New Price Discrimination and Buyer Power Provisions are now Law
The controversial new price discrimination and buyer power provisions of the Competition Act and the related Minister’s regulations officially became law on 13 February 2020. They add the Competition Act to the tools used by government to create transformation in the South African economy and are aimed at protecting SMEs and firms owned by historically disadvantaged individuals. The provisions will have a significant impact on the way in which many large firms do business and require them to review their pricing and procurement policies.
The new price discrimination provisions prohibit dominant firms from offering different prices or trading terms to SME customers and HDI customers who purchase less than 20% of the HDI customer’s requirement of the goods or services sold by the dominant firm, if doing so impedes or prevents those customers from participating sustainably in a market. Price differences cannot be justified on the basis that the SME and qualifying HDI customers buy smaller volumes than the dominant firm’s high volume customers. In practice, this means that a dominant firm’s SME customers, and qualifying HDI customers must be offered the dominant firm’s best prices and trading terms. The dominant firm will have to absorb the cost of supplying these customers at the same prices as those offered to its biggest volume customers or face the risk of abuse of dominance challenges and the resulting penalties.
The buyer power provisions apply to the agro-processing, grocery wholesale and retail, and ecommerce and online service sectors. They prohibit dominant buyers of goods or services within these sectors from requiring or imposing unfair prices or unfair trading terms on their SME suppliers, and HDI suppliers who supply less than 20% of the dominant firm’s purchases of the relevant good or service. Factors to be used to determine whether a price or trading term is unfair include, amongst others, the prices or trading terms applicable to other suppliers, the magnitude of the differences, whether risk is transferred to the supplier unreasonably and whether a trading term is one-sided, onerous or disproportionate to the objective of the clause. While buyer power provisions are applicable in certain markets in the UK and Europe, especially in the agro processing sectors, the South African buyer power provisions are novel.
The changes to the Competition Act also include anti-avoidance provisions which prevent dominant firms from refusing to do business with SMEs and HDI firms in order to avoid the price discrimination or buyer power provisions. Dominant firms who do refuse to sell their products or services to SMEs or HDI firms or who do not want to procure goods or services from them, will have to prove that they are not doing so in an attempt to avoid these new abuse of dominance provisions.
Firms that contravene these new provisions face an administrative penalty of up to 10% of their turnovers in South Africa and exports from South Africa for a first contravention, and up to 25% for a repeat contravention.