The Eswatini Competition Commission has approved the acquisition of Umbuluzi Farm Chickens & Umbuluzi Farm Properties by Ngwane Mills.
This is according to the Commission’s published report for the first quarter of 2023/24.
Ngwane Mills (Pty) Ltd is a private company registered in accordance with the laws of the Kingdom of Eswatini and trades as “Feedmaster”.
Feedmaster is a manufacturer and supplier of animal feed. It operates a fully automated Buhler plant that produces all mono-gastric and ruminant feeds for chicken broilers, pigs, cattle, and breeders.
It has been operating in Eswatini since 1991 and selling animal feed products in Eswatini.
The target firms are Umbuluzi Farm Chicken and Umbuluzi Farm Properties collectively referred to as (“Umbuluzi Farm). Umbuluzi Farm is not a broiler chicken producer or operator, but a chicken abattoir owned by six (6) equally big contract growers.
When making its decision the Competition Commission considered the products of the firms and concluded that there are three (3) relevant markets, which are:
a) The production and distribution of broiler chicken feed in Eswatini;
b) The production and distribution of broiler chickens by contract growers in Eswatini; and
c) The retailing of fresh, frozen, and packaged broiler chicken products by Lojaf (Pty) Ltd in Eswatini.
In its analysis, the Commission considered the activities of the merging parties and found no horizontal overlaps.
“The acquiring firm does not farm, slaughter, or distribute chickens. The transaction is categorized as a phase 3 merger because of the verticality that is created as a result of the proposed transaction.”
“The verticality comes about as a result of Ngwane Mills being the manufacturer and supplier of broiler chicken feed, supplying the contract growers who are shareholders of Umbuluzi Farm. The proposed transaction will result in the formation of a three-layer market for the merging parties. This formation includes feed millers, contract chicken growers, and retailers of fresh, frozen, and packaged broiler chicken products.”
The Competition Commission, however, notes that the proposed transaction will impact the structure of the market due to the verticality that it creates in the production and distribution of broiler chicken feed (upstream) as well as the production and distribution of broiler chickens by contract growers (downstream).
The transaction was therefore approved with the following conditions:
Input Foreclosure (Production & Distribution of Broiler Chicken Feed)
(i) The merged entity shall supply competitors of its downstream division with broiler chicken feed on the same or more favourable terms as it applies pre-merger;
(ii) The merged entity shall supply competitors of its downstream division with broiler chicken feed on the same or higher volumes that applied pre-merger. If there is a reduction in available stock, such volumes will be maintained on a pro-rata basis; and
(iii) The merged entity shall supply competitors of its downstream division with broiler chicken feed of the same or more favourable quality as it applies pre-merger.
Customer Foreclosure ((Production and distribution of broiler chickens by contract growers)
(iv) The merged entity will not enter into an exclusive agreement to source broiler chicken feed exclusively from its upstream division;
(v) Post-merger, the merged entity’s downstream division will not source more than 70% of its annual broiler chicken feed from its upstream division, based on quantities supplied during the pre-merger period. The condition will be subject to all credit terms, and market and price factors such as quantity, quality, and availability of supply from the merged entity’s competitors. The sourcing cap will be phased out over a five-year period.
The phasing will be as follows;
(vi) The annual quantities and sources of broiler chicken feed by the downstream division of the merged entity should be submitted to the Commission for a period of five (5) years, thirty (30) days after the end of every financial year;
(vii) The annual sales of broiler chicken feed and customers (contract growers) of the upstream division of the merged entity should be submitted to the Commission for a period of five (5) years, thirty (30) days after the end of every financial year;
(viii) The conditions will be evaluated by the Secretariat every 24 months after the completion of the merger to be submitted to the Board of Commissioners should market conditions have changed that warrant an evaluation;
(ix) after the five (5) year period, the Commission has the authority to request the annual quantities of sales and procurement of chicken broiler feed from the merged entity as and when the Commission deems necessary for monitoring purposes.