The restructuring of the South African tobacco industry has led to an anti-competitive complaint to the Competition Commission. The commission has, however, found no grounds for a referral to the Tribunal. “Restructuring was an inclusive process in which all players in the industry took part,” says François van der Merwe, chairperson of the Tobacco Industry of SA.
The restructuring saw the closure of two processing plants, one of which was SA Golden Leaf (SAGL), owners of a processing plant in Nelspruit and the company that lodged the anti-competitive complaint. SAGL alleges that British American Tobacco (BAT), Afgri and Limpopo Tobacco Processors (LTP) basically boycotted them by deciding that all tobacco processing was to be done at LTP in Rustenburg. The Competition Commission’s manager for enforcement and exemptions, Thulani Kunene, says Afgri, BAT and LTP submitted proof of the efficiency and pro-competitive gains realised as a direct result of the restructuring, and the commission felt their proof was good enough. Van der Merwe explains that SA, with three processing plants, had the infrastructure to process 100 million kilograms of tobacco per year, while the crop was only 25 million kilograms.
Farmers were in trouble because by 2006, BAT was no longer prepared to subsidise them, which meant they lost as much as 20% on their price. The only way to make the industry profitable was to cut the fat and that meant getting rid of the extra infrastructure and services, and closing down two processing plants. Since 2005 prices have increased by R5 to R18,50/kg. “No one should prescribe to us,” says Jan Marais, chairperson of the directors of SAGL. “Unfortunately we can’t afford the costs of taking the matter further than the Competition Commission,” he adds. SAGL is now in the process of selling off the machinery from the processing plant and has had to get rid of 200 staff members in a downsizing operation. – Heidi Clarke