COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA
Case No: 71/LM/Sep02
In the large merger between:
Afgri Operations Ltd
and
Laeveld Korporatiewe Beleggings Beperk
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Reasons
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Approval
The Competition Tribunal issued a Merger Clearance Certificate on 4 December
2002 approving the merger without conditions. The reasons are set out below.
The merger
The transaction
Afgri Operations Ltd (“Afgri”) is acquiring all the shares in the issued share capital
of Laeveld Korporatiewe Beleggings Beperk (“Laeveld”), resulting in Laeveld
becoming a fully owned subsidiary of Afgri.
The parties to the transaction
Afgri, the primary acquiring firm, is a wholly owned subsidiary of Agri Limited, a
public company listed on the JSE Securities Exchange South Africa. Afgri has
four operating divisions, namely Afgri Products, Afgri Requisites, Afgri Capital
and Afgri Services. Afgri also has a 50% interest in Early Bird Farms (Pty) Ltd. 1
1 This subsidiary is consolidated into the Afgri Products division.
The primary target firm is Laeveld, a public company with limited liability in which
no one shareholder holds more than 5% of the shares in the issued share capital.
Laeveld’s subsidiaries are Beta Kilo (Pty) Ltd 2 selling tractors, implements,
spares, fuel, tyres, Golden Macadamias (Pty) Ltd 3, selling macadamia nuts,
Global Nuts SA (Pty) Ltd 4 selling pecan nuts and Profert Laeveld (Pty) Ltd 5
selling fertiliser and Trimco (Pty) Ltd its timber operation. 6
Rationale for the transaction
According to the parties the area where Laeveld operates is one of the most
stable agricultural areas in South Africa and the products that are produced are
different to the products in OTK’S current area which will be advantageous for
the overall spread of OTK’S risk. Major rationalisation and cost savings are
possible. The implementation of OTK’s business initiatives will also be profit
enhancing.
Evaluating the merger
The relevant market
Afgri owns 59 retail branches and supplies producers with various agricultural
input commodities and services. Afgri’s four divisions focus on the following
areas:
1. Afgri Capital provides business and risk management solutions, which
include finance, short term and crop insurance and advisory services, to
farmers, traders and agricultural processors.
2. Afgri Products manages the grading, handling, storage and trading of
agricultural products through its logistics, trading and risk management
business. It also provides farmers and agriprocessors with hedging
facilities and services. This division manages all the secondary agricultural
processing businesses of Afgri, namely Seed marketing, Animal feeds,
Clark cotton and its broiler interest in Earlybird Farm.
3. Afgri Requisites markets and distributes an extensive range of products
3. Afgri Requisites markets and distributes an extensive range of products
and farming requisites produced by third parties, including mechanization
2 Wholly owned subsidiary
3 25% of the shares held by Laeveld
4 Laeveld holds 58% of the shares
5 Laeveld holds 51% of the shares
6 This subsidiary was sold on 29 August 2002 and is not relevant to this deal.
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equipment such as tractors and farm equipment and services.
4. Afgri Services sells agricultural science and technology to producers.
The kinds of crop produced in Afgri’s service area, the socalled highveld area of
Mpumalanga, are mainly sunflower, dry beans, maize, wheat and cotton.
Laeveld owns 13 retail branches that offer various agricultural inputs to farmers
for the cultivation and processing of tropical and subtropical fruit in the southern
Lowveld region of Mpumulanga, as well as Limpopo. It consists of 4 divisions:
1. Product division – responsible for the marketing of drybean seed and
lemon oil
2. Retail division – sells various farming requisites
3. Insurance division
4. Finance division – responsible for the financing of crop
Laeveld trades in the lowveld area of Mpumalanga that mainly produces sugar
cane, dry beans, citrus, bananas, macadamia and pecan nuts.
The only agricultural product that both Afgri and Laeveld are involved in, is dry
bean seed. However, the two parties are involved in different stages of the
vertical production chain. Laeveld’s primary business is the multiplication and
processing of dry beans on contract 7, the first stages of the process, whereas
Afgri Seed acts as agent for Dry Bean Seed (“DBS”) in selling the dry bean seed
to commercial farmers, the final stage of marketing the beans for commercial
farming.8 There is thus no overlap in the marketing of beans.
Both parties supply farming requisites such as fertiliser, agricultural chemicals,
packaging materials, tyres and batteries, fuel and lubricants, cattle feed,
hardware, veterinary medicine, tractors, spare parts, farming implements and
services such as finance and insurance.
As stated earlier Afgri operates in the Free State, Mpumulanga (more specifically
the Mpumalanga Highveld area), Gauteng, Limpopo and KwaZulu Natal, while
Laeveld operates in Limpopo and the lowveld area of Mpumalanga.
Laeveld operates in Limpopo and the lowveld area of Mpumalanga.
Thus, if one defines the geographic market broadly, the parties’ geographic
7 This contract is awarded annually to Laeveld or any other player by Dry Bean Seeds and Pannar, which
own the beans.
8 Laeveld does not own the dry bean seed but has contracts with leading bean seed trading companies, DBS
and Pannar, to supply those companies with dry bean seeds. Farmers, with whom Laeveld have contracts,
produce and multiply the dry bean seeds on its behalf. Laeveld then delivers the processed dry bean seeds
to the seed trading companies. DBS then uses Afgri Seed as its agent to sell its dry bean seed to farmers
while Pennar markets its own seeds for farming purposes.
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markets overlap in Limpopo and Mpumalanga provinces. On a narrow definition,
it overlaps in Burgersfort, Carolina and Ohrigstad in the Mpumalanga Province
and in Letsetele in the Limpopo Province. 9 Moreover, the Commission argues
that the merging parties attract only farmers within a 40 km radius from each
town to purchase their farming requisites. So, they conclude, on a very narrow
definition there is no geographic overlap. However, the Commission decided not
to define the relevant geographic market because they found that on neither a
narrow definition, nor on a broad definition is the transaction likely to affect
competition substantially. We agree with this finding.
Market shares and concentration
The parties were not able to supply the Commission with market share figures for
those towns where their markets overlap, i.e. for a narrowly defined geographic
market, because such data is not available. However, we were supplied with
market shares for the two separate, nonoverlapping, regional markets, i.e. the
highveld area of Mpumalanga and the lowveld area of Mpumalanga. However,
since the merger will not affect the market shares post the merger we need not
consider them.
Effect on Competition
According to the parties the fact that, post the merger, Afgri will be involved in
both ends of the bean seed production chain will not influence the price of beans
at all because the multiplication contract and the marketing contract are
negotiated separately. Moreover, the bean multiplication contract is only awarded
for a period of one year.
In light of the surge in domestic food prices we asked the parties to comment on
the prices that consumers have to pay for beans. The parties informed us that
from a farming perspective, maize was the biggest competitor for beans because
in a good rain season farmers would rather plant maize, for which they get a
in a good rain season farmers would rather plant maize, for which they get a
higher market price, than beans. In times of drought farmers will switch to beans
to recover their cost.
Afgri and Laeveld provide financing to farmers for the acquisiton of agricultural
inputs. However, the farmers that purchase agricultural inputs from the parties
are free to apply for financing at other financial institutions. Afgri competes with
other financial institution, such as banks, by offering farmers a package deal
consisting of certain inputs, finance and the selling of their final the produce.
9 In Mpumalanga Afgri has 29 trading facilities in various towns and in Limpopo it has trading facilities in
2 towns. Laeveld has trading facilities in 11 towns in Mpumalanga and 2 facilities in Limpopo.
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There are at least 34 competitors, including hardware stores, supplying farming
requisites in the areas where the merging parties trade. Moreover, the
Competition Commission found that in some product markets such as fuel,
fertilizer and packaging the merging parties compete directly with the
manufacturers who supply their product, in that the farmers will order stock
directly from them.
In light of the above we agree with the Competition Commission’s
recommendation and find that the merger will not substantially prevent or lessen
competition in any of the relevant markets.
Public Interest Issues
The transaction does not raise any public interest grounds.
13 January 2003
D. Lewis Date
Concurring: N. Manoim and U. Bhoola
For the merging parties: Brink Cohen Le Roux and Roodt
For the Competition Commission: J Mokwana, Legal Services Division
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