Following the declaration of the national state of disaster and subsequent 21 day lockdown period, consumers have been flocking to retail outlets and grocery stores to stock up as they prepare for the worst of the COVID-19 crisis and the potential of a full-scale lockdown. This sudden rise in demand has left suppliers of items like toilet paper, surgical masks and even basic foodstuffs with an almost unprecedented ability to manipulate and profit from radical price increases. Thankfully, on 19 March 2020, the Minister of Trade and Industry, Ebrahim Patel, has stepped in to prevent such abuse.
In terms of the Disaster Management Regulations published on 18 March 2020, the Minister was granted authority to:
“(a) issue directions to:
- protect consumers from excessive, unfair, unreasonable or unjust pricing of goods and services during the national state of disaster; and
- maintain security and availability of the supply of goods and services during the national state of disaster;”
The regulations (accessible here) address the following:
- Excessive pricing by dominant firms;
- Unconscionable, unfair, unreasonable and unjust prices in the context of consumer transactions;
- Equitable distribution and maintenance of adequate stock; and
- Penalties
In terms of the regulations, a “price increase” means:
“the direct increase or an increase as a result of unfair conduct such as, amongst others, false or misleading pricing practices, covert manipulation of prices, manipulation through raising or reducing grade levels of goods and services.”
The regulations apply to the following categories of goods and services: Basic food and consumer items
“1. Basic food and consumer items;
- Emergency products and services;
- Medical and hygiene supplies;
- Emergency clean-up products and services.”
The regulations apply to the following goods:
- toilet paper;
- hand sanitiser;
- facial masks;
- disinfectants and cleaners;
- surgical gloves;
- surgical masks;
- disinfectant wipes;
- antiseptic liquids;
- all-purpose cleaners;
- baby formula;
- disposable nappies;
- bleach;
- cooking oils;
- wheat flour;
- rice;
- maize meal;
- pasta;
- sugar;
- long-life milk;
- canned and frozen vegetables;
- canned, frozen and fresh meat, chicken or fish;
- bottled water
Price gouging and excessive increases are addressed separately, by dominant firms in terms of the Competition Act 89 of 1998 (“the Competition Act”) and as against consumers in terms of the Consumer Protection Act 68 of 2000 (“the CPA”).
- Excessive Pricing of dominant firms
In terms of the Competition Act, a “dominant firm” (which includes a person, partnership or trust) is one which:
“(a) has at least 45% of the market;
- has at least 35% of the market, but less than 45% of the market, unless it can show that it does not have market power; or
(c ) has less than 35%, of the market but has market power”
Section 8(1) of the Competition Act prohibits a dominant firm from charging an excessive price to the detriment of customers or consumers.
Regulations 4.1 and 2.2 provide that, during the period of the national disaster, where a price increase:
“does not correspond to or is not equivalent to the increase in the cost of providing that good or service; or
increases the net margin or mark-up on that good or service above the average margin or mark-up for that good or service in the three month period prior to 1 March 2020”
that price increase is prima facie excessive or unfair and thus, that the increase is prohibited in terms of section 8 of the Competition Act.
The restriction on price increases imposed on dominant firms applies to any customer of those firms (natural persons, companies and even other dominant firms).
- Excessive pricing to consumers:
In terms of sections 40 and 48 of the CPA, suppliers may not engage in unconscionable conduct, unfair tactics and may not supply or agree to supply any good or service at a price that is unfair, unreasonable or unjust.
Regulation 5.2 provides that, during the period of the national disaster, where a price increase:
“does not correspond to or is not equivalent to the increase in the cost of providing that good or service; or
increases the net margin or mark-up on that good or service above the average margin or mark-up for that good or service in the three month period prior to 1 March 2020”
that price increase is unconscionable, unfair, unreasonable and thus, that the increase is prohibited in terms of sections 40 and 48 of the CPA.
This restriction on price increases, as it is imposed by the CPA, only applies to transactions where the CPA finds application. The CPA only applies to consumers who are natural persons or, in the case of a juristic person, where its annual turnover does not exceed the threshold set by the Minister, which is currently R2 million.
Price increases, cost of providing and margins
It is important to note that the Minister, in restricting only the margin / mark-up on the prices of goods and services, has shown an appreciation of the reality of supplying goods and services during the COVID-19 crisis. Suppliers, not just consumers, face harsh price increases in their own supply chains, many of which are imposed from outside of South Africa and thus, beyond the control of our legislative measures. While consumers are protected by the regulations, suppliers are also afforded protection against abuse by dominant firms. These regulations seek to mitigate not against price increases per se but from excessive and opportunistic profiteering during a time of crisis.
- Equitable distribution and maintenance of adequate stock
Regulation 6.1 provides that suppliers (though not defined, we would suggest that “suppliers” are as defined in the CPA) must develop and implement reasonable measures in order to:
“ensure the equitable distribution to consumers or customers including small businesses…and
Maintain adequate stock of goods…”
Such measures include limiting the number of items which consumers may purchase at any one period of time, displaying of notices etc.
- Penalties
A dominant firm which contravenes the regulations may be investigated and is liable for the penalties imposed in terms of the Competition Act.
If a person or firm contravenes the regulations could be liable for:
- A fine of up to R1 000 000;
- A fine of up to 10% of a firm’s revenue; and
- Imprisonment for a period not exceeding 12 months.
The COVID-19 crisis and the national disaster which has been declared are unprecedented and new regulations are being published daily (see the Government Printing Works published Gazettes). Please feel free to contact us for specific advice on the issue of price gouging, the Competition Act and / or the CPA.