FIGHTING ANTICOMPETITIVE BUSINESS PRACTICES IN THE MALAWI SUGAR INDUSTRY 2nd ANNUAL COMPETITION AND ECONOMIC REGULATION (ACER) WEEK SOUTHERN AFRICA LIVINGSTONE, ZAMBIA 8 - 12 March 2016 Presented by Angella Kachipapa Economist, CFTC COMPETITION AND FAIR TRADING COMMISSION ● MALAWI

PRESENTATION OUTLINE Introduction Competition Concerns Investigations and Advocacy interventions undertaken Results/Effects on the Market Lessons Learnt Conclusion

INTRODUCTION Sugar is an essential food commodity for domestic household needs Identified as one of priority export commodities in the National Export Strategy Sugar is the second largest foreign exchange earner after tobacco It contributes substantially to Malawi’s national output Promoting competition in this market increases economic efficiency and guarantees substantial benefits to the Malawi economy.

INTRODUCTION ILLOVO is the sole producer of sugar, serving a population of 16m people The Government imposed restrictions on sugar importation into Malawi. The net effect is that Illovo has monopoly powers in the market. Unavoidably, the CFTC kept the sugar industry under surveillance to ensure there is no abuse of dominance in the supply chain.

COMPETITION CONCERNS Investigations (July 2012 and October 2013) revealed that Illovo engaged private companies to undertake primary distribution of sugar and manage Illovo Warehouses. One of the private companies engaged under the Warehouse Management System was Simama General Dealers. Simama was responsible for managing distribution and warehouses in Northern Malawi with a population of about 3m.

COMPETITION CONCERNS Apart from managing Illovo’s warehouses, Simama was engaged in downstream distribution of sugar. This combination meant that Simama enjoyed de facto monopoly powers. Simama used this market power to restrict sugar access by other secondary distributors downstream; This resulted in artificial sugar shortages and; Increased costs associated with acquiring sugar.

OBJECTIVES OF THE INTERVENTIONS The intervention was implemented for the following reasons: Ensure adequate supply and accessibility of sugar; Promote competition to allow effective entry into the sugar distribution market; Increase efficiency and effectiveness in the relevant market. Increase awareness and uptake of competition principles by the Ministry of the Ministry and Trade and other public institutions plus all the stakeholders in the sugar industry

ADVOCACY INTERVENTIONS The Commission brought a case against both Illovo and Simama During investigations, face-to-face interviews and meetings held with key players in the industry, notably Ministry of Industry and Trade, business community, Illovo officials, consumers etc The key message was that competition in the industry will ensure efficiency in the supply chain of sugar.

INVESTIGATIONS FINDINGS From its investigations, the Commission established that Simama had violated the Competition and Fair Trading Act Simama and Illovo was found to have engaged in an unauthorized exclusive dealing arrangement Further Simama had engaged in Predatory pricing towards competitors Restrictive selling Abuse of market power Unfair trading practices towards consumers

RESULTS OF THE INTERVENTION After thorough investigation, the Commission ordered Illovo to reform the sugar distribution system to promote competition Illovo restructured the distribution system, separating the distribution function from warehouse management. Warehouse management now being done by Illovo while private transporters are contracted for primary distribution.

RESULTS OF THE INTERVENTION Secondary distribution fully liberalized: now open to all distributors and wholesalers on equal footing, resulting in massive improvement in market efficiency Effective distribution of sugar to all territories Entry of new distributors in the secondary distribution of sugar The net effect – sugar distribution monopoly busted leading to market efficiency and increased availability of sugar

LESSONS LEARNT Most markets are not run on perfect competition principles There is need for regular market assessment and monitoring exercises to check anti-competitive developments Need for increased competition advocacy to create awareness to businesses and consumers alike

CONCLUSION The case facilitated promotion of competition principles and guaranteed market efficiency in a monopolistic industry. The Commission was also able to raise awareness of competition law The advocacy initiative earned the Commission a World Bank recognition in the 2014 ICN-World Bank Advocacy Contest.

For more information, contact The Executive Director Competition and Fair Trading Commission Off Mandala Road, 1st Floor Mpikisano House Private Bag 332 Lilongwe Malawi Tel: +265 1 759506/7 Fax: +265 1 759522 Email: competitioncommission@cftc.mw / consumer@cftc.mw Website: www.cftc.mw; facebook; twitter:(@cftcmalawi)

THANK YOU !! ZIKOMO KWAMBIRI !!