Pioneer: Doing itself no favours
Posted on 04. Feb, 2010 by admin in News-Food, Uncategorized
Pioneer Food Group and its bread business are doing itself no favours by continuing its battle with the Competition Tribunal over bread price fixing.
On Wednesday the Tribunal announced that it was imposing a fine of R195m on the food group which comprised R46 019 954 which is 9.5% of the turnover for the bread business in the Western Cape and another R149 698 660 which is 10% of the total Pioneer Food Group revenue.
Through the process Pioneer has declined to turn on its tail and admit any wrong-doing despite a number of its competitors rolling over and agreeing to discuss their sins with the Tribunal.
It has been a messy saga that has done Pioneers corporate image a fair amount of damage. By now saying that they may consider appealing the fine they are doing themselves no favours.
If Pioneer had put up a meaningful defence it would have been one thing but this paragraph from the Tribunal’s findings sums the situation:
“In considering mitigating factors the Tribunal finds that Pioneer had not made out a case for any leniency whatsoever. In fact, the Tribunal finds that Pioneer’s entire defence has been mounted on the basis of manifest falsehoods. The Tribunal has 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 says that Goosen not only lied to the Tribunal and mislead it, but admitted to lying under oath. The Tribunal also notes 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.”
In short – it is time for Pioneer to put this messy situation behind them and to focus on rebuilding its image.
For those interested in the full judgement from the Tribunal please read it below:
The Competition Tribunal has, on 3 February 2010, imposed a penalty of R195 718 614, on Pioneer for its role in a bread cartel and has ordered Pioneer to desist from such conduct forthwith. 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 case concerns two complaint referrals brought against Pioneer of a bread cartel operating in the Western Cape (the Western Cape complaint) and a bread cartel operating in inland region (referred to as the Inland/National complaint).
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. The administrative penalty of R195m amounts 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 was seeking a penalty of between R1.5bn to R396m. Pioneer on the other hand asked the Tribunal to adopt a piece-meal approach and to 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 says, in its decision, that hard core cartel activities are considered to be the most egregious offences under the Competition Act and, absent mitigating factors, deserve 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 piece meal approach presented to us by Pioneer.
In considering mitigating factors the Tribunal finds that Pioneer had not made out a case for any leniency whatsoever. In fact, the Tribunal finds that Pioneer’s entire defence has been mounted on the basis of manifest falsehoods. The Tribunal has 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 says that Goosen not only lied to the Tribunal and mislead it, but admitted to lying under oath. The Tribunal also notes 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. 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 being R46 019 954 and for the national./inland contraventions, the Tribunal imposed a penalty of 10% on Sasko’s 2006 turnover (less Western Cape) being R149 698 660.
The Tribunal has 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 is the highest penalty it is entitled to levy. The total penalty in respect of both complaints is R195m In terms of the Western Cape complaint the Tribunal says that it has no hesitation in finding that the bread division of Pioneer (Sasko and Duens) has been involved in a conspiracy to fix the increase of the price of a standard loaf of bread in the Western Cape (Western Cape Complaint) as well as the timing of this increase
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