Commission wants Pioneer's fine hiked

2010/02/26

The Competition Commission has lodged an appeal with the Competition Appeal Court against a ruling by the Competition Tribunal on the administrative penalty imposed on Pioneer Foods.

The company was found to have been involved in a bread cartel. In a statement on Thursday, the Commission said a fine of 10 percent of Pioneer's turnover for 2006, which would amount to about R1.5 billion, should be imposed. This would be instead of the R195 million fine actually imposed, which was 10 percent of the company's baking division turnover in the same year.

The case involved the Commission's allegations that Pioneer Foods, which owns Sasko and Duens bakeries, colluded with Tiger Brands, Foodcorp and Premier Foods to increase the price of bread. Premier was granted leniency in exchange for its co-operation with the Commission, while Tiger and Foodcorp settled their cases, admitted the conduct and paid administrative penalties.

The Commission proceeded with the case against Pioneer and asked the Tribunal to impose a penalty of 10 percent 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," the Commission said.

In its finding, the Tribunal noted that cartels were the most egregious offences in competition law, that poor consumers were particularly affected and that, in the absence of mitigating factors, cartels deserved the maximum penalty provided in law. The Commission said the Tribunal had also concluded that Pioneer's defence was premised on manifest falsehoods. The Commission "welcomed" the Tribunal's findings on the facts, "namely that Pioneer had engaged in cartel behaviour", but it did not believe the criteria prescribed by the Tribunal to determine the penalty were 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."

The Commission said administrative fines had to 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," commissioner Shan Ramburuth said.

The Commission has asked the appeal court to reverse the Tribunal's finding and impose the increased penalty. Pioneer Foods said earlier on Thursday in a statement to the JSE that it had raised a provision of R196 million to settle the penalty in the bread matter, following the release of the Competition Tribunal's decision.

"As a result of the provision raised, earnings per share and headline earnings per share for the six months ending 31 March 2010, is expected to decrease between 25 percent and 45 percent from the previous corresponding period," it added. (Source : Sapa)