The great bread scandal

Time of article published Nov 13, 2007

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By Louise Flanagan, Shaun Smillie and Beauregard Tromp

If you think you've been paying too much for bread, you're probably right. Tiger Consumer Brands has been fined R99-million after being caught fixing the price of bread and costs of milling with a cartel of major national competitors - and that's getting off lightly.

At least one other major bread producer now faces an even heavier fine.

On Monday, the Competition Commission, which levied the fine, said the handful of national bread-producing giants had been fixing the price for at least 12 years, affecting both the bread-production and the milling industries.

"We've got evidence from 1994 up until December last year," said the commission's manager for enforcements and exemptions, Thulani Kunene.

He called it a very serious contravention of competition laws.

"We can't think of a worse form of cartelling than fixing prices for products for the poor."

Tiger Brands said it had involved renegade staff who would now face disciplinary action and that Tiger had co-operated with the commission, arranging its own external investigation and handing over the results.

Tiger CEO Nick Dennis said the external investigations "found no evidence of abnormal pricing; nor were consumers adversely affected".

Lillibeth Moolman, the chairperson of the South African National Consumer Union, felt a fine was too lenient.

"I am totally disgusted - they should be facing criminal charges. The problem is that these are businessmen who need to make a profit. A fine will be absorbed in their operating expenses, which means ultimately the consumer will feel it," said Moolman.

"This is totally unacceptable when you consider the high prices of food. And these companies are good operators."

Moolman said that since May, a loaf of bread had risen in price by between 50c and 60c - a hike of 10 percent.

"Generally there are high world grain prices, but only a small percentage of wheat is used in bread, the rest of the cost of bread comes from labour and fuel."

Pick 'n Pay CEO Nick Badminton said he was "flabbergasted" to hear of the price-fixing.

"It's totally against what we stand for," he said. "We hope like mad that it is not happening anywhere else."

The investigation started in December when a bread distributor in the Western Cape, Imraahn Ismail Mukaddam, told the commission he had received letters simultaneously from three bread distributors warning of a price increase.

Mukaddam, from Elsies River, Cape Town, sells bread to informal settlements and the poor.

Soon afterwards, another distributor reported seeing officials from one bread producer leaving the offices of a rival.

Then Premier Foods Ltd, which runs Blue Ribbon Bakery, told the commission it had been involved in a price-fixing cartel and offered to help the investigation. This resulted in Premier getting total immunity from prosecution in terms of the commission's corporate leniency policy.

The commission approached cartel member Tiger, which runs Albany Bakeries, and, because the company co-operated, it got an "administrative penalty" of R98,8-million, which is 5,7 percent of its national turnover for bread operations for the 2006 financial year of R1,7-billion. The maximum fine is 10 percent of turnover.

This must be paid within 30 days and goes to the National Revenue Fund, which the Treasury controls.

Kunene said the commission would now be going after other cartel members, including Pioneer Foods, which runs Sasko, and Duens bakeries, which had not co-operated.

"We will definitely be seeking much higher fines for them from the tribunal," said Kunene.

The commission found that between 1994 and 2006, Tiger, Premier, Pioneer and various independent bakeries increased bread prices "by similar amounts at or about the same time", and between 1999 and 2001 agreed to close certain bakeries.

The commission also found that Tiger, Premier, Pioneer and various independent millers fixed regional and national prices of flour and maize.

Tiger's penalty is set out in a consent order agreement signed by the company and the commission on Friday.

Kunene said Tiger's top management had co-operated with investigators. "They didn't know this was happening in their company."

Kunene said it was difficult to say how much the price-fixing cost consumers, but if there hadn't been cartel activity in both the milling and bread-producing sectors, consumers would have paid a competitive price for bread.

"Nobody knows what a competitive price is," said Kunene.

He promised the investigation would continue.

"No matter how long it takes, we will follow through with it."

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