A series of high-profile cases in which big South African companies have been found guilty of fixing the prices of even basic foodstuffs have led to the adoption of a new law that will allow directors and managers to be sent to jail for 10 years or receive a fine of 45,000 euros.

Despite considerable resistance from big business, the Competition Amendment Bill was signed into law this past weekend. This follows a series of scandals in which market-dominant companies formed anti-competitive cartels in various sectors of the South African economy.

One example involves the prices of wheat and flour dropping since June 2008 but the price of bread still staying put. The collusion seldom happens with luxury goods and services but rather with basic foodstuffs, building materials and medicine — items that people need.

On top of this comes prohibitive banking and cellphone costs – all investigated by the Competition Commission of South Africa – that hamper economic empowerment.

In the past few years companies inflating the consumer prices for milk, bread, medicines (through collusive tendering), steel, cement, soda ash, piping, gas, fertiliser, bicycles and local airline tickets have been exposed through the diligent work of the Competition Commission.

This statutory body is empowered to investigate, control and evaluate restrictive business practices, abuse of dominant market positions and mergers in order to achieve equity and efficiency in the South African economy.

Guilty companies have so far been fined up to 22 million euros, paid over to the national treasury. The commission could in the past not demand more than 10 percent of companies’ turnover for the previous financial year and individuals could not be prosecuted. As a result, consumers probably ended up paying the fines through “unavoidable” price increases.

The new law is aimed at addressing these problems, among others by introducing criminal liability for directors and managers who cause firms to engage in anti-competitive behaviour.

“People focus on corruption in the government, but these corporations’ executives are criminals, stealing from the poor. They should be prosecuted,” insisted Prof Jacklyn Cock, of the department of sociology at the University of the Witwatersrand in Johannesburg.

The one direct result of price fixing is probably best put by health24.com’s Dr IV van Heerden. Staple foods, often fortified with various essential vitamins, are vital to the health and productivity of the population but, with ever-rising prices, even basic foods like bread and maize meal are becoming unaffordable to those people who need them most.

“This will probably mean that the gains made in overall nutrition (in South Africa), which were reported at 2008’s Nutrition Congress in Pretoria, will be reversed. This is the real tragedy of the food price-fixing scam,” van Heerden writes.

But despite this direct effect on the poor, few demonstrations have been seen in response to the scandalous behaviour of the corporations.

The law was preceded by critical media editorials and opinion pieces, sometimes in tandem with readers’ letters and text messages, complaining about the collusion. The country’s largest trade union, the Congress of South African Trade Unions (COSATU), also held a protest march in Johannesburg in 2008.

But widespread protest has not been seen. According to Cock, not enough people read newspapers or are aware of how they are being exploited. “Also, the chain of production is obscure and complicated, and people probably feel overwhelmed by the complex nature of corporations,” she explains.

Richard Pithouse, who teaches politics at Rhodes University in Grahamstown, South Africa, says people are outraged about high food prices and are becoming more desperate.

He cites a recent protest in the east coast city of Durban by about 100 members of the South African Unemployed People’s Movement who walked into two supermarkets, ate food and refused to pay for it to highlight the unaffordability of food.

“This wasn’t specifically about price fixing because people don’t always see the link between high prices and price fixing,” he says. “But it is a classic case of civil disobedience – they were organised and willing to be arrested.”

According to him South Africa has an incredible rate of protest when people are directly confronted by injustice – when it’s obvious and the culprits, especially government officials, are easily identifiable.

“At the moment only trade unions and social movements are aware of the price-fixing issue,” adds Pithouse. “The social movements are currently not that organised around the issue because of a lack of resources and the daily crisis they face.”

His guess is that if the social movements (with their hands-on approach) and trade unions (with their access to information and organisational skills) could link up, they could challenge the corporations and take them head on. “Many people don’t have food and other bare necessities, so protests should pick up.”

Recently the Competition Commission initiated a large-scale investigation against the major South African supermarket chains, prompted by concerns raised by various stakeholders and the public.

This entails looking at the concentration of buyer power, long-term exclusive lease agreements, category management (through which one competitor is given the task to manage the placement, promotion and pricing of other competitors’ products, on a category-wide basis) and information exchange.

The commission is concerned that the retailers could be exchanging price-sensitive information, which may have an impact on competition. If so, this case will be referred to the Competition Tribunal for adjudication.

Shan Ramburuth, commissioner at the Competition Commission, says cartels by their very nature substantially eliminate or restrict competition.

“Society and customers suffer as a result. The conduct of the respondents is no different. They have artificially manipulated prices and tendering in such a way that the respondents’ customers were deprived of competitive choices,” indicates Ramburuth.

Last year, delegates at the National Anti-Corruption Summit 2008 strongly supported moves to make price fixing a crime. This has now happened with the promulgation of the Competition Amendment Bill.

But, apart from corporate threats to challenge the act in court, the commission in the past raised some concerns about the implementation of the law in a country which has seen state capacity falter.

The commission’s Nandi Mokoena – who told delegates at the summit that her organisation regarded price fixing as theft – expressed reservations about making managers criminally liable on the grounds that it will weaken rather than strengthen the commission’s work.

She argued that the commission had thus far operated within the framework of civil law, where the burden of proof is less stringent than in criminal law. As the commission lacks the capacity to deal with criminal investigations, this responsibility will fall on an already overburdened criminal justice system.

The change might also discourage firms from making use of the commission’s corporate leniency policy, similar to the plea-bargaining system, which it credits for much of its success. Furthermore, the commission and legal experts worried that the law might not pass the constitutional test, even though they supported the legislation in general.

By Sybrandus Adema
CAPE TOWN, Jul 21 2009 (IPS)

Fair trade is moving into a different era as developing countries become consumers and not just producers of fair trade products. South Africa is the first country from the South to initiate this shift.

Boudewijn Goossens: Fair trade should not just be a European concept. Credit: Sybrandus Adema/IPS

Fair trade could be compared to the free-range chicken of global trade. Yes, the consumer – usually in the North – pays slightly more, but then at least the producers – more often than not in the South – are better off.

The fair trade movement aims to enhance trading conditions for small-scale businesses, improve labour conditions for employees and empower communities through ethical and sustainable trade. Historically the South produced fair trade products and the North consumed them.

However, the awareness regarding the consumption side of trade has grown in the South, says Boudewijn Goossens, the executive director of Fairtrade Label South Africa (FLSA). Originally from the Netherlands, he has lived in South Africa for more than a decade.

This awareness has grown to such an extent that, last year, Fairtrade Label South Africa (FLSA) was established, becoming the first Fairtrade Labelling Organisations International (FLO) developing-producer country with its own Fairtrade Labelling Organisation.

The FLO is a body that certifies products that meet a set of fair trade standards.

On Apr 27, 2009 (Freedom Day in South Africa) the final agreement was signed: no longer will the Fairtrade label be managed by the FLO head office in Bonn. It is now in the hands of the local office in Cape Town.

This is a big step for South Africa, but also for FLO, which needs to transform the traditionally European fair trade concept into a truly global practice.

IPS: I have heard that you had some difficulty convincing FLO in Europe that South Africa has a market for such products inside the country. What happened? Boudewijn Goossens (BG): In principle fair trade is a very European concept and FLSA is committed to changing this. FLO has indicated a move towards a more global approach and we have definitely seen progress. Some within the FLO system were very supportive while others were not.

We are doing something new: selling Fairtrade labelled products in a developing-producer country. We in South Africa are the “Voortrekkers” (local Afrikaans word meaning pioneers) in fair trade. Also, we are the first country to have a fair trade organisation selling fair trade tourism products and services.

Initially FLO was set up to facilitate the supply chain of fair trade certified products with the developing countries producing and the rich countries consuming.

FLO is now moving to a more global concept with developing countries like South Africa, Brazil, Mexico, China and India being seen as (potential) consuming countries as well. South Africa is the first country with its own marketing organisation. In Africa we intend to create more “all African” supply chains of Fairtrade products.

For us this basically means facilitating the development of Fairtrade supply chains in Africa from producing through to value adding, labelling and marketing (domestically and for export). It will benefit Africa more if we can export finished products instead of raw materials.

The relationship with FLO has improved dramatically in the last six months and we feel that we are now treated as serious partners. With a potential local market and a booming number of licensees, South Africa is the pioneer in the development of fair trade in the South.

IPS: There is a multitude of fair trade organisations worldwide. How does Fairtrade keep track of whether the basic principles are adhered to consistently? BG: There is fair trade and Fairtrade. Fairtrade is a brand name and certification mark owned by FLO. FLO is indeed just one of the fair trade organisations – however by far the most known and recognisable in the world. FLO is mostly involved in certifying and labelling agricultural products.

The other major fair trade organisation is the World Fair Trade Organisation (WFTO) and its African arm, the Cooperation for Fair Trade in Africa (COFTA). The main difference with FLO is that it is a membership organisation, not a product certification system.

WFTO/COFTA does not have a product label, only an organisational label. FLO annually audits the farms, the trading companies, the manufacturers and licensees in the FLO system. A licensee has the right to use the label on the product.

IPS: What is the level of awareness of fair trade in South Africa? BG: South Africa is one of the roughly 60 developing countries producing Fairtrade certified products. We are doing wine, various fruits, fruit concentrates and rooibos tea. Currently about 60 local farms and cooperatives are producing Fairtrade products, which are mainly exported.

The awareness is still limited, but there are two phases planned in terms of the promotion of Fairtrade: The first phase runs until the end of this year and will focus on business and marketing planning. At the same time we will try to get more licensees for the label.

Phase two includes reaching out to consumers and other buyers (organisations). We will assist Fairtrade licensees to increase the sales, to get retail interested in selling the products and to get new products on the market, as well as increasing awareness amongst the general public.

IPS: Apart from South Africa, are there other markets for Fairtrade products in Africa? BG: Not for Fairtrade, though there are some local initiatives of fair trade shops, but these are not coordinated. With regards to African producer countries, the Southern African Fair Trade Network (SAFN) joined their East and West African counterparts for training in Germany earlier in 2009.

The meeting and training were greatly significant as they showed a strong commitment from the FLO to listen to producer networks like the African Fairtrade Network (AFN) when making decisions.

IPS: What impact has Fairtrade had on the way international trade takes place? BG: Fairtrade labelling has been around for 21 years. Now there are 21 countries with organisations supporting the label and a few eastern European countries with satellite offices. More than 6,000 products have been licensed to carry the Fairtrade Mark, globally.

Direct impact includes social investments (out of the social premiums paid to the beneficiaries) on Fairtrade farms, improved labour conditions and better environmental management.

Indirect impact includes that poor labour conditions and unfair trading conditions are put on the agenda of small and large companies, governments and NGOs. Fairtrade also triggered the establishment of other ethical programmes with similar aims: to protect workers and small producers.

IPS: Fairtrade has social, political and ecological aspects to it. Is there growing emphasis regarding any of these aspects? BG: I would say that the social aspect is the leading one. Fair treatment of people and fair trading conditions are important aspects we want to address with Fairtrade. Political and ecological aspects are secondary aspects.

IPS: What effect does the current global economic crisis have on Fairtrade? Are people rather going with the cheaper, non-Fairtrade products to save money? BG: The FLO’s 2008 values of the global production and sales show how global commitment to fair trade is not crunching along with banks.

Despite the negative downturn of the global economy, Fairtrade sales grew by an impressive 22 percent in 2008, with peaks of over 70 percent in Australia, New Zealand, Norway and Sweden and averages of around 50 percent in other countries.

In the last five years, global sales of Fairtrade certified products grew by approximately half a billion euros per year, reaching the record figure of 2,9 billion euros in 2008.

These values confirm the status of Fairtrade as a successful emerging market, whose market share more than doubled in the last four years and has never shown negative growth.

The historical commodities of coffee and bananas have reconfirmed their prominent place on the Fairtrade sales podium with respectively 1,2 billion and 0,5 billion euros in retail value, although surprising record growth is seen with tea and cotton, whose growth ratios increased by 112 percent and 94 percent, respectively, from the previous year.

IPS: More politicians, especially in Europe, support fair trade. Do you see any growing support amongst politicians in developing countries? BG: We had our first meetings with the South African department of trade and industry and the Southern African Clothing and Textile Workers Union (SACTWU) about introducing Fairtrade clothes. I believe that the support amongst South Africa politicians will grow as they get familiar with the Fairtrade principles.

What Fairtrade aims to achieve is completely in line with government policies. We have also introduced a FLO Broad-Based Black Economic Empowerment policy that is compulsory for all Fairtrade farms using hired labour. (The ANC government is implementing black economic empowerment policies as part of its redistribution agenda to redress apartheid inequity.)

This policy is stricter than the government policy. I personally believe that labour conditions should have been part of the B-BBEE scorecard, but it is not. Fairtrade fills this gap.

IPS: What drives you to do this work? BG: It gives a lot of satisfaction. It is my passion to give the less privileged in the world a stronger position. I work for them. I open up a new market and try to increase the sales of Fairtrade products so more producers and workers will benefit.

Excerpt: