Fixing Price Fixing

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South Africa's government is working to respond to a growing wave of scandals involving price fixing in some of the country's core sectors, announcing it would tighten legislation to combat business practices aimed at restricting competition in the marketplace.

On February 12, Mandisi Mpahlwa, the minister of trade and industry, said changes to the competition law aiming to strengthen the role of regulators, in particular the Competition Commission and the Competition Tribunal, would soon be put to the cabinet. These amendments include giving state competition authorities the power to initiate investigations, rather than merely reacting to complaints as is currently the case, Mpahlwa said.

Mpahlwa said import parity pricing, the practice by which local commodity producers set their prices at comparable levels to those of similar international or imported products, would also be targeted. While maintaining that businesses would not be overly controlled, Mpahlwa said regulators had a key role in increasing economic efficiencies.

The plan received support from the country's key labour organisation, the Congress of South African Trade Unions (COSATU), which said it wanted the campaign to be as broad ranging as possible.

The announcement came a day after the Competition Commission referred three leading pharmaceutical firms to the Competition Tribunal for prosecution.

An investigation had found four firms - Adcock Ingram Critical Care, Dismed Criticare, Thusanong Health Care and Fresenius Kabi South Africa (FKSA) - to have colluded during tender processes to avoid competition and manipulate prices. No prosecution was launched against FKSA as it had assisted the commission in its inquiries.

According to evidence provided to the commission, prices charged to hospitals for products supplied by the firms were between 10% and 15% above what they should have been. Commission member Thulani Kunene said the four companies had discussed bids on tenders and in some cases agreed on which firm should win a particular contract.

Competition Commissioner Shan Ramburuth said the case was an important one given increasing public concerns over the rising price of healthcare.

"Collusive behaviour would undoubtedly be one of the contributing factors to higher prices in healthcare markets," Ramburuth said.

The commission has called for the firms to be fined 10% of their annual turnover, the maximum possible penalty.

The allegations of price fixing in the pharmaceuticals sector were just the latest in a series of similar scandals, involving the milk and bread industries.

Eight companies are now facing prosecution for colluding to fix the price of milk following an investigation by the commission launched in 2006. Among the firms referred to the Competition Tribunal for prosecution are Clover and Parmalat, two of South Africa's largest dairy products producers.

The commission said it found in its investigation that the implicated companies had bought surplus milk from farmers and then sold it to each other, resulting in artificially high prices that shut smaller operators out of the market.

Last year, leading food producer Tiger Brands was found guilty of working to fix bread prices and fined $13m. The fact that Adcock Ingram is a subsidiary of Tiger Brands did not help the company's image, or its share value, which fell to a nearly two-year low on the news of the commission's findings.

Adcock Ingram's referral to the Competition Tribunal is also bad news for Tiger Brands on another front, forcing it to review plans to spin off the pharmaceutical firm and list it on the Johannesburg Stock Exchange (JSE), a step previously planned for March.

After the Competition Commission's latest findings were released, Lex Van Vught, the non-executive director and chairman of Tiger Brands, said the company had believed it possessed a sound governance plan to combat breaching of competition laws, though now it had to determine where there were weaknesses.

"We are determined to find and root out any anti-competitive or collusive practices," he told local press on February 12.

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