Abstract
Competition between firms drives innovation, efficiency, and economic growth. Horizontal mergers reduce competitors and can alter market structure and concentration levels. As a result, competition authorities scrutinise mergers due to potential effects on market concentration and market power, potentially adversely affecting competition. Unless an anticompetitive merger yields efficiency gains that outweigh the anti-competitive effects, it is likely to face prohibition.
In this study, we evaluated a merger that was approved in 2017 between two large pork producers in the Namibian pork industry. The merger aimed to reduce production costs and achieve economies of scale, allowing the merged entity to remain competitive after the “Pork Market Share Promotion Scheme” expired in 2020 but was extended to 2028. The Namibian Competition Commission’s (Commission) decision was based on the merging party’s inability to maintain market dominance due to price and quantity restrictions in the industry.
The study evaluated efficiencies, price regulation, and import competition, aiming to determine whether claimed efficiencies were realised, whether local producers have market power, and whether imports are a competitive constraint. Since 2017, the merged entity has sustained its monopoly in the pork industry, accounting for about 98% of local production, and it is unlikely that the merger has enhanced efficiency.
Further, pork production has experienced a modest increase of 2% on average since the merger in 2017, while imports continue to play a crucial role in meeting local demand, constituting over 50% of consumption. Due to price and quantitative restrictions, imports do not pose a competitive constraint to the merged entity or the Namibian pork market. The merger, therefore, does not seem to have improved the competitiveness of the local producers.
Finally, consumers may expect to pay higher prices for pork and pork products unless low-priced imports from countries with lower production costs can offset the higher production costs in Namibia, driven by the higher cost of maize and soya, which are key inputs into feed cost.