On 6 February 2024, the Competition Commission of South Africa (Commission) published Draft Terms of Reference (TOR) for a new market inquiry, into the South African poultry value chain (available here).

The ToR for this Poultry Market Inquiry (PMI) outlines features of the poultry value chain (in the production of both commercial meat and eggs) that may impede, restrict or distort competition, as well as the Commission’s main objectives in this market inquiry.

Market features

The ToR indicates that the Commission believes there are several features which may be adversely affecting competition in the poultry industry:

• Structure: The South African poultry industry value chain is concentrated at all levels and features a few large, vertically integrated companies. Despite government interventions and active trade policies, there has been little change in the industry’s structure over many years. This heightens the risk of anti-competitive practices and may hamper participation in by new entrants.
• Outcomes: High concentration levels and vertical integration in poultry production may have significantly restricted opportunities for new entrants to enter and compete with established producers. Consequently, transformation within the poultry industry has progressed slowly. Although contract growers have been able to enter to some extent, they continue to rely heavily on the integrated producers for essential inputs. In the broiler industry ‘there are ongoing demands for bailouts through ever-increasing tariffs and the imposition of anti-dumping duties’. The Commission notes that whilst acceding to these demands may protect the domestic industry, it may create negative consequences for consumers generally, and especially for low-income consumers, who are dependent on chicken for protein.
• Conduct: There has been increased scrutiny of contract growers’ production terms and conditions by regulators and policymakers in various jurisdictions. Power imbalances may arise as a result of information asymmetry, and the use of tournament systems. The existing market structure poses challenges for emerging producers, which are exacerbated by imports (and potentially dumping).

Main objectives

The ToR indicates that the main objectives of the PMI, are to:

• evaluate whether there are market features in the poultry value chain which distort competition (including pricing and access);
• evaluate the impact of large integrated producers as gatekeepers of key inputs, on production by SMEs and HDPs;
• evaluate the commercial relationship between contract growers and integrated producers and whether these relationships are characterised by imbalances in bargaining power and information asymmetry;
• evaluate the role of retailers, quick-service restaurants, and processed food companies in facilitating entry and access to markets by independent producers, including SMEs and HDPs, along with availability and pricing of cold chain storage and logistics; and
• determine appropriate remedies where adverse effects on competition or the purposes of the Act are found.

Interested parties are invited to submit comments on the ToR by 8 March 2024. Written submissions can be sent to pmi@compcom.co.za All submissions will be reviewed, and a final ToR published by the Commission. The PMI will commence 20 business days after the publication of the final ToR and the final report will be completed within 18 months, as per the statutory requirements of the Act.

Written by Heather Irvine, partner; Khuliso Thenga and Tshimangadzo Malada, candidate legal practitioners; Bowmans