-settles-milling-case-with-Foodcorp-.pdf
- 8.
Figure 1 uses average EBITDA (earnings before interest, taxes, depreciation, and amortization) margins, more precisely accounting profits. Accounting profits, however, do not correspond to economic profit and consequently may be misleading in the evaluation of the firms’ ability to raise price above marginal cost. See Bork and Sidak (2013).
- 9.
On 14 March 2007, the Commission initiated a complaint against Tiger Brands, Pioneer Foods, Foodcorp and Godrich Milling in respect of alleged collusive activities in the wheat milling industry.
- 10.
The Tribunal imposed a fine of R98 million on Tiger Brands for its role in the bread cartel. This represented about 5.7% of its turnover from baking for the financial year 2006. See Commission press statement, 12 November 2007, Tiger Brands admits to participation in bread and milling cartels and settles with Competition Commission. Available at: http://www.compcom.co.za/2007-media-releases/
- 11.
The Tribunal imposed a fine of R45 million on Foodcorp. This represents 6.7% of its turnover for baking operations for the financial year 2006. See Commission press release, 5 January 2009, Competition Commission settles with Foodcorp. Available at: http://www.compcom.co.za/assets/Uploads/AttachedFiles/MyDocuments/5-Jan-09-CC-Settles-with-Foodcorp.pdf
- 12.
The Tribunal ruled that Pioneer Foods had engaged in fixing the price of bread products in the Western Cape province and nationally and imposed a fine of R196 million. See Competition Commission vs. Pioneer Foods (Pty) Ltd (15/CR/Feb07, 50/CR/May08), Available at http://www.saflii.org/za/cases/ZACT/2010/9.html.
- 13.
See Competition Tribunal Case Nr 103/CR/Dec06. The case was referred by the Commission to the Tribunal for determination on 7 December 2006 against eight milk processors after the investigation commenced in February 2005. Available at http://www.compcom.co.za/2006-media-releases/.
- 14.
In January 2009 the Commission negotiated a settlement agreement with one of the respondents in the dairy investigation, Lancewood (Pty) Ltd. Lancewood admitted that it was involved in price information exchanges as alleged by the Commission. The company paid an administrative penalty in the sum of R100,000 and agreed to cooperate fully with the Commission in its prosecution of the remaining respondents. Available at http://www.compcom.co.za/2009-media-releases/.
- 15.
In April 2011 the Commission withdrew the case against the milk processors following the Supreme Court of Appeal’s ruling in September 2010. The Appeal Court ruled that the Commission’s initiation of an investigation into anticompetitive conduct in the milk industry was unlawful because it did not specify allegations faced by each firm and was not based on a reasonable suspicion that all firms in the industry were engaged in such conduct. Available at http://www.compcom.co.za/2011-media-releases/.
- 16.
See Leach (1994).
- 17.
These institutional arrangements included the Cape Sales (Pty) Ltd (Cape Sales), Cement Distributors South Africa (Pty) Ltd (CDSA) jointly owned by the cement producers and the South African Cement Producers Association (SACPA).
- 18.
Cement producers sold and distributed cement through the CDSA in the Northern Region and Cape Sales in the Southern Region. At the end of each accounting period there was a system of quota balancing to distribute proceeds of cement sales.
- 19.
Tribunal Consent Order, CC vs Lafarge Ltd, Case No.: 93/CR/Nov11.
- 20.
Tribunal Consent Order, CC vs Lafarge Ltd, Case No.: 23/CR/Mar12.
- 21.
Leniency programmes grant complete or partial exemption from prosecution for firms that collaborate with the competition authorities. A leniency policy was first introduced in the US in 1978 and reformed in 1993. In the European Union, the leniency programme was introduced in 1996 and modified in 2002.
- 22.
Perhaps this was because of the intrinsically secret nature of cartels which renders both their detection and investigation difficult.
- 23.
The CLP provides for a cartel member to receive immunity from prosecution before the Tribunal and from administrative fines in return for disclosing all relevant information and documents relating to the cartel activity. Only one member of a cartel may be granted immunity. As a result, the CLP creates a race to the door by rewarding the first member of the cartel to provide evidence on the cartel. The CLP does not make provision for granting partial immunity to second or third applicants, or for determining an applicable reduction in the fine.
References
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Mncube, L., Grimbeek, S. (2016). A History of Collusion: The Persistence of Cartels in South Africa. In: Jenny, F., Katsoulacos, Y. (eds) Competition Law Enforcement in the BRICS and in Developing Countries. International Law and Economics. Springer, Cham. https://doi.org/10.1007/978-3-319-30948-4_14
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