South Africa’s leading financial newspaper has attacked the workings of the Competition Commission, and Trade, Industry and Competition Minister Ebrahim Patel.
The first salvo was launched with a scathing opinion piece by journalist Michael Avery about the poultry market inquiry. This was followed by a strong and detailed condemnation of the market inquiry system in editorial comment by the newspaper itself. The newspaper said the system amounted to undemocratic “legislation by administration”.
“Efficiencies inherent in vertical integration will be lost”
The attack began with seasoned journalist and broadcaster Michael Avery questioning the motivation for the poultry market inquiry. He said it was likely to damage and threaten the viability of an industry that trade minister Ebrahim Patel had spent years trying to rescue.
He noted the Competition Commission’s “openly hostile approach” and said the inquiry could result in the breakup of the country’s few large poultry producers. This would destroy the efficiency inherent in big, vertically integrated companies.
“Spare a thought this week for the poultry sector CEOs, who having spent countless hours with the Department of Trade, Industry & Competition bedding down a ‘master plan’ for the poultry industry, which has at its heart a commitment to salvage the local industry and rescue what remains of its jobs,” Avery wrote.
These CEOs “are now confronted with a wide-ranging study that may (according to the Competition Commission) result in binding determinations that industry players change their contracts or pricing, or even sell some business units.”
Avery said the Competition Commission’s terms of reference give some indications of how it intends “plucking the chicken value chain”: it was aiming at South Africa’s few large, vertically integrated players.
“Companies identified as large, or that ‘dominate’ (and their shareholders) will be instructed to cough up,” he wrote.
“Expect demands for separation of their upstream (feed, chick production) and downstream (retail) operations, or that they divest some operations to empowerment partners or worker trusts (despite the economic reality that scale is critical in the poultry business, and ‘elevated levels of concentration’ may simply reflect that only the largest survive in this brutally competitive game).”
If the remedial actions proposed by the Competition Commission in the inquiry into online platforms were anything to do by, “the chicken industry should brace for a stuffing,” Avery said.
“The tech giants were asked to change their contracts, fundamentally changing how they interact with consumers and businesses (Takealot, Uber Eats, Booking.com, Apple), and in some instances make services available for free (Apple, Booking.com) and even sell off their platform (estate agencies). They were also ordered to make ‘substantial’ funds available to ‘historically disadvantaged persons’, despite a lack of evidence that their conduct had actually harmed anyone.”
Avery said the public, and the government, had so far seemed largely agnostic to the commission’s attempts to extract rents from offshore headquartered companies like Google and Uber.
“It will be interesting to see if this inquiry, which seems likely to threaten the viability of an industry the minister has fought for years to salvage and protect from global competition, is met with the same lethargy. Or whether this will be the time the minister calls off his dog,” Avery concluded.
“Unelected officials should not dictate how businesses are run”
The newspaper followed up with an even more condemnatory editorial opinion, saying lawyers were asking whether the Competition Commission might be usurping the powers of parliament.
Law making is the prerogative of parliament, which holds public hearings and is staffed by elected representatives, the newspaper said.
“But a handful of economists and lawyers at the commission now have the power to tell any industry it chooses to investigate on vague grounds how to do business, especially regarding small and black suppliers.
“Without having to prove firms have a monopoly or broke the law by abusing their dominance — a previous bar for serious intervention — the commission can hold an inquiry on suspicion of competition issues. It can then conclude by asking shareholders to divest of their business interests.”
Business Day said at least two firms were appealing the findings of the online intermediation platforms inquiry. They could suggest that the commission is regulating sectors of the economy by proxy.
“Surely, it cannot be left to administrators, including Trade, Industry & Competition Minister Ebrahim Patel’s staff and overeager economists, to dictate how varied industries should run and who can own what?
“The commission is investigating the ailing steel sector, the ailing newspaper and online media sector, fruit and vegetable suppliers and now the poultry industry. Most of these industries can ill afford witch-hunts.
“Market inquiries are not about breaking up a monopoly or ensuring good competition, which is great for consumers. They appear to be about extracting concessions for small business from big business — even if it is loss-making.
“The poultry industry should hope the Competition Commission would not force it to divest from operations, change contracts or give away intellectual property free.
“Anyone interested in democracy should also be concerned about the poultry inquiry. An administrative body has gathered enormous power to make rules for large parts of the economy, despite not being elected representatives,” Business Day concluded.
