In its reasons for approving Aspen's acquisition of Pfizer's infant nutrition business, issued on 2 April 2014, the Competition Tribunal cautioned the Department of Health regarding measures it introduced in order to achieve its policy objectives, which may have inadvertently impacted on competition.

This is according to Albert Aukema, Senior Associate in the Competition practice at Cliffe Dekker Hofmeyr,  who notes that Aspen Nutritional's acquisition of the Pfizer infant nutrition business followed an order by the Competition Tribunal that Nestle, which acquired the worldwide infant nutrition business of Pfizer, divest itself of the infant nutrition business in South Africa through a rebranding remedy. This was the first such remedy in South Africa and flowed in part from the strong brand loyalty consumers of infant nutrition display.

Aukema says that, according to the Tribunal, consumer brand choice is heavily influenced by the recommendations of health care professionals, family and friends. Consumers carry this brand choice into retailers when purchasing infant nutrition.

“The infant nutrition market, and in particular the infant milk formula market, is highly regulated internationally. Specifically, the WHO has adopted an international code of conduct that governs the marketing of breast milk substitutes to consumers. The rationale behind the code is to promote breast feeding on the basis that it is superior to breast milk substitutes.

“In order to give effect to this code, the Minister of Health published South African regulations incorporating elements of code into the local regime regulating infant nutrition products. The effect of these regulations is to restrict the ability of infant milk formula manufacturers to communicate the benefits of their products to consumers through marketing activities” he explains.

Aukema notes that the Tribunal expressed concern regarding the evidence before it that the regulations, although clear in terms of their rationale, may also have the unintended consequence of raising barriers to entry for new entrants into the infant milk formula market as these new entrants would struggle to raise awareness of their brands with consumers if marketing of infant milk formula is restricted.

“The Tribunal encouraged the Competition Commission to engage with the Department of Health to ensure that they balance their respective policy objectives,” he adds.

By Albert Aukema, Senior Associate - Competition, Cliffe Dekker Hofmeyr