The Christchurch High Court today imposed penalties totalling $300,000 after Country Fare Bakeries Ltd and Quality Bakers New Zealand Ltd admitted they had reached an understanding in late 1993 which in terms of the Commerce Act amounted to fixing the price of bread in the South Island.
Commerce Commission Chairman Dr Alan Bollard said the Commission took court action after investigating allegations that the two companies had agreed to hold the previously independently set maximum discounts they offered to retailers buying their bread.
The investigation revealed that two senior company representatives met at the 1993 annual general meeting of the Bakers Association and discussed the high levels of discounting in the South Island and the policies they had previously and independently developed to control discounting.
They then sent instructions to their South Island management stating their respective policies, listing maximum discounts and stating that the policy was to be strictly adhered to.
When the companies became aware that the Commission was investigating the understanding, the policy was abandoned. The understanding lasted for only a short time and had little if any effect on bread prices.
After the Commission's investigation, Country Fare and Quality Bakers consented to an agreed statement of facts being presented to the Court, in which they admitted reaching an understanding in breach of the Commerce Act, and to having a judgment entered against them with penalties of $150,000 against each company.
The agreed penalty took into account that the understanding had lasted a short time, was limited to the South Island, had had minimal effect, the companies have since put in place compliance programmes to help ensure they did not breach the Act in future and by consenting to an agreed statement of facts, the length and cost of litigation had been reduced.
Justice Hansen said that he was satisfied that the purpose of the Act will be met by the penalty which is at a level to deter the defendants and others, and is high enough that it can not merely be treated as a licence fee.
He noted the responsible attitude of the defendants in agreeing to having judgment entered against them avoided lengthy and no doubt expensive litigation.
Dr Bollard said that price fixing is prohibited by the Commerce Act because it limits competition in a most fundamental way - it does not let customer choice influence price.
"In this case the bakeries' conduct in late 1993 amounted to fixing the price of one of the most common food items, bread. They reached an understanding to, in effect, limit the discounts they would offer to supermarkets and other shops.
"Of all products sold in supermarkets, sales of bread generate the most income. And there is an increasing tendency for supermarket chains to compete with discounts on bread to increase the market share for their chains.
"Price fixing is an attempt to force customers to pay more and to deprive them of one of the most significant benefits of competition - lower prices.
"The law views it very seriously and the Commission will take action against it.
"Business people who want to ensure that they do not run the risk of investigation by the Commission should refuse to discuss prices with competitors.
"Meetings of trade or professional associations are a particular concern because they are a venue for competitors to meet and discuss their businesses. But all other meetings and informal discussions between competitors can cause problems if they discuss prices.
"My advice is that if a competitor begins to discuss prices, leave the meeting immediately."
Media contact: Communications Officer Vincent Cholewa
