BLOCK EXEMPTION REGULATIONS ISSUED FOR THE SECURITY OF SUPPLY OF ESSENTIAL GOODS
In light of the civil unrest in South Africa, and in response to ongoing disruptions to the supply chains for essential goods, the Minister of Trade, Industry and Competition (Minister), in consultation with the Competition Commission (Commission), has issued Regulations on Block Exemption for the Security of Supply of Essential Goods, 2021 (Regulations) accessible here. The Regulations enable competitors and customers/suppliers to communicate and co-ordinate in order to facilitate the supply of essential goods for a limited time period, in order to address actual or anticipated shortages.
The Regulations exempt agreements or practices between firms in the supply chain for essential goods, from the application of sections 4 and 5 of the Competition Act (i.e. provisions relating to horizontal and vertical restraints). The sole purpose of the Regulations is to:
- prevent critical shortages of essential goods within the country; and
- promote the equitable distribution of scarce essential goods across the country to consumers, especially poorer households, and customers, including small businesses.
Essential goods defined
The Regulations define essential goods as 'basic food and consumer items, emergency products, medical and hygiene supplies (including pharmaceutical products), refined petroleum products and emergency clean-up products. Essential goods include the final good itself as well as all inputs in the supply chain required for the production, distribution and retail of the essential goods'.
The Regulations are meant to contain an annexure, setting out which essential goods are covered. Unfortunately, in the current published form of the Regulations, this annexure is not included.
Categories of agreements or practices exempted
The following categories of agreements or practices by firms in the value chain are exempted, if the suppliers of essential goods have notified the Department of Trade, Industry and Competition and the Commission of actual or anticipated shortages and the need to engage in such practices:
Communications will be allowed about:
- loss of stock or capacity needed to determine the extent and location of likely shortages of essential goods;
- the availability of stock and capacity in order to determine the overall capacity for supply and the ability of different firms to supply different areas as well as timing of supplies; and
- communication as to the extent of demand for essential goods in order to determine the extent of shortages and an equitable distribution of available supply across the country to consumers and customers, including small businesses.
Coordination will be permitted in relation to:
- the allocation of inputs by producers of essential goods, to ensure an equitable distribution of essential goods across the country, including the transfer of inputs among producers of essential goods;
- coordination in relation to the distribution of essential goods to different geographic areas in order to ensure an equitable distribution of essential goods across the country to consumers, and especially poorer households, and customers, including small businesses; and
- coordination in relation to measures that may expand stocks or capacity in order to relieve anticipated shortages of essential goods in general or in particular areas.
The Regulations do not apply to agreements or practices involving price-fixing or collusive tendering, nor do they authorise any discussion on these topics.
Suppliers of essential goods remain subject to the Consumer and Customer Protection and National Disaster Management Regulations and Directions issued on 19 March 2020 (i.e. price gouging regulations). The Regulations provide that 'any increases in prices for the essential goods, or the supply of inputs for essential goods, must be cost justified and not increase the net margin or mark-up for that good above the average margin or mark-up for that good in the three month period to 1 March 2020.' The Commission has prosecuted a large number of complaints and several firms have paid penalties as a result. Price gouging in the wake of the current civil unrest is likely to attract severe penalties.
Amendments to the Regulations
Given the unpredictability of the impact and duration of disruptions, the areas of collaboration may be expanded by the Minister by notice in the Government Gazette.
Parties collaborating under the Regulations must keep minutes of meetings held and written records of any agreements or practices pursuant to such meetings. Each party that participates in the meeting and the subsequent collaboration under the Regulations is obliged to submit the contemplated written records to the Commission within 'a reasonable time'.
Commencement and duration
The Regulations come into effect today and remain in operation until 15 August 2021, unless they are extended or withdrawn.
* This newsflash was written by Heather Irvine, Xolani Nyali and Nazeera Mia.