PRETORIA - The largest processor of rooibos tea in South African was investigated by the Competition Commission for abuse of dominance in the tea industry and has been referred for prosecution to the Competition Tribunal.
According to Sipho Ngwema, head of communications at the Competition Commission of South Africa, the company is accused of pressuring rooibos tea farmers not to deal with rooibos tea processors it competes with.
The Commission’s investigation focused on Rooibos Limited’s monopolisation of rooibos tea supply from rooibos tea commercial farmers, in order to foreclose its competitors in the processing level of the value chain to prevent the expansion of rivals in the market.
Rooibos tea only grows in certain areas such as Clanwilliam, Graafwater, and Citrusdal and is a unique product as it is a caffeine-free tea with high levels of anti-oxidants. The source of supply is limited and access to it is necessary for rooibos processors to have access to them to participate in the market.
Over 200 rooibos tea commercial farmers grow the product, but only a limited number of rooibos tea commercial farmers contribute to the bulk of the total production of the tea.
Rooibos tea processors buy the tea leaves from rooibos tea commercial farmers in bulk and then dry and treat it. It is then sold to local packers and the export market as a bulk product for packaging into final products and other value-added products.
Rooibos Limited inherited the assets and the monopoly position previously occupied by the Rooibos Tea Control Board (established in 1954) and is consequently a dominant player in the processing of the tea.
Some of the competitors in rooibos tea processing were formed by farmers who were discontent with the monopoly position of Rooibos Limited.
Historically, rooibos tea processors obtained their supply of rooibos tea from farmers through one-year supply agreements.
In 2014 Rooibos Limited introduced two exclusionary contracting strategies to lock-in or foreclose the supply of rooibos tea from farmers, thus starving its competitors of access to the product:
Firstly, they entered into long-term supply agreements with farmers for the period 2014-2018. In terms of the agreements, farmers are required to supply stipulated volumes of rooibos tea to Rooibos Limited.
Secondly, Rooibos Limited introduced a supply commitment in exchange for farmers gaining access to its production research output. In particular, farmers are required to supply up to half of their production to Rooibos Limited.
Rooibos Limited exploited its research output to lock-in the supply of rooibos tea from farmers after the collapse the research function undertaken by the South African Research Agricultural Council in 2014.
The introduction of these exclusionary contracting strategies locked-in significant volumes of rooibos tea production from commercial farmers in favour of Rooibos Limited and negatively affected its competitors in the market for the bulk processing of rooibos tea.
The Commission referred the complaint to the Tribunal for adjudication. The Commission is seeking an order from the Tribunal declaring that Rooibos Limited has contravened the Competition Act and that the company is liable to pay an administrative penalty equal to 10% of its annual turnover.
“The Commission is concerned of Rooibos Limited’s ongoing anti-competitive conduct, particularly as this hampers the growth of the agro-processing industry in South Africa. Dominant firms have a special responsibility to ensure they do not stifle competition,” said the Deputy Commissioner, Hardin Ratshisusu.