Commission appeals Pioneer bread cartel penalty

The Commission asked the appeal court to reverse the Tribunal's finding on the penalty of R195 million, and instead impose a penalty of 10% of Pioneer's group turnover, of approximately R1.5 billion.

The Commission alleged that Pioneer Foods, which owns Sasko and Duens bakeries, together with Tiger Brands (TBS), Foodcorp and Premier Foods colluded to increase the price of bread.

Penalties

Premier was granted leniency in exchange for its cooperation with the Commission, while Tiger and Foodcorp settled their cases, admitted the conduct and paid administrative penalties.

The Commission however, proceeded with its case against Pioneer and asked the Tribunal to impose a penalty of 10% of the Pioneer group turnover for 2006. Following a hearing, the Tribunal found that Pioneer had indeed colluded with fellow bakeries to fix the selling price of bread and to allocate markets amongst themselves.

In it's finding, the Tribunal noted "cartels are the most egregious offences in competition law, that poor consumers were particularly affected and that, absent mitigating factors, cartels deserved the maximum penalty provided in law".

The Tribunal concluded that Pioneer's defence was premised on manifest falsehoods. It imposed a penalty of R195 million, being 10% of Pioneer Foods baking division's turnover for 2006, rather than its group turnover.

Ineffective as a deterrent?

The Commission said it welcomed the findings of the Tribunal that Pioneer had engaged in cartel behaviour, however, it did not believe that the criteria prescribed by the Tribunal to determine the penalty was appropriate to deter cartel behaviour.

"While the Tribunal judgment appropriately castigates this cartel behaviour, we are not happy with the manner in which it calculated the penalty. Administrative fines must be set at levels that effectively deter anti competitive behaviour.

"We believe that the precedent set by this ruling will negatively affect the Commission's ability to set effective fines in future cases," said Commissioner Shan Ramburuth.

Appeal for larger fine

The Commission asked the appeal court to reverse the Tribunal's finding on the penalty and impose a penalty of 10% of Pioneer's group turnover, which would amount to approximately R1.5 billion.

Pioneer said Thursday that it has raised a provision of R196 million to settle the penalty in the bread matter, following the release of the Competition Tribunal's decision on 3 February 2010.

As a result of the provision raised, earnings per share and headline earnings per share for the six months ending March 2010, is expected to decrease between 25% and 45% from the previous corresponding period.

Pioneer Foods is also currently in negotiations with the Competition Commission to settle a milling matter. The quantum of a potential administrative penalty to settle the matter is not yet determinable.

The group advised that the Competition Commission had decided to appeal the decision of the Competition Tribunal in the bread matter.

Cross appeal

The company has resolved that it is in its interests to oppose the Competition Commission's appeal and to lodge a cross appeal which, if successful, may have the effect of the penalty being reduced.

Pioneer Foods will however continue to pursue amicable resolutions of this and other matters before the Competition Commission.

Shareholders were advised to exercise caution until a further announcement on these matters, is made.