Competition Tribunal hears meat supply ‘cartel’ case
Food giant I&J has found itself in front of the tribunal on charges of collusion in the beef sector, having allegedly signed an agreement that allows it to operate as a cartel.
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2 December 2019
An abattoir and meat processing plant in Balfour, Mpumalanga, that churns out burgers, steak sizzlers, viennas and boerewors is at the centre of a Competition Tribunal hearing in which food production giant I&J stands accused of participating in a cartel.
I&J’s partner in the alleged crime was Karan Beef, a company that has already admitted guilt and settled with the commission, paying a R2.7 million fine in August 2018.
Karan Beef owns the abattoir and meat processing plant in Balfour and, in 2000, I&J and Karan Beef entered into a manufacturing agreement regarding the meat products that would be produced at the plant.
This agreement or clauses in it have landed I&J a date before the Competition Tribunal. I&J maintains that it has not broken the law.
Competition commissioner Tembinkosi Bonakele has been extremely vocal about the commission’s concerns regarding “the prevalence of collusion in the food sector”. He has stated repeatedly that higher prices for food products resulting from collusion affect the poorest and most vulnerable households most.
In the past few years, the commission has conducted raids at the offices of meat suppliers and fruit and veg market agents, as well as instituted a grocery retail market inquiry. The final report from the grocery retail report was released on Monday 25 November and it proposes widespread changes to the market.
Beginnings of an investigation
Karan Beef was one of seven meat suppliers in Gauteng, the Northern Cape and the Free State that had their offices raided by the commission in June 2017. The suppliers were feedlots, businesses that purchase calves and fatten them up for slaughter.
At the time, Karan Beef chief executive Arnold Pretorius told the Business Day newspaper that there was no collusion in the beef sector.
The Competition Commission initiated its investigation of Karan Beef and I&J a few months later, in September 2017, and referred the case to the Competition Tribunal in October 2018 for prosecution.
The commission’s head of cartel investigations at the time, Makgale Mohlala, said the two companies had divided up the markets in which they competed, eliminating the competition. This division of markets was laid out in the manufacturing agreement the two parties signed.
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However, it emerged before the tribunal towards the end of November that this agreement has two key annexures that are in dispute. The two annexures list the products that are subject to the agreement.
I&J maintains that certain products were included in these annexures by mistake. The commission says the agreement is the document that cemented the two parties’ alleged anti-competitive relationship.
The commission’s case
Commission advocate Mfundo Ngobese argued before the tribunal that Karan and I&J competed in two markets in which they supplied processed meat products: the retail market, which is supplying to supermarkets, and the food services market, which involves supplying restaurants, catering companies and other businesses that require processed meat products in bulk.
Ngobese argued that once the manufacturing agreement had been signed in 2000, the two companies went from being two competing firms to two companies in a vertical relationship, where one supplied the other and didn’t compete.
Former Karan Beef employee Graham Simonsen testified that he joined the company in 2001, when the manufacturing agreement with I&J had already been signed. He said his understanding of the agreement was that Karan Beef would manufacture meat products for I&J at its Balfour premises and would not manufacture products that competed with I&J in certain markets.
Simonsen testified that before the agreement, Karan Beef produced meat products under its own brand as well as products that were sold as house brands, Pick n Pay burgers, for example.
He said Karan Beef handed over all its contracts for house-branded products to I&J as part of the manufacturing agreement, and that a later amendment to this manufacturing agreement gave house brands back to Karan.
I&J’s case
I&J advocate Wim Trengrove told the tribunal that I&J used to have its own prepared food division with manufacturing capacity in Nuffield, Springs. This was mostly used for preparing fruit and vegetables, but 10% to 15% of this capacity was used to process meat. But I&J sold the manufacturing plant to frozen food company McCain, which led to talks with Karan Beef.
Trengrove argued that around the time the manufacturing agreement was signed, Karan Beef had wanted to shut down its meat processing operation. He said Karan Beef offered I&J an exclusive licence to sell branded Karan Beef products and said it would manufacture products that would be sold under the I&J brand.
The manufacturing agreement was never intended to restrict Karan Beef from continuing to service its contracts for house brands, said Trengrove.
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He referred to the disputed Annexure B of the manufacturing agreement as “a mistake”, saying it should only have contained the Karan Beef branded meat products, not the supermarket house brands that Karan was supplying.
I&J company secretary Chris Schoeman testified that he drafted the manufacturing agreement between the two parties and that the agreement was never meant to contain the house brand products.
He knew nothing about the amendment to the agreement, which he only discovered recently, he said, adding that it was a draft drawn up by a legal adviser that had never been circulated.
The Competition Tribunal has heard all the witnesses in the case and will hear closing arguments on 20 January 2020.
