WHITE SALT MARKET - RELEASE FROM UNDERTAKINGS

8 May 2001 12:00 AM

Corporate and Consumer Affairs Minister Kim Howells has accepted advice from the Director General of Fair Trading to release Staveley Industries PLC from undertakings given in relation to white salt.

The undertakings ensured that price increases should be limited to a weighted index of production cost increases minus 2%. They were originally given in 1988 following a report in 1986 by the Monopolies and Merger Commission on white salt and were revised in 1992.

Dr Howells said:

''I have accepted the advice of the Director General of Fair Trading that Staveley Industries PLC should be released from these undertakings. Staveley Industries sold the British Salt business in April 2000 and those undertakings are therefore redundant.

''I have also accepted the advice of the Director General that owing to changes in the market, it is not necessary to seek undertakings from British Salt or its new owner. The Director General notes that, if serious competition concerns arose in future he could make use of his powers under the Competition Act 1998.''

NOTES FOR EDITORS

1. In 1986 The Monopolies and Mergers Commission (MMC) reported on the supply of white salt. They found that Staveley Industries PLC through its subsidiary British Salt Ltd and Imperial Chemical Industries PLC had a monopoly with 50% and 45% respectively of the market by volume of the total supply of white salt in the UK. They found that domestic price increases made by these two companies were significantly greater than they would have been if there had been effective competition. They concluded that this was against the public interest. Staveley gave undertakings on behalf of British Salt to ensure price increases are limited to a weighted index of production costs minus 2%.

2. Copies of the release documents are attached.

Press Enquiries: 020-7215 5973/69 (Out of Hours : 0207 215 3234/ 3505) Public Enquiries: 020-7215 5000 Textphone (for people with hearing impairments): 020-7215 6740 http://www.dti.gov.uk

AT THE REQUEST OF THE SECRETARY OF STATE FOR TRADE AND INDUSTRY A REPORT UNDER SECTION 125(4) OF THE FAIR TRADING ACT 1973 (''THE ACT'') OF THE DIRECTOR GENERAL''S ADVICE DATED 25 OCTOBER 2000 TO THE SECRETARY OF STATE FOR TRADE AND INDUSTRY UNDER SECTION 88(4) OF THE ACT.

REVIEW OF WHITE SALT UNDERTAKINGS

Issue

1. The review of undertakings given by Staveley Industries plc (''Staveley'') to the then Secretary of State for Trade and Industry in 1992, relating to the supply of white salt by itself and its then subsidiary, British Salt Limited.

Recommendations

2. To release Staveley from the undertakings since they are now redundant following its sale of the British Salt business in April 2000, and not to seek new undertakings from British Salt or its current owner.

Background

3. Following the Monopolies and Mergers Commission''s (MMC) 1986 report on the supply of White Salt, the Government accepted the MMC''s recommendation that British Salt''s prices should be controlled.

4. After discussions between Staveley and my Office, on 16 March 1988 Staveley gave undertakings to the then Secretary of State for Trade and Industry on behalf of itself and its subsidiary, British Salt. The undertakings provided that a weighted average of British Salt''s ex-works list prices for white salt should not rise above a ceiling set by an index of costs less an annual abatement of one percentage point. The cost index was a weighted average of published input price indices, the composition of which was based on the structure of British Salt''s costs, with a base date of 31 January 1985. Staveley also undertook that British Salt would not charge actual ex-works prices exceeding the list prices.

5. Following a review of the original undertakings, on 11 June 1992 the then Secretary of State accepted revised undertakings (attached at Annex 1) offered by Staveley, again on behalf of itself and British Salt. The revised undertakings rebased the cost index to 31 January 1992, and increased the annual abatement to two percentage points.

6. On 7 April 2000 Staveley sold the British Salt business to UK Salt Holdings Ltd, a subsidiary of US Salt Holdings Inc, for a net consideration of #77.5 million. The net book value of the assets and liabilities sold was #46.6 million (as at 3 April 1999).

Argument

7. As a result of the sale of British Salt, Staveley has no UK white salt production interests. It is therefore appropriate to release Staveley from the relevant undertakings.

8. The second issue is whether there are competition concerns which make it appropriate to seek new undertakings with regard to white salt prices set by British Salt and/or its new owners. I believe that such an approach is not justified given developments in the relevant market.

9. A review of the 1992 undertakings has found that up to 1997 British Salt had continued to achieve high levels of profitability, despite the price cap. However turnover, net profit, and average realised prices for British Salt''s price-controlled products had been declining over the period 1997-1999. Profitability measures indicated that over those two years, unlike previously, the controlled products did not earn supra-normal profits.

10. Most recently, British Salt has reported a 10% reduction in annual turnover for the financial year 1999/2000, and a reduced operating profit of #9.6m, down from #11.2m in the previous financial year. This is despite remaining the leading UK producer of white salt, with an estimated 52% of the UK market by tonnage.

11. Before its sale of British Salt, Staveley argued that circumstances in the market had changed, and that competition on the UK market was now sufficiently effective to hold prices at ''acceptable levels''. They pointed to significant price reductions for controlled products (apparently some 10% below the level permitted by the price cap) and increased import competition.

12. Responses from other market participants expressed a general view that the market had become more competitive, enabling some customers to achieve negotiated price freezes and reductions. Overseas producers such as Frima (a Dutch manufacturer), AKZO, and Solvay were identified as major and increasingly important sources of actual and potential salt imports. Ownership changes at Salt Union (the other major UK producer) appear to have increased its ability to compete effectively for business. There was evidence of increased use of competitive tendering and annual contracts by purchasers, in order to benefit from expanded supply options.

13. In these circumstances, the case for seeking new undertakings from British Salt is not persuasive. If serious competition concerns arose in the future, we now have available the powers under the Competition Act 1998 to address any adverse developments in the market resulting from abuse of a dominant position, or from anti-competitive agreements or concerted practices.

Conclusion

14. I therefore conclude and recommend that you release Staveley from the 1992 undertakings following the sale of the British Salt business, and that you do not seek new undertakings from British Salt or its current owner.

John Vickers Director General of Fair Trading

STAVELEY INDUSTRIES PLC

On 16th March 1988 Staveley Industries plc gave undertakings to the Secretary of State for Trade and Industry pursuant to section 88 of the Fair Trading Act 1973 following the report of the Monopolies and Mergers Commission on the Supply of White Salt (Cmnd.9778) relating to the supply of salt by itself and its then subsidiary, British Salt Limited.

Following a review of the original undertakings, on 11th June 1992 the Secretary of State accepted revised undertakings from Staveley Industries plc.

The Secretary of State for Trade and Industry hereby releases Staveley Industries from the said undertakings with effect from the date hereof.