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Government issues urgent exemption for suppliers of essential goods to prevent shortages

On 15 July 2021, in light of the widespread rioting and looting affecting various parts of South Africa, resulting in concerns about the availability of various products, Minister Ebrahim Patel, of the Department of Trade, Industry and Competition (DTIC), after consultation with the Competition Commission (the “Commission”), issued a block exemption for the security of supply of essential goods. (the “Regulations”).

These Regulations, published in terms of the Competition Act, exempt certain categories of agreements and/or practices amongst firms involved in the chain of supply of essential goods, from the application of certain aspects of sections 4 (regulating conduct between competitors) and 5 (regulating conduct between customers and suppliers) of the Competition Act. By granting the exemption, Government seeks to address the impact of recent disruptions on essential goods supply chains. Enforcement of the Regulations will help prevent shortages of essential goods and ensure equal distribution.

The Regulations define essential goods as follows: “basic food and consumer items, emergency products, medical and hygiene supplies (including pharmaceutical products), refined petroleum products and emergency clean-up products…. [and] include the final good itself as well as all inputs in the supply chain required for the production, distribution and retail of the essential goods.”

The Regulations exempt the following agreements and practices by firms in the value chain for the production, distribution and retail of essential goods:

  • Communication in relation to:
    • loss of stock or capacity in general/particular areas – to determine the extent and location of potential shortages of essential goods;
    • availability of stock and capacity to supply in general/particular areas – to manage the overall capacity for supply, including the capacity of particular firms to supply to designated areas, and the timing thereof; and
    • levels of demand in different parts of the country – to identify the extent of shortages and arrange for the equitable distribution of available supply across the country to consumers and customers (including small businesses).
  • Coordination in relation to:
    • allocation of inputs across producers of essential goods – to reduce shortages (actual and/or anticipated) of essential goods in general/particular areas, and ensuring equitable distribution thereof (including the transfer of inputs between producers);
    • distribution of essential goods to different geographic areas – to ensure equitable distribution of essential goods across the country to consumers (especially poorer households) and customers (including small businesses); and
    • measures to expand stocks and/or capacity – to relieve the anticipated shortages of essential goods in general/particular areas.

 

Before engaging in the exempted conduct, suppliers of essential goods must notify the DTIC and Commission of actual and/or anticipated shortages, which warrant the need to engage in these forms of conduct. Any such participation must be recorded in writing (including meeting minutes) and submitted to the Commission within a reasonable time.

The Regulations do not exempt conduct that amounts to price-fixing and collusive tendering in respect of essential goods (and inputs thereof), nor do they authorise discussions on the pricing thereof.

Suppliers of essential goods also remain subject to the Consumer and Customer Protection and National Disaster Management Regulations and Directions (issued on 19 March 2020), which stated that any increases in prices for essential goods, or the supply of inputs for essential goods, must be cost-justified. It also stated that if cost increases could not be justified, then these suppliers may not increase the net margin or mark-up for that good above the average margin or mark-up for that good in the three month period to 1 March 2020.

Whether it is legally permissible for the widespread importation of other regulations (referring to differently defined essential goods) to occur in this manner remains to be seen, but the competition authorities would, based on existing precedent, no doubt nonetheless seek to prosecute suppliers of essential goods which engage in price gouging based on the excessive pricing sections of the Competition Act.

The Regulations are effective immediately and due to expire on 15 August 2021, unless withdrawn or extended by the Minister of the DTIC.