Pioneer banked on R38m fine

Johannesburg - Food producer Pioneer Foods believed it should have been fined no more than R38.4m for its part in the bread price fixing scandal, substantially lower than the R196m penalty handed by the Competition Tribunal.

According to the company's latest annual report, printed before but distributed after the tribunal handed Pioneer the R196m fine in February, Pioneer said the penalty should have been based on the sales of its baking division Sasko in the Western Cape only.

"Pioneer Foods national revenue from the production and sale of bread in 2006 amounted to R1.65bn," read the litigation statement of the annual report. The company said revenue derived from the Western Cape, where the price-fixing offence occurred, amounted to R384m.

"This was the maximum potential penalty base for the Western Cape case in terms of the initial request for penalty from the [Competition] Commission."

The Competition Act, under which the fine was administered, prescribes a maximum administrative penalty equivalent to 10% of the "affected revenue". The litigation statement implies Pioneer's interpretation of "affected revenue" restricts its exposure to the geographical location of the Western Cape.

The company said it admitted to certain facts related to prohibited practices in the Western Cape, "but has continued to defend itself against all other allegations" made by the commission.

Those were offences committed by its bakeries division, together with the bakery businesses of Premier Foods, Foodcorp and Tiger Brands. All these companies entered into leniency agreements with the commission and paid lower or no fines.

However, in February Pioneer took a conciliatory approach and said it wanted to bring the matter to "a swift closure" by paying the R196m. However, the commission launched an appeal requesting a R1.5bn fine, which is equivalent to 10% of Pioneer's total turnover for the 2006 financial year. The commission said the current fine does not serve as a sufficient deterrent.

Pioneer is now opposing the appeal, believing the commission's interpretation of "affected revenue" to be incorrect.

"We had no choice but to cross-appeal," Pioneer MD André Hanekom said on Friday. "We have indicated we would like to move on with business. We want to bring the matter to a swift close."

- Fin24.com