Fonterra partner faces price-fixing allegation

Fonterra's new partner in a $100 million South African company has run into a domestic snag, apparently as a result of the regulatory scrutiny triggered by the joint venture.

Fonterra's partner, South Africa's largest dairy group, Clover SA, has been caught up, with five other dairy companies from that country, in allegations of price-fixing, reports a financial news website, Finance24.com.

Clover and the other companies - Dairybelle, Nestle Parmalat, Ladysmith Cheese and Woodlands - have been accused of uniformly cutting by 17c a litre the price they paid to farmers, while at the same time boosting the charge to consumers by nearly 5 per cent between January and April.

Summonses were served in April on the chief executive of Clover, and those of the other companies, alleging collusion and possible contravention of South Africa's Competition Act.

Earlier this month, a report presented to the agriculture and land affairs committee of South Africa's Parliament substantiated farmers' claims that they were getting less for their products while retail outlets were charging more.

Ironically - for Clover - it stemmed from the commission of inquiry set up earlier this year to investigate the joint venture between the company and Fonterra.

The commission approved the deal under the condition that Clover's market position in South Africa was not strengthened, said senior investigator Koos Theron.

In addition, Clover was not to market any new dairy products, nor import any new New Zealand dairy products into South Africa, but could market as many new products as it wanted in sub-Saharan Africa.

Fonterra said the joint venture, Clover Fonterra Ingredients, would mainly market bulk milk powders, with initial sales of about 35,000 tonnes a year and revenue of US$75 million ($110.5 million).

But Theron said the commission then received information that there had been a simultaneous drop in producer prices across the board by all major players in the industry, equivalent to price fixing.

He said the commission's job was to ensure fair competition "and find out why, if there was a drop for producers, this did not filter down to consumers".

Clover vice-chairman John Bredin, himself a dairy farmer for 40 years, said that deregulation of the milk industry during the past decade, as well as increased competition from the global industry, meant that producers were subject to price fluctuations.

This did not equate to price fixing, he said.

When the Clover-Fonterra deal was announced, Fonterra's South African general manager, Malcolm Tweed, said it would give Clover access to a far greater market, but farmers' milk price "needs to be internationally competitive".

- NZPA