Johannesburg - Pioneer Foods faces a legal claim of almost R100m from a group of disgruntled egg producers, as well as a possible new investigation by the competition authorities.
The development comes shortly after an investigation into Pioneer's alleged involvement in a bread cartel.
Pioneer is allegedly threatening the producers with a substantial cut in egg prices if they do not abandon the legal action.
The egg producers, who are contractually obliged to provide eggs to Pioneer and buy hens, feed and medicine from the group, claim R96.5m from Pioneer for alleged negligent practices, which made it impossible for them to be profitable.
Pioneer, which sells eggs under the Nulaid brand among others, decided about 10 years ago to sell all its egg-producing farms to employees. According to an agreement, the producers are obliged to sell their total egg production at a fixed price. The producers are also forced to buy their hens, feed and medicine from Pioneer at a fixed price.
The producers involved in the case choose to remain anonymous. An informed source told Landbou.com they were assured that the farms would be paid up by the end of the contract term. The agreements also guaranteed that the businesses were sold as going concerns, that Pioneer didn't have agreements with any third parties of which the producers weren't aware and that all relevant information was given to the buyers.
Since the contracts were agreed upon, the buyers have not been allowed to claim any tax benefits from the SA Revenue Service.
The source added that the prices Pioneer pays them for their eggs do not allow them to be profitable. They have in fact suffered big losses, which eventually lead to nine of the producers putting in a claim for R96.5m in damages at the end of September. The case is up for arbitration.
Since the claim has been submitted, Pioneer has allegedly refused to fix a new egg price, Landbou.com has gathered. The company apparently even went as far as hiking the price of its hens, which producers are forced to buy, and lowering the price of eggs at the same time.
The producers have also apparently been threatened that if they do not back off, the egg price will never be adjusted. It was supposed to have been adjusted in March 2008.
Pioneer's actions are costing the producers up to R300 000 a month, and they will not be in a position to produce eggs if the situation drags on, the source told Landbou.com.
Pioneer has already received a written notification that the producers are considering selling a part or all of their production to third parties to prevent liquidation of their businesses, says the source. But Pioneer apparently does not want to negotiate before they give up their claims or the case is arbitrated.
The egg producers are also of the opinion that Pioneer's unilateral fixing of the egg price and the fact that producers aren't allowed to sell eggs to third parties are against the competition law. They have therefore also made a case with the Competition Board, which has apparently agreed to look into the situation.
André Hanekom, managing director of Pioneer Foods, confirmed that a claim was received and that a case was made with the competition authorities.
His firm acted according to the contract with the farmers and their payment was in line with the contract. The claim has to be seen against the background of cost pressures on the company, which emerged in the past year.
Hanekom said the case could end in court. He said the company was "comfortable" and will fight the case if it has to.
Landbou.com is SA's leading online resource for the agricultural sector.