Boksburg-based edible fats and oil refinery operator, Sime Darby Hudson Knight (SDH&K), has agreed to pay a fine of R35-million and invest R135m in a new packaging and warehousing facility as part of the remedy for colluding with FMCG maker, Unilever.

SDH&K also committed to use the services of a black economic empowerment distributor within six months from the date of confirmation by the Competition Tribunal of a consent agreement it entered into with the Competition Commission “to undertake some of its distribution requirements”, as part of several behavioural remedies for its contraventions of the Competition Act.

Tshepiso Mnguni, appearing for the Competition Commission, told a tribunal hearing this week that the commission received a complaint against SDH&K, Unilever and Felda IFFCO Africa for possible contraventions of the Competition Act in the edible fats and oil market in October 2012.

Mnguni said this market included fine oils, fats, spreads, bakery margarines and speciality fats and oils and these products were supplied to retail and industrial customers, with its industrial customers including hotels and bakeries.

She said the commission conducted a search and seizure operation in April 2014 at the offices of Unilever and SDH&K as part of its investigation.

The commission found that between 2004 and 2013, Unilever and SDH&K had concluded an agreement to divide markets by allocating markets and specific types of edible fats and oil products. This agreement followed the sale of a refinery in Boksburg by Unilever to SDH&K in 2004, in terms of which SDH&K would refine oil on behalf of Unilever and Unilever would provide packaging services to SDH&K.

Mnguni said in the edible oils market, the agreement was that SDH&K would not supply retail customers and only produce 20-litre pack sizes of edible oil that were only supplied to industrial customers, which meant SDH&K would not have a presence in the retail market.

Consent agreement

SDH&K admitted that it entered into a collusive agreement with Unilever in contravention of the Competition Act and entered into a consent agreement with the commission.

The proposed administrative penalty of R35-million that SDH&K has agreed to pay represents 2 percent of the firm’s annual turnover for its financial year to February 2012.

Mnguni said the commission was still busy with its investigation of the Unilever portion of this complaint.

Felda IFFCO Africa has gone into liquidation.

Natalia Lopes, the attorney for SDH&K, said the “non-compete” arrangement had stemmed from the sale of business agreement because Unilever was effectively vertically de-integrating and had to conclude a supply agreement for refined oil.

Lopes said only SDH&K was restrained from entering any market and there was no reciprocal arrangement restraining Unilever. Given the very low margins SDH&K earned, it was clear it did not derive any benefit from the restraint, she said.

Lopes said the commission took into account that if a higher penalty was imposed, it could have resulted in SDH&K exiting the market. Instead, it agreed to structure the agreement in such a manner that the remedy would ensure more competition.