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Clover may cut ties with industry
Exemption ruling awaited
November 23, 2009
 By Ann Crotty
Clover will have little choice but to withdraw from all dairy industry associations if it is unable to secure a satisfactory response to its application for temporary exemption from the Competition Act.
Manie Roode, the deputy chief executive of Clover, said last week that if the Department of Trade and Industry (dti) was not able to provide rules about how the various industry players were allowed to interact then Clover would have to withdraw from industry associations as such associations risked contravening the act.
Roode said he hoped that the department would consider the company's application favourably as the local industry was facing a serious economic threat. He added that the global financial crisis had resulted in increased state intervention in many other jurisdictions and referred to the current EU moves to increase subsidies to its dairy farmers.
"There is inevitably a conflict between producers and consumers as the former need high prices and the latter want low prices but we need a sustainable local industry," said Roode.
He referred to the pace at which dairy farmers were withdrawing from the industry and noted that last year 3 000 farmers were supplying Clover and now there were only 300.
"Part of that reduction is attributable to increased efficiencies but research we undertook for our application revealed the extent to which farmers are exiting this industry."
He added that it would be useful if the dti invited all interested parties, such as farmers, processors and consumers, to contribute to an open debate on the issue.
Last week Nomfundo Maseti, the chief director for policy and legislation at the dti, said that the department expected to issue a notice before the end of the month, inviting parties to make submissions.
Roode said that Clover's application had been made on behalf of the South African dairy industry but stressed that Clover had not consulted any other players in the industry and did not know their views on the Clover application. "We could not consult them because it could have been deemed to be a contravention of the Competition Act," said Roode.
Nick Wentzel, the chief executive of Parmalat South Africa, said his company was not part of the application and had not seen it but stressed that Parmalat did support anything that would help the local dairy industry.
He also said that Parmalat had not received any approach on the issue from the dti.
Clover's application is for exemption from certain provisions of the act for five years. The exemption would allow for "the collection and dissemination of industry data, and discussions between the relevant firms and role players to establish rules going forward and to consider the establishment of a private regulator for the dairy industry."
Roode stressed that Clover was not looking for subsidies but merely the ability to make some interventions in the running of the industry.
In its application Clover referred to three factors threatening the long-term stability of the local industry.
One relates to the natural fluctuations in milk supply combined with the difficulty of storing fresh milk and the relatively stable demand for product in the short term.
A second is the ease with which farmers can exit the industry and the difficulty of returning.
The third relates to competition from subsidised imports.
Roode said it was not feasible to use the World Trade Organisation's (WTO's) dispute resolution process to address subsidies that were in contravention of the WTO rules.
"It is very cumbersome and tends to be a government-to-government process."
He noted that without the backing of the South African government it would be very difficult to enforce any ruling from the WTO.
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