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[2014] ZACT 67
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Griekwaland-Wes Korporatief Ltd v Trio Trade Gauteng (Pty) Ltd (019141) [2014] ZACT 67 (4 November 2014)
COMPETITION
TRIBUNAL OF SOUTH AFRICA
Case No: 019141
In the matter
between:
Griekwaland-Wes
Korporatief
Ltd
...................................................................................
Acquiring
Firm
And
Trio
Trade Gauteng (Pty)
Ltd
..................................................................................................
Target
Firm
Panel: Norman Manoim
(Presiding Member)
Medi Mokuena
(Tribunal Member)
Andiswa Ndoni
(Tribunal Member)
Heard on: 08 October
2014
Order issued on: 08
October 2014
Reasons issued on :
04 November 2014
Reasons for
Decision
Approval
1. On 08 October
2014 the Competition Tribunal (the “Tribunal”)
unconditionally approved an acquisition by Griekwaiand-Wes
Korporatief Ltd (“GWK”) of Trio Trade Gauteng (Pty) Ltd
(“Trio Trade”).
2. The reasons for
the approval of the proposed transaction follow.
The Parties and
their activities
3.
The primary acquiring firm is GWK, a firm incorporated in accordance
with the laws of the Republic of South Africa. GWK is not
controlled
by any single shareholder. It controls firms in excess of 10.
1
4.
GWK’s main business is the storage, marketing and processing of
agricultural and related products, the provision of financial
services within the agricultural sector as well as the retail sale of
various products, including
inter
alia
clothing,
animal feed, tools and farming equipment. GWK also owns a raw
groundnuts processing plant in Douglas, Northern Cape Province.
5. The primary
target firm is Trio Trade, a firm incorporated in accordance with the
laws of the Republic of South Africa. It controls
Country Nuts (Pty)
Ltd, HKFT Properties (Pty) Ltd, Kaya Grain (Pty) Ltd and Zodar
Properties 12 (Pty) Ltd.
6. Trio Trade is
active in the processing and marketing of groundnuts through its two
subsidiaries, namely Country Nuts and Kaya
Grain. Country Nuts and
Kaya Grain have processing factories in Schweizer-Reneke, North West
Province and Bela-Bela, Limpopo Province
respectively. Trio Trade
also processes and markets popcorn, raisins, rice, bird food maize
brown lentils, samp, beans and peas.
Proposed
transaction and rationale
7. In this proposed
transaction GWK intends to acquire 51% of the issued share capital of
Trio Trade. The remaining 49% shares will
be held by the existing
shareholders of GWK. Post-merger, GWK will have sole control over the
business of Trio Trade.
8. GWK submitted
that it is an established agricultural business in South Africa and
has the capital to develop and reposition the
Trio Trade business, so
as to allow it to become an effective competitor, specifically in the
peanut processing market and subsequent
markets for the marketing of
peanut and dry beans products.
9. Trio Trade
submitted that this transaction will enable it to properly compete
with other firms involved in the peanut processing
market.
Competition
Analysis
10. The Commission
identified horizontal overlaps between the activities of the merging
parties in respect of the following four
markets: (i) the procument
and processing of raw groundnuts (ii) the marketing of processed
groundnuts, (Hi) the marketing of dry
beans and (iv) the marketing of
popcorn.
Procument and
processing of raw groundnuts
11. In this market
raw groundnuts are procured from farmers who, as customers, enter
into pre-season planting contracts based on
the agreed guaranteed
minimum prices they are promised by processors after harvest. In
relation to the geographic market the Commission
found that the
merging parties procure raw groundnuts from farmers located in
Northern Cape, North West and the Free State Provinces.
The distance
between these farmers and the merging parties’ respective
processing factories range from between 20 km - 450
kms.
12.The
Commission however found that groundnuts processors have a historical
practice of entering into memorandum of understanding
(“MOU”)
agreements involving toll processing with each other and that this
has the effects of broadening the geographic
market. For instance GWK
may enter into a MOU with a processor based in Mokopane which is next
to Bela Bela in Limpopo Province.
2
!n this instance GWK would be procuring groundnuts from farmers
around Bela Bela and in turn these farmers would be delivering
the
groundnuts to the processor who would then toll process on behalf of
GWK. In this way GWK will be competing with Trio Trade
for the
procurement of raw groundnuts from farmers in the Bela Bela area. The
Commission did not however find it necessary to conclude
on the
relevant geographic market and assessed the effects of this
transaction on a national level and regional level i.e. North
West,
Northern Cape and the Free State Provinces. The post-merger market
shares of the merging parties are approximately 11.6%
nationally and
approximately 15.42% in the three relevant provinces.
Marketing of
processed groundnuts
13.This market
entails establishing relationships with local and overseas-based
customers, monitoring local and global trends, harvest
volumes as
well as the quality of groundnuts. In relation to the geographic
market, the Commission was informed by bulk customers
of the merging
parties that they source groundnuts from anywhere in South Africa.
Groundnuts are also imported into the country,
although some
customers informed the Commission that that this is not a norm and
it’s only done during seasons where defective
groundnuts are
experienced or when there is a shortfall in the local market.
14. In order to
determine the relevant geographic market, the Commission considered
whether imported groundnuts constrain the South
African processors of
groundnuts. The Commission found that imports place a limited
constraint on domestically produced groundnuts
because import are
typically only resorted to when there is a shortfall in local
production. The Commission therefore concluded
that the relevant
geographic market is national. In this market the post-merger market
share of the merging parties is approximately
24%.
Marketing of dry
beans
15.The Commission
found that this market operates the same way as that of groundnuts
with the only difference being that the merging
parties do not
process them further as is the case with groundnuts. In relation to
the geographic market the Commission found that
dry beans are
produced mostly in Mpumalanga, the Free State and Limpopo Provinces.
The Commission further found that for the past
three years South
Africa registered an average production of 55 000 tons of dry beans
and that consumption of the beans has been
in excess of local
production with most of the shortfall being met by imports (currently
imports account for approximately 129
000).
16.The Commission
did not conclude on the geographic market but analysed the effect of
the proposed transaction on a national level,
with imports included
(due to the role they play in the local market). The merging parties’
market share in this market is
approximately 6.19 %.
Marketing of
popcorn
17.The Commission
found that this market is small because farmers are not keen to plant
popcorn anymore as there is insufficient
demand in South Africa and
the export market is not profitable, due to competition by farmers in
other regions such as the United
States. In this market the
Commission also decided to leave the geographic market open because
the merging parties will remain
small players with a share of
approximately 1.78% post-merger.
Conclusion on the
relevant markets
18. In ail the above
market the Commission found that the merging parties would still be
constrained by other players such as Safrinut,
Golden Peanut, Rhys
Evans, Roba Nuts, VGM, Olam, Lemacor, Advanced Seed and many others.
19.The Commission
therefore concluded that the proposed transaction is unlikely to lead
to a substantial lessening or prevention
of competition in ail four
relevant markets.
History of
collusion
20.An investigation
against several local raw groundnuts processors, including the
merging parties, was initiated by the Commission
in 2009. It was
alleged that the respondents had colluded in relation to the purchase
price of groundnuts in contravention of section
4(i)(b)(i) of the
Act. According to the Commission, the primary acquiring firm in this
transaction, i.e. GWK, was the corporate
leniency policy applicant in
the 2009 investigation. The Commission however decided not to refer
the case to the Tribunal for determination
due to lack of evidence.
21.
In view of this history of collusion, the Commission assessed whether
the proposed transaction will strengthen or facilitate
collusion,
specifically in the market for the procurement and processing of
groundnuts. This assessment included
inter
alia
,
the evaluation of pre-season planting agreements (from four different
processors) entered into between the processors and farmers.
According to the Commission, the guaranteed minimum prices of the
evaluated agreements showed a substantial price differential
between
the processors.
22.The Commission
also found that compared to the 2009 agreements, the current
agreements were significantly different which suggests
that continued
collusion is unlikely. Further, the Commission found that the
enforcement and/or punishment of collusion will not
be easy as there
are many small and medium sized competitors who collectively account
for more than two-thirds of the market. In
addition, since the
collusion allegations, a large company based in the United States has
entered the South African groundnuts
market by acquiring one of the
local firms. The Commission has established that this entry has been
a big game changer in the industry
and that competition between the
firms has been fierce. The Commission concluded that although the
existence of coordination in
the market cannot be completely ruled
out, the proposed transaction seems unlikely to strengthen such
conduct, if it does exist.
23.The Commission
therefore concluded that the proposed transaction is unlikely to lead
to a substantial lessening or prevention
of competition in the market
for the procurement and processing of groundnuts.
Public interest
24.The
merging parties confirmed that the proposed transaction will have no
adverse effect on employment and will not result in
any retrenchments
in South Africa.
3
The proposed transaction raises no other public interest concerns.
Conclusion
25. We agree with
the conclusions that the Commission has come to on both the
competition and public interest issues. We accordingly
approved the
proposed transaction unconditionally.
04 November 2014
Date
Mr. Norman Manoim
Ms. Andiswa Ndoni
and Mrs Medi Mokuena concurring
Tribunal Researcher
: Ipeleng Selaledi
For the Merging
Parties : Malcolm Ratz of Roestoff & Krause Attorneys
For the Commission :
Rakgole Mokolo
1
See
page 347 of the record for a complete list of these firms.
2
The
merging parties have confirmed that they currently do not have such
MOU.
3
See
merger record, pages 333. Also see paragraph 12.1 of the Commission’s
merger report.