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BY Lizél Blignaut AND Julian Mort
Competition Law and the South African Agricultural Sector - Buyer Power Provisions to protect SMME’s and HDP firms
A number of sectors in the South African economy are characterised by concentrated markets with dominant suppliers, where dominance is determined by a supplier’s market share and/or their ability to act independently from their customers and competitors. Customers of dominant suppliers have enjoyed protection under the South African Competition Act 89 of 1998 (the “Competition Act”), which has, since its enactment in 1999, contained provisions to address abuse of dominance by suppliers.
Historically, this protection was not afforded to suppliers to dominant firms, raising concerns about the unfair negotiating power of dominant buyers on the competitiveness of small and medium-sized businesses (“SMEs”) or firms controlled or owned by historically disadvantaged persons (“HDP firms”).
This prompted the introduction in the 2019 amendments to the Competition Act of a new section 8(4), which prohibits a dominant firm in a sector designated by the Minister of Trade, Industry and Competition to (directly or indirectly) require from or impose an unfair price or trading condition on a supplier that is either an SME or and HDP firm. The Buyer Power Regulations were enacted in 2020 to give effect to this new section, setting out the relevant factors and benchmarks for determining whether prices and trading conditions are fair, as well as the designated sectors – including the agro-processing sector, constituting the processing of raw materials and intermediate products derived from the agricultural sector.
The Competition Commission (“Commission”) has also published Enforcement Guidelines providing guidance to firms with buyer power on their obligations, and to their suppliers in terms of their rights to fairness. Collectively, these buyer power provisions aim to enhance the participation of SMEs and HDP firms in the economy and protect them from unfair exploitation in supply arrangements with dominant buyers.
In the Enforcement Guidelines, the Commission sets out that when assessing whether there has been a contravention of section 8(4), it first has to establish that the buyer operates in a designated sector (such as agro-processing) and is dominant and that the supplier is an SME or HDP firm. Importantly the buyer power regulations only apply to HDP firms that supply 20% or less of the dominant buyer’s purchases of a particular product. Once the Commission confirms these requirements, it must determine whether prices or trading conditions are imposed on the supplier by the dominant buyer and whether they are unfair. The Commission will focus on cases where the price paid to the SME / HDP firm is lower than to firms outside the designated class of suppliers, with no objective justification, and will only investigate where there are differences of more than 3% in price.
The introduction of these buyer power provisions in section 8(4) of the Competition Act, the Buyer Power Regulations, and the Enforcement Guidelines have established a comprehensive competition legislative framework to help enhance the participation of SMEs and HDP firms (which typically lack negotiating power) in the South African agricultural sector.
For guidance on navigating buyer power provisions, ensuring compliance, or understanding your rights under the Competition Act, reach out to ENS' Sustainability and Impact team.
Lizél Blignaut
Executive | Competition
Julian Mort
Candidate Legal Practitioner | Competition
