- December 2, 2008
- Posted by: admin
- Category: Historical Investments
MILK processor Clover has applied to the trade and industry minister for protection of the dairy sector from competition rules because the industry is in distress.
If granted, the move could see the industry exempted from competition legislation.
The Competition Commission has investigated Clover and four other milk processors for collusion.
Clover deputy CE Manie Roode blamed the sector’s woes on deregulation. His sentiments echo concerns raised recently by Competition Commission senior economist Simon Roberts about the negative effect of deregulation on the agricultural sector. Roberts called for “intelligent regulation” to remedy the situation.
SA is one of only three major deregulated dairy markets in the world, but competes with industries that get state support through subsidies and measures such as the state purchase of surpluses. A sharp drop in demand for milk products in recent months led to a huge surplus in the market, pushing prices down at a time when producers are squeezed by higher input costs. The surplus has been made worse by substantial but uncoordinated imports of dairy products prompted by a shortfall last year.
For several months, milk prices have consistently lagged behind producer price inflation, the sector says.
Clover has applied for designation, a provision in the Competition Act that allows for an industry to apply for exemption from competition law if its economic stability is under threat.
But the action is controversial because of the collusion case against it, which is to be heard by the Competition Tribunal in February.
Clover has defended information sharing and volume control, which is seen as a form of indirect price-fixing, saying these were measures to control surpluses and avert the destabilisation of an industry subject to sharp seasonal production fluctuations.
In a corporate leniency application to the Competition Commission, Clover claims the collusive practices were in line with a blueprint crafted by the trade and industry department to smooth out production fluctuations and create stability in the industry.
Koos Pienaar, chairman of farmer representative body the Milk Producers Organisation, said the industry was in chaos because it lacked a holistic, co-ordinated approach.
“This is one sector where you cannot call for the market to be free. You need long-term planning,” Pienaar said.
He also pointed to the role of retailers, saying they were dominant in the dairy sector, but did not carry the risks.
“There is no doubt that milk producers are getting a raw deal, but things are not looking too bright for processors either,” he said. Squeezed by the surging cost of fertiliser, high-protein feed and diesel fuel, and falling purchase prices for raw milk, farmers are leaving the industry in droves.
The 3600 remaining comprise less than a tenth of the 40000 dairy farmers in 1992.
Industry representatives fear SA’s self-sufficiency in milk could be under threat as farmers sell milk-producing stock — bred over decades — to abattoirs because they cannot recover costs.
There was evidence of collusive tendencies in the industry, Pienaar said.
But while these actions might have been “in conflict with the letter of the law”, some of these actions could have been in the interests of the industry.
“The important issue is that co-operation needs to be transparent,” he said.
Source: Business Day – Mathabo le Roux