Prosecuting cartels in terms of the Competition Act (1998) Presentation to the Parliamentary Portfolio Committee on Trade and Industry 29 February 2008 Shan Ramburuth: Competition Commissioner Tel:

Format of presentation Introduction and background Strategic planning Prioritisation Cartel cases Infrastructure project Going Forward Q & A’s

The Competition Authorities The competition authorities EXTERNALPARTIESEXTERNALPARTIES Competition Commission Competition Tribunal Competition Appeal Court Appeal of Tribunal decisions Referral of complaints & large mergers Exemption applications, complaints and merger notifications Appeal of Tribunal decisions Appeal of exemptions, intermediate mergers or non- referral decisions, defence of referral decisions

Commission’s mandate Prosecuting anti-competitive business practices Merger control – approving large and intermediate mergers Advocating pro-competitive practices and policies

Anti-competitive practices  Horizontal restrictive practices  Price fixing  Division of markets  Collusive tendering  Vertical restrictive practices  Exclusive agreements, resale price maintenance  Abuse of dominance  Excessive pricing, exclusionary acts and price discrimination

Priorities: 2000 to 2005 Setting up the institution Developing expertise Clarifying the law Focus on merger control

Demand for change Demonstrable impact: “concentration persists” Access to the economy: “barriers to entry” Benefits to consumers: “prices must fall” Prioritising for effectiveness under resource constraints

External environment OECD Peer Review Presidency 10 year review AsgiSA National Industrial Policy Framework State of the Nation speeches /2007 Recognition of the role of competition policy in regulation

Internal environment Consolidating experience Retain staff and skills Knowledge management Focusing on the important issues Creating organisational efficiencies

Step up enforcement activities Prioritise cases Re-organise structures and resource allocation for effectiveness Strategic planning: Enforcement

Basis for prioritisation Commission’s experience Government policy Review of other jurisdictions Setting criteria for selection

Criteria Impact on poor consumers Costs of intermediate goods into labour absorbing manufacturing Impact of cost of doing business

Priority sectors: 2007 to 2010 Agro-processing, specifically food processing and forestry Intermediate industrial products: chemicals, steel Infrastructure and construction, including bid-rigging Financial sector, specifically banking

Enforcement powers Investigate and prosecute Summons, search and seizure Consent orders Recommend fines, behavioural and structural remedies Corporate leniency policy

Penalties received Source: Commission Finance Department

Corporate leniency policy Indemnity from prosecution for providing information of a cartel “First through the door” Cooperate fully with and assist Commission CLP has played a key role in detecting major cartels currently being prosecuted Currently being reviewed

…on both a moral and practical level, there is not a great deal of difference between price fixing and theft… (Whish, 2001) Cartels(1)

 Operates in secret  An agreement not to compete  Effect is to increase price and/or reduce output.  International studies find a median price mark-up from cartels of +/- 15% Cartels (2)

 Purpose is to maximise profits  Occurs through price fixing, market allocation and collusive tendering  Busting cartels means prices to consumers will be lower, over time, than under collusion Cartels (3)

 Premier Foods (Blue Ribbon), Tiger Brands (Albany) and Pioneer Foods (Sasko) agreed, in the Western Cape:  to uniformly increase price of bread to customers;  to fix their discounts to distributors;  not to poach distributors The bread cartel(1)

 Premier confessed and was granted indemnity  Premier gave information of agreements  in the WC  outside the WC  In the national milling industry  Commission completed and referred its WC investigation on 14 February 2007 The bread cartel(2)

 Tiger settled on baking and milling and paid a penalty of 5.7% of national bread turnover – R98 million  Western Cape bread cartel against Pioneer referred, trial date to be set  National bread cartel against Pioneer and Foodcorp to be referred shortly  National milling cartel against 11 respondents currently being investigated The bread cartel(3)

Consumer price of bread, flour, and wheat price (trade) per 700g loaf

 Clover, Parmalat Ladismith Cheese, Woodlands Dairy, Lancewood, Nestle and Milkwood Dairy  Referred to Tribunal on 7 December 2006, hearing set for September 2008 The milk cartel(1)

 Investigation found that firms:  fixed prices indirectly by co- ordinating the removal of surplus milk from the market  allocated geographic areas in which they would not compete  exchanged sensitive information on procurement prices of raw milk The milk cartel(2)

 Adcock Ingram Critical Care, Fresenius Kabi SA, Dismed and Thusanong agreed to:  tender collusively for Contract RT299 – state tender for intravenous solutions; and  divide the private hospital market amongst each other The pharmaceutical cartel

 Fresenius confessed, provided information and was granted indemnity  Commission completed and referred its investigation on 11 February 2008 The pharmaceutical cartel

Collusion in construction(1)  SA committed to major infrastructure investment  Wide concern about high prices in building materials – cement, bricks, aggregates, steel

Collusion in construction(2)  International experience of bid rigging in construction  Commission scoped area’s of concern  Initiate investigations where competition concerns occur  Leniency applications received

Price trends in construction are substantially above inflation

Future issues   Strengthening the competition authorities   Corporate governance and corporate accountability   Appropriate disincentives   Compensating the losers