Pioneer coughs up almost a billion

Pioneer Foods finally reached a settlement agreement with the Competition Commission, bringing to a close an investigation that stretches back to 2006. But it didn’t come cheap.

In terms of the agreement, still to be ratified by the Tribunal, Pioneer will pay a R250 million fine to the National Revenue Fund, and an additional R250 million to create an Agro-Processing Competitiveness Fund. Administered by the Industrial Development Corporation, the fund will provide finance on favourable terms to small and medium enterprises and promote competitiveness, employment and growth in food value chains.

Pioneer will adjust its pricing of flour and bread (600g and 700g standard white and brown loaves), reducing its gross margin by R160 million, compared to the similar period in 2009/10.

It will cooperate with the commission in ongoing investigations, implement a competition compliance programme and stop anti-competitive conduct. These commitments come on top of Pioneer’s R195,7 million fine in February 2010 for bread cartel activities. “In general, shareholders will be relieved this unfortunate chapter is over,” said Johan Holtzhausen, managing director of Pioneer shareholder PSG Capital, who has been overseeing the process.

“There’ll be more certainty in respect of share price and where management efforts will be going forward.”Holtzhausen said the shelf price of bread wouldn’t come down, but the agreement would “definitely stem or reduce future price increases”.

The settlement relates to Pioneer Foods’ activities in maize and wheat milling, and baking – as well as ongoing investigations into the poultry and egg industries. Pioneer won’t face future prosecution here, provided they’ve made full disclosure to the commission.

Agricultural Business Chamber CEO Dr John Purchase said they welcomed the way the settlement had been structured and that efforts to enhance competition in the agro-processing sector would lead to benefits for the whole economy. However, the Competition Commission’s activities have stemmed the collection of valuable industry information, emanating from bodies such as the National Chamber of Milling.

Purchase said the ABC is working with the department of agriculture, National Agricultural Marketing Council and CEO Forum to engage with the commission to determine what information exchange is allowed within the Competition Act.