Peeling back the layers of a market inquiry

Heather Irvine Bowmans

As SA’s ongoing power crisis, rising inflation andglobalsupply chain disruptions continueto impact onthe pricesSAconsumers pay for food,the Competition Commission isabout to commence amarket inquiry into the state of competition in the local fresh produce value chain.

Theterms ofreferencefor the inquiry,which werepublished in 2022,indicate that thecommission’sConcentration Trackerhas identified that “whilelarge farmsmake upjust6.5%ofallfarmsinSA, theyaccounted for67%of total income in 2017/18”

The commission accordingly intendsto examinea number ofdifferent fresh (unprocessed) fruitand vegetable markets, including apples, bananas,oranges and other citrus,pears, avocados, grapes, potatoes,onions, tomatoes, carrotsand cabbages. The inquiry will assess market conditionsin important input markets,such as fertiliser and pesticides.

The commissionhas already identifiedthat certain ofthese marketsmayfeature too fewcompetitors, high barriers toentry and/or limited participationby small businesses and historically disadvantaged persons.

Themarket inquiryprovisions in the Competition Act allow thecommission to investigate whetherthere is any “feature ofa market” which “impedes,distorts or restricts” competition.

The commissionhas extensive powersunder section43A-Gof theactto undertake awide-ranging investigation intothe general state of competition in a market, withoutnecessarily focusing on the conduct of particular firms.The commission neednot establish thatthe CompetitionActhas been contravened(for exam- a market inquiry can potentially relateto supplyor customer relationships, new product development and strategy, pricing, capacity planning or future proofing, as wellas corporatesocial investment, supplychain development and broadbased BEE strategy. ple,bya cartelfixingprices, or a dominant supplier or buyerabusing itsdominance).The commissioncan issuesummons tocompel companiesto producedocumentsand/or data,andmay callwitnesses toattend questioning under oath

In several market inquiries to date, the commission has requested that companies attend sessions whichareopen tothepublic (and broadcast on social media), and answer questions about their business operations and strategy.

Although theact allows companies to file a confidentiality claimin relationto any information ordocuments which are supplied to the commission if they contain “confidentialinformation”,the commission tends totake a restrictive approach to these claims andfrequently requests companiesto review and reduce their confidentiality claims.

Givenhowwidetheterms ofreference forthese inquiriestypically are,the informationordatarequested by the commission as part of

Submissions aregenerally published on the commission’s website andwill form part ofthe recordof themarket inquiry in the event of any appeals being lodged.

Accordingly, themarket inquiry process presents a risk that highly sensitive business informationmay find itsway intothe handsof competitors, other regulators, government departments or tradeunions.Thisneedstobe carefully managedthroughout,while ensuringthatthe company fully co-operates with the commission.

At the end of a market inquiry, the commission can recommend “new or amended policy, legislation or regulations”. In the context of the grocery market inquiry, for example, thecommission recommended thatnational supermarket chainsshould phase outclauses inshopping centre lease agreements which granted them exclusiverights tosellproducts such asmeat orliquor inthe shopping centre or, failing voluntary compliance, that government should introduce new legislation, in the formofa statuteorregulations orcode ofpractice to compel them to do so.

The commissioncan also initiate newinvestigations into complaints about anticompetitive conduct which contravenes the act,or even refer complaints about this directly to thetribunal for adjudication.

Amendments tothe Competition Act whichtook effect in 2019 empower the commission to “take action” to “remedy, mitigate or prevent” anyadverseeffectoncompetitionit hasidentified,which can include a recommendation to theCompetition Tribunal toorder afirm todivest of “shares, interest or other assets”.Thelimitsofthecommission’s new powers in this regardhaveyettobetestedin litigation before the tribunal and the higher courts.

Itis importantto bearin mind the Competition Act requiresthat whenthecommission takesa decisionon whetheranyfeatureofarelevant marketimpedes, restricts or distorts competition, it mustconsider the impactof thisadverseeffect on small and medium businesses and firms controlled orowned byhistoricallydisadvantaged persons.

In the context of the commission’s market inquiry last yearintoonlineplatforms,the commission’s provisional report included extensive recommendations that technology companies that were identified as “leading” platforms should “offset the cumulative disadvantages” faced bybusiness ownedby “historically disadvantaged persons ” and accordingly the commission recommended that these companies should all be “required” to “institute an HDP programme targeted at overcoming barriers to participation”

It is importantfor companies to anticipatedemands of this kindarising fromthe inquiry, since these may potentially impose complex and/or costlylong-term obligations. Itis advisableto give consideration early in the processto whetherthere are opportunities to proactively engage with the commission onappropriate measures to support participation by small businesses and promote transformation in a manner which aligns with the company’s strategy as well as its budget. The marketinquiry processis intendedto lastno longerthan 18months,and may involve several rounds of extensive information requests and opportunities to comment on the commission’s provisional findings and proposals for remedies. Companies inthe fresh producevaluechain particularly in theproduct lines already identified by the commission as potentially sufferingfroma lackofcompetition should accordingly begin preparation of their legal and economic submissions as soon as possible.