19 April 2010 by

Commission appeals fine imposed in Bread Cartel and refers Milling Cartel complaints

In a somewhat unprecedented move, the Competition Commission has elected to appeal against the fine imposed by the Competition Tribunal on Pioneer Foods, the last member of the so called 'bread cartel' left standing to defend the allegations. During February 2010, the Tribunal handed down its finding that Pioneer Foods had been party to cartels in the Western Cape, and nationally, involving price fixing and market division in the bread market. All other members of the cartel had previously settled with the Commission or had been granted leniency as 'whistleblowers' under the Commission's Corporate Leniency Policy. Although Pioneer Foods received the highest fine imposed to date as a percentage of turnover (9.5% of turnover in the Western Cape together with the maximum allowable 10% of national turnover, but excluding the Western Cape) the Tribunal declined to apply the percentage to the total turnover of the Pioneer Foods group, as requested by the Commission. 

In electing to limit the fine to affected (ie, bread) turnover only, the Tribunal remained consistent with previous rulings and settlements. As part justification for this approach, the Tribunal suggested that broadening the base turnover to include other markets would be permissible (ie, rational and justifiable) where the cartelist was able to leverage its ill-gotten pricing power into another market. The Commission has sought to appeal this principle; apparently in the belief that such a strict test detracts from the ability of the Commission to seek ever increasing fines as a stronger deterrent against cartel behaviour. In the course of noting its appeal, the Commission has asked the Competition Appeal Court to impose a fine of 10% of Pioneer Foods' total group turnover in respect of each alleged cartel - namely the Western Cape and national cartels. This would increase the fine from approximately R196 million to in excess of R1.5 billion. Such a draconian approach would appear to punish conglomerates involved in a number of industries far more than firms involved in only one market.

In the meanwhile, the Commission has since referred two further complaints of cartel conduct in a related industry, namely wheat and maize milling. The major players implicated include those involved in the bread cartel (Pioneer Foods, Foodcorp, Premier Foods and Tiger Brands) together with a number of smaller millers. Citing conduct ongoing until February 2007, the Commission has asked the Tribunal to impose a full 10% of group turnover on each firm (other than Tiger Brands and Premier, which both obtained leniency) in respect of each complaint.

Chris Charter, Director, Competition
Scarlate Nkiwane, Associate, Competition

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