Complaint lodged in the poultry sector

BRAND ACTIVITY

Aug 14th, 15:12

Leana Engelbrecht, Associate, and Chris Charter, Director, Competition, Cliffe Dekker Hofmeyr

The poultry industry has been receiving a lot of attention in respect of what has been dubbed the 'chicken war' between local chicken producers and importers of frozen chicken products into South Africa, resulting in an application brought by the South African Poultry Association (SAPA) for tariff hikes on frozen chicken imports from Brazil and Argentina, which is facing opposition from the Association of Meat Importers and Exporters (AMIE).

One of the forums in which this war is being waged is before the South African competition authorities. The AMIE previously raised the desirability of a market inquiry into the poultry sector (similar to the market inquiry currently being undertaken by the Competition Commission (Commission) in the private healthcare market) and has since lodged a complaint against SAPA and local frozen chicken producers with the Commission. This complaint relates to, among other things, the use of the International Trade Administration Commission of South Africa and customs duties to remove import competition from the market and other alleged anti-competitive practices.

Broadly speaking, the poultry industry could probably benefit from a market inquiry to establish what it is that renders local producers unable to compete effectively, and to consider the effect of imports (with or without tariff barriers) on local businesses and consumers. However, it is also clear that the issues at play go beyond pure competition issues and stray significantly into broader issues of industrial and trade policy, as well as the public interest (in particular local businesses and jobs). These issues really fall outside the scope of a market inquiry or complaint investigation as contemplated in the Competition Act (Act).

In fact, there may be a tension between the strict competition law considerations and the broader policy questions, and it may not be fair to expect the Commission to come up with the solution as that is not really within its mandate as arbiter of competition rather than industrial policy. It is arguably a strength of the regulator in comparison to some other jurisdictions (such as the EU) that it is allowed to focus on competition issues rather than to develop other industrial policy; it has also been of concern to certain commentators where policy makers have perhaps leaned too heavily on the competition regulator to drive industrial policy.

While there is merit in better understanding the economic drivers in an industry insofar as that assists with policy development as well as competition law enforcement, the competition authorities have limited ability to drive prices down through price regulation. Instead, they can only look to ensure that companies conduct themselves in a competitive manner.

In certain cases a market may have structural or systemic reasons for higher pricing that cannot be put down to anti-competitive behaviour by any of the players in that market. The economics of any industry is based on a complex set of variables and effective competition is but one of those. Ultimately and whatever the outcome of the Commission's investigation, the poultry debate highlights how other factors such as import tariffs or subsidies abroad can serve to distort a market, regardless of whether players are acting in accordance with the Act.