COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA
Case no: 113/LM/Nov05
In The Large Merger Between:
Afgri Operations Ltd Acquiring Firm
And
Daybreak Farms (Pty) Ltd Target Firm
Reasons for Decision [NON CONFIDENTIAL]
Approval
1. On 22 March 2006 the Competition Tribunal issued a Merger Clearance Certificate
approving the transaction between Afgri Operations Ltd and Daybreak Farms (Pty) Ltd. The
reasons for this decision follow.
The Transaction
The Parties to the transaction
1.1.1. The acquiring firm is Afgri Operations (Pty) Ltd (“Afgri”), a wholly
owned subsidiary of Afgri Limited. Afgri has four main operating
divisions, namely Afgri Products, Afgri Requisites, Afgri Financial and
Logistics Services and Afgri Commercial and Producer Services. 1
1.1.2. The target firm is Daybreak Farms (Pty) Ltd (“Daybreak”), which is
jointly controlled by JG Kruger and IG Taylor. Daybreak has interests
in the following firms: Daybreak Properties Springs (Pty) Ltd, Die
Plaas Olifantsfontein 196 CC, Partnership Die Plaas Olifantsfontein,
Daybreak Superior Marketing (Pty) Ltd, Superior Foods (Pty) Ltd,
Telsek Investments 1001 (Pty) Ltd, Telsek Investments 1013(Pty)
Ltd, Midway Chix (Pty) Ltd, Partnership Midway Chix and Waltmerwe
Park (Pty) Ltd.
The Structure of the transaction
2. In terms of the proposed transaction, Afgri is acquiring from JG Kruger and IG Taylor their
1 A list of Afgri’s subsidiaries can be found on pages 2938 of the record.
entire interests in Daybreak including:
2.1. 100% of the share capital of and shareholders’ claims against the following
firms: Daybreak, Daybreak Properties Springs (Pty) Ltd, and Telsek
Investments 1001 (Pty) Ltd;
2.2. 50% of the share capital of and the shareholders’ claims against the following
firms: Daybreak Superior Marketing (Pty) Ltd, Die Plaas Olifantsfontein196 CC,
Superior Foods (Pty) Ltd and Telsek Investments 1013(Pty) Ltd; as well as
2.3. 65% of the entire issued shares in the share capital of and shareholders’ claims
against Waltmerwe Park (Pty) Ltd.
The Rationale for the transaction
3. Afgri wishes to participate in the broiler market as it contributes 40% of the total market for
protein for human consumption and consumes over 50% of animal feed produced by the
formal animal feed industry. According to the parties, “ it is Afgri’s strategic imperative to
participate in this industry to ensure growth for its animal feed business. ”2 From the
perspective of the shareholders of Daybreak, since JG Kruger wishes to exit the business,
the transaction offers IG Taylor an opportunity to realise his investment in the group and to
obtain a partner to grow the business.
The Merging parties’ activities
4. According to the parties, Afgri supplies farmers with various agricultural input commodities
and services. 3 Through its operating divisions, Afgri is involved in financial services
products, trading of agricultural commodities, handling and storage facilities, manufacture
and distribution of animal feeds, operating retail outlets, marketing of farming equipment and
the sale and distribution of care crop products.
5. Daybreak is a fully integrated broiler producer, which produces, processes and distributes
poultry and poultry products. Through its subsidiaries, Daybreak is also involved in
marketing, property, rearing and growing of live chickens, production of a day old broiler
chicks and retail.
6. Afgri and Daybreak are in a vertical relationship due to the fact that Afgri, through its
Products division is involved in the manufacturing and supply of poultry feed, and Daybreak
is a consumer of poultry feed. The transaction will therefore result in the vertical integration
of a poultry feed business with broiler production; a phenomenon, which the Commission
submits, is not uncommon. 4
The Relevant Market
2 Page 153 of the record.
3 Page 148 of the record.
4 According to the Commission the following poultry feed companies are vertically integrated with broiler
producers: Meadow Feeds with Astral Foods Group, Epol with Rainbow, Pioneer Foods with Tydstroom
and Senwesco Voere with Country Bird. See pages 67 of the Commission’s report.
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Upstream market
7. Poultry feed can be divided into broiler starter, grower, finisher and layer ration. The poultry,
which are fed can further be grouped into three subcategories namely, layers, broiler
breeders and broilers. 5 According to the Commission, each type of chicken is given a
specific ration, containing nutrients necessary for that particular type of chicken. The
relevant upstream product market can therefore be defined broadly as that for the
production of poultry feed with sub markets for layers, broiler breeders and broilers feed.
8. Afgri’s customers are located in the inland region, which includes Mpumalanga, Gauteng
and the Free State. 6 According to the parties, Afgri’s mills supply customers in the province
it is situated in as well as to customers outside that province but still close to the mill.
Without concluding on the geographic market we will follow the Commission’s analysis of
both a regional and inland market.
9. The Commission provided the following table sourced from the Animal Feed Manufacturers
Association (AFMA), which reflects the market shares for its members. 7 The shares are
based on sales in 2004/2005 in the inland region.
Producer % Market share
Layers Broiler Breeders Broilers
Meadow 20 41 24
Afgri 19 11 24
Epol 24 36 33
Senwes 3 8 9
Alzu 7 1
Kanhym 11
Others 17 5 8
Source: Animal Feed Manufacturers Association Chairman’s Report 2004/2005
10. In the broader market for poultry feed in the inland, the Commission provided the following
table sourced from information provided by the merging parties:
Producer % Market share
5 Breeders mean the parent chickens that produce fertile eggs and broiler breeders are used to produce
eggs, which are hatched to produce broiler chicks. Broilers are chicken hatched from the eggs of
breeders and are grown purely for slaughtering purposes. Layers are breeders, which produce eggs,
which are sold directly as table eggs. Poultry refers to any type o f chicken and it includes broilers, layers
and breeders.
6 Afgri recently built a mill (for animal feed manufacturing) in the Western Cape but this has not supplied
any customers.
7 AFMA members are feed manufacturers and their production represents 87% of the total poultry feed
produced in South Africa.
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Meadow 24
Afgri 22
Epol 31
Senwes 7
Alzu 3
Kanhym 3
Others 10
11. For the regional market, the Commission calculated the shares based on the parties’ total
sales per province and AFMA’s total sales per province. In the Free State, Afgri accounts for
37% of the market, in Gauteng, 26% and in Mpumalanga, 7%.
Downstream market
12. We will accept for these purposes the Commission’s definition of the relevant downstream
market as the production and processing of poultry products in South Africa. The parties
provided the following market shares based on the number of birds slaughtered per week
nationally:
Producer % Market share
Daybreak 4
Country Bird 8
Rainbow 36
Astral 27
Tydstroom 5
Chubby Chick 4
Rocklands 4
Argy 2
Others 10
Source: South African Poultry Association
Impact on competition
13. We are of the view that post merger, foreclosure is not likely due to a number of reasons.
Firstly, there are several competitors in both the upstream and downstream markets, from
whom customers could source product. In the broad market for poultry feed, Afgri faces
strong competition from players such as Meadow and Epol. In the downstream market,
Daybreak is a relatively small player and faces very strong competition from Astral and
Rainbow who are both vertically integrated.
14. According to the parties, in 2004, Daybreak accounted for approximately 19% of Afgri’s total
sales of poultry feed. Afgri is therefore not likely to exclude other poultry feed customers in
order to benefit from broiler production.
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[CONFIDENTIAL INFORMATION] 8
Collusion is not likely as information relating to Daybreak’s competitors’ prices and volumes of
supply is to a large extent already available and easily determined
15. Furthermore, the customers and industry participants the Commission contacted during its
investigations, had no concerns with the merger. Firstly, customers indicated that the poultry
feed market is very competitive with several competitors. According to AFMA, some of the
vertically integrated broiler producers even source from competing feed manufacturers.
Secondly some of Afgri’s customers informed the Commission that choice of feed
manufacturer is determined by inter alia price, quality and service and that switching
between suppliers is easy and common with no cost. One customer informed the
Commission that his company switches every month from one supplier to others.
16. Based on the above, we agree with the Commission that the transaction is unlikely to
substantially prevent or lessen competition in the markets in which the parties compete.
Conclusion
17. According to the parties, the transaction will not have any adverse effects on employment
and there are no other significant public interest issues, which arise. We accordingly
approve the transaction for the above reasons.
18 May 2006
Y Carrim Date
Concurring: M Moerane and L Reyburn
For the merging parties: A Nikani (Fluxmans Attorneys)
For the Commission: M van Hoven (Mergers and Acquisitions)
8 See page 9 of the Commission’s report as well as 394395 of the record.
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