Anything but Run-of-the-Mill Times
What are the conclusions reached from recently ousted collusions? This is not an easy question to answer, particularly in relation to the milling industry. In addition to the situation changing on what appears to be an hourly basis; it also has the knock-off effect of begging further pertinent questions.
In last week's column I provided some feedback on the joint annual meeting of the National Chamber of Milling (NCM) and South African Chamber of Baking (SACB). I pointed out that all of the speakers were in agreement about the changing processes and thoughts required for the rapidly changing paradigms of the industry at present. The president of SACB even compared the current situation to that reminiscent of a country post-earthquake.
In the short space of time since the last Miller's Grist, enough has changed so as to make the previous column appear obscenely out of date. Following the ‘shock' resignation (to some perhaps, but arguably not quite as shocking to others) of Premier Foods from the NCM, three other major contributing members followed suit - Pioneer Foods, Pride Milling and Godrich Flour Mills. In a nutshell, this means that the NCM is no longer representative of the industry.
The immediate implication of this is that the NCM has stopped its monthly grain processing reports. In addition to the deficit in contributions to the Chamber's monthly grain processing reports, the Competition Commission's concerns over sharing of information also had a part to play in this decision. The effect of this is that information (such as tonnage and bag sizes sold per province) previously freely available to Chamber members will now have to be purchased through research companies.
Although this could possibly be interpreted as making it difficult to track staple food trends due to lack of information from the Chamber, this would depend on your standing as to whether the Chamber was actually representative in the first place of the milling industry at large. Although unintentionally, much of the small milling sector contributions were excluded from the Chamber's figures. (In the previous edition of The Baker Volume 14 no. 4, the difficulties of putting a number on small millers and their contributions was discussed in the article entitled "the not-so-small ‘small milling' sector"). In addition, information is still available from South African Grain Information (SAGIS) services.
Let's take stock of the competition commission's findings in the staple foods Industry. It all began in 2006 when the David and Goliath scenario of the Cape shopkeeper (Imraan Mukkaddam) blowing the whistle on a bread cartel played out. What has transpired since then can only be described as a text book example of a classic dominoes effect of the supply chain.
Following revelations by Premier Foods during the ‘Bread-Gate' investigation, the Commission proceeded to launch an investigation into an alleged wheat milling cartel. Subsequent to investigation, the Commission has referred its findings to the Competition Tribunal in which it recommends a fine of 10% of annual turnover for 2009 to the following companies: Foodcorp (trading as Ruto), Godrich Milling and Pioneer Foods. Although Premier Foods and Tiger Brands were also actively involved in price fixing and division of markets, both were granted conditional immunity (as was also the case in the bread cartel).
Next to come under investigation was the white maize milling cartel. Although under investigation since 2007, the Commission has only very recently provided its findings to the Competition Tribunal. There was clear evidence of price fixing by 17 milling companies in the industry - and this list might grow as other companies come forward! For a second time recommendations are for 10% of annual turnover for 2009 to be paid by each company; with the exclusion of Premier Foods and Tiger Brands who were once again granted conditional immunity.
Keystone Milling, one of the accused white maize milling companies, is alleging bullying tactics by the larger milling companies. Although Keystone participated in the cartel from 2005 - 2006, their Chief Executive, George du Toit, maintains that this was due to pressure and threats made by members of the cartel. This went as far as receiving threatening phone calls after he anonymously approached the Commission to discuss the cartel in 2007 and intensified to warnings not to speak to the commission should there be an investigation.
From a social perspective, the commission is fittingly concerned about the prevalence of cartels within the staple foods industry as it obviously undermines efforts to fight poverty. From a business perspective, it has hugely constrained the opportunities available to smaller, independent companies to be effective competitors. A case in point is the wheat milling industry, where over 90% of the industry is controlled by just 4 companies (Premier Foods, Tiger Brands, Foodcorp and Pioneer Foods).
So, we have covered the bread cartel, the white maize milling cartel and the wheat milling cartel. Which particular industry link do you think will be next within this supply chain? If you guessed the grain storage industry you would be correct. The Competition Commission has recently initiated investigations against 7 initial companies (including Afgri and Senwes) for allegedly colluding in the determination of grain storage tariffs.
Any regular readers of this column would know that I clearly advocate making full use of all of the linkages in the supply chain. For example, it would be hugely advantageous for bakers to mill their own flour. In addition to quality and specification control, it would also provide huge cost savings - even more so if a local source of wheat could be found.
"Showing your mettle" is an old adage originating from a millwright's ability to prove his experience by displaying forearms scarred from years of sharpening mill stones. It is certainly one that holds particular relevance to all who are currently operating within the staple foods industries - whether it is the walking-wounded or those that have the sense to recognise the opportunities this immediately presents them with. The aim of the corrective actions of the Competition Commission is to free the industry by opening it up and providing an environment that is truly conducive to entrepreneurialism. If there was ever a time to show your mettle and use your initiative, it is now.
A wide range of localised milling solutions, ongoing support, HR solutions, mentorship programmes, feasibility studies and other advice will help you capitalize on these ever-changing times in Southern Africa.
As always, we look forward to hearing from you. If you have any comments or queries then please do get in touch with on millersgrist@africanmicromills.com
