Pioneer slapped with R195m penalty

The cartel involved the four primary bakeries Tiger (Albany), Premier (Blue Ribbon), Foodcorp (Sunbake) and Pioneer, which owns Sasko and Duens bakeries.

Together the four bakeries enjoy a market share of between 50-60% of the domestic bread market in South Africa, the Competition Tribunal pointed out.

Complaints

The case concerned two complaint referrals brought against Pioneer of a bread cartel operating in the Western Cape and a bread cartel operating in inland region.

During 2007 Premier Foods sought leniency from the Commission for its role in the cartel.

Tiger Consumer Brands and Foodcorp subsequently negotiated agreements with the Competition Commission (consent order agreements) in which they agreed to pay fines and desist from the conduct.

Pioneer opted to fight the case before the Tribunal and remained as the single respondent in the matter.

Imposed fines

The administrative penalty of 195 million amounted to 10% of Sasko's (Pioneer's bread baking division) national 2006 bread turnover.

The Competition Commission asked the Tribunal to impose a penalty of 10% of Pioneer's total group turnover, not only on its baking division for each complaint.

In effect the Commission had sought a penalty of between R1.5 billion to R396 million.

Plea for piecemeal penalty

However, Pioneer requested that the Tribunal to adopt a piecemeal approach and impose a penalty upon it only in relation to the Western Cape referral arguing that this should not exceed 2.25% of Sasko's (bread division) 2006 turnover for the Western Cape.

Had the Tribunal followed the latter approach, Pioneer would be facing a maximum penalty of 10% in respect of each occasion when it was found to be in contravention of the Act in this case this would amount to fourteen contraventions - seven in the Western Cape and seven in the inland region.

The Tribunal said, in its decision, that hard-core cartel activities were considered to be the most egregious offences under the Competition Act and, absent mitigating factors, deserved the maximum penalty provided for in the Act.

However the Tribunal decided against adopting the Commission's proposal of a penalty calculated on Pioneer's group turnover.

Nor did it adopt the piecemeal approach presented to us by Pioneer.

No case for leniency

In considering mitigating factors the Tribunal found that Pioneer had not made out a case for any leniency.

It found that Pioneer's entire defence has been mounted on the basis of manifest falsehoods.

The Tribunal said it had no hesitation in accepting the Commission's contention that Pioneer's main and, eventually, only factual witness - General Manager of Sasko Bakeries at Pioneer Foods, Andries Charl Goosen's testimony was false.

The Tribunal said that Goosen not only lied to the Tribunal and mislead it, but admitted to lying under oath.

No individuals held accountable

The Tribunal also noted that even after the Commission's initiation of the complaint, Pioneer did not conduct a full enquiry or investigation in order to root out this behaviour in its company or to bring to book any of the individuals involved.

Up to the date of the hearing no action had been taken against any of the employees implicated in this conduct.

Probe

When it eventually did conduct an investigation it concealed the outcome of this by cloaking it in the claim of litigation privilege.

The Tribunal accepted that the agreement in the Western Cape was for a shorter duration than that in the national/inland region.

Accordingly for the Western Cape contravention it imposed a penalty of 9.5% on Sasko's (bread and baking) Western Cape turnover for 2006 of R46.02 million, and for the national/inland contraventions, the Tribunal imposed a penalty of 10% on Sasko's 2006 turnover of R149.70 million.

The Tribunal said it had the discretion to impose a penalty of up to 10% of the firm's annul turnover in the Republic and its exports from the Republic and to date this was the highest penalty it was entitled to levy.

Findings

In terms of the Western Cape complaint the Tribunal says that it had no hesitation in finding that the bread division of Pioneer (Sasko and Duens) had been involved in a conspiracy to fix the increase of the price of a standard loaf of bread in the Western Cape as well as the timing of this increase.

This in addition to Pioneer's concession made regarding the fixing of the agents' commissions and those concessions made with respect to the various market allocations amounts to a comprehensive contravention of Section 4(1)(b)(i) and (ii) of the Competition Act.

Contraventions

In terms of the Inland/National complaint the Tribunal said it also had no hesitation in finding that Pioneer had contravened sections 4(1)(b)(i) and (ii) in the inland region or in that part of the country excluding the Western Cape, over a period of time from as far back as 1999 to date.

The Tribunal finds that Pioneer, Tiger Brands, Premier and Foodcorp had acted in contravention of section 4(1)(b)(i) and (ii).

In the first instance they had done so by agreeing to a division of markets during 1999-2001, which in its view still persists.

This agreement extended to at least the Southern Gauteng, Free State, and North West.

On the basis of the evidence put before [the Tribunal] it found that the agreement had also extended into the Mpumalanga/Limpopo region.

Intended increases

As for the price increases in 2004, Pioneer's own documents revealed its clear intention to increase its bread prices in 2004 in co-ordination with its competitors.

In July 2006, Pioneer agreed with its competitors not to compete on price (discounts) in the Vanderbijlpark area.

In 2006 Pioneer also agreed to increase its bread prices at the same time and at more or less the same magnitude in co-ordination with its competitors in the Gauteng region.

It also agreed to customer allocation with its competitors.

While the evidence of price fixing and customer allocation agreements was limited to the Gauteng and North West regions, given the history of co-operation among the respondents the likelihood that such co-ordination was taking place in other regions such as the Free State, Limpopo and Mpumalanga from time to time was very high, the Tribunal noted.