On 15 July 2021, the Minister of Trade, Industry and Competition issued Block Exemptions for the Security of Supply of Essential Goods (Government Gazette No.44854) (the Essential Goods Exemption) – in effect from today until 15 August 2021 (unless withdrawn or extended by further notice).
The purpose of the Essential Goods Exemption is to allow certain forms of concerted conduct that may otherwise be prohibited under the Competition Act (in particular, section 4 which prohibits conduct amongst competitors and section 5, which prohibits conduct between suppliers and customers).
The Essential Goods Exemption applies to a category of agreements or practices amongst firms in the value chain (i.e. production, distribution and retail) in response to disruptions to the supply chains of essential goods within the country, solely for the purpose of:
- preventing critical shortages of essential goods within the country; and
- promoting the equitable distribution of scarce essential goods across the country to consumers, especially poorer households, and customers, including small businesses.
Essential goods have been defined as food and consumer items, emergency products, medical and hygiene supplies (including pharmaceutical products), refined petroleum products and emergency clean-up products.
Importantly, essential goods suppliers must notify the Department of Trade, Industry and Competition and the Competition Commission of actual or anticipated shortages and the need to engage in such practices. The category of agreements or practices exempted is set out below.
- Communication amongst essential goods suppliers regarding the:
- loss of stock or capacity to determine the extent and location of likely shortages of essential goods
- availability of stock to determine the overall capacity for supply and the ability of different firms to supply different areas, as well as the timing thereof
- extent of demand for essential goods to determine the extent of shortages and an equitable distribution of available supply across the country
- Coordination amongst essential goods suppliers in relation to the:
- allocation of inputs across producers of essential goods to reduce shortages and to ensure equitable distribution of essential goods across the country
- the distribution of essential goods to different geographic areas in order to ensure equitable distribution
- measures that may expand stock or capacity to relieve anticipated shortages
Practical tips for firms supplying essential goods to note:
- The Essential Goods Exemption only applies to the agreements or practices specified above that have been notified to the Department of Trade, Industry and Competition and the Competition Commission, and which have the sole purpose of responding to actual and anticipated shortages of essential goods
- The Essential Goods Exemption does not exempt price-fixing and collusive tendering in respect of essential goods and inputs used in the production of essential goods, or authorise any discussion of the pricing of essential goods and the pricing of inputs used in the production of essential goods. Price gouging detection and investigation is therefore still a risk that firms need to be aware of.
- Firms must abide by the Consumer and Customer Protection and National Disaster Management Regulations and Directions (the Pricing Regulations) issued on 19 March 2020. These Pricing Regulations stipulate 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.
Read our e-alert issued last year here for further details
- Essential Goods suppliers that participate in any agreements or practices falling within the scope of the exemption must keep minutes of meetings held and written records of such agreements or practices and must submit these to the Competition Commission within a reasonable time.