On 16 August 2010, a three member Bench of the Competition Commission of Pakistan (CCP) comprising of Ms. Rahat Kaunain Hassan, Chairperson of CCP, Mr. Abdul Ghaffar, Member (Cartels, Mergers and Trade Abuses) and Dr. Joseph Wilson, Member (Policy, Research and International Affairs), passed an Order and imposed a penalty of Rs. 50 million on Pakistan Poultry Association (PPA) for violation of Section 4 of the Competition Ordinance, 2010. The Commission, taking notice of media reports regarding an unprecedented hike in prices of poultry products and possible cartelization, had initiated a suo moto enquiry under Section 37(1) of the Competition Ordinance 2009 (the “Ordinance”). The Commission had appointed Ms. Shaista Bano, Director and Mr. Syed Umair Javed, Assistant Director (Collectively the ‘Enquiry Officers’) to conduct an enquiry into possible violations of Section 3 and 4 of the Ordinance. During the course of the enquiry, the Enquiry Officers, after noticing price related announcements on the PPA’s website, recommended a search and inspection of the latter’s offices in Islamabad, Lahore and Karachi. During the search and inspection conducted on 24 and 25 May 2010, relevant documents were impounded by the duly authorized officers of the Commission. The Enquiry Officers submitted the enquiry report on 8 July 2010 (the ‘Enquiry Report’), concluding that there were prima facie violations of Section 4 of the Ordinance by PPA and recommended that proceedings under Section 30 of the Ordinance may be initiated against PPA. PPA was issued the SCN on 15 July 2010 by the Commission directing it to submit a written reply within fourteen days, and to appear before the Commission on 3 August 2010 to avail the opportunity of being heard. After hearing all the parties at length, it was observed by the Bench that PPA has taken various decisions through its central and zonal executive committees, sub-committees, standing committees and wings which have the object or effect of restricting, reducing, preventing or distorting competition in the relevant markets of Parent Stock, Day Old Chick, Broiler Chicken, Table Eggs and Poultry Feed. It has been stated in the order that a decision was taken by the standing committee of PPA on grandparent project to collusively reduce the number of parent stock to ‘support’ the poultry industry which means reduction in production to increase the price of parent stock and end products in the poultry sector. There could not have been a clearer representation of a naked anti-competitive decision. During the hearing, PPA made no effort to deny this decision. In fact a PPA representative stated that the poultry industry could not have done anything else but this to prevent losses. In their written submissions, PPA only provided a clarification that grandparent and parent stock is not meant for sale as chicken meat and is only sold once it becomes infertile. No arguments were presented on the nature of the decision. Further, the order refers to a decision of PPA with regard to early culling of chicken and marketing of starter eggs as table eggs and stated that the decision of PPA to reduce bird population by culling it early, as a collective measure, is anti-competitive in object. About the broiler chicken the order states that, PPA has been unable to substantially and reasonably rebut the evidence presented in the Enquiry Report regarding collusive decision with regard to pricing, production and sale of broiler chicken by PPA. On the other hand there is sufficient evidence that shows the existence of numerous decisions taken by the PPA through its committees at various times which were designed to determine, at the very least, the farm gate rate of broiler chicken. It is clarified here that, for purposes of showing an anti-competitive decision by an association, it is not necessary to prove a series of individual decisions regarding price or rates when the mechanism of determining those prices or rates is abundantly clear. Similarly about Poultry Feed the Bench observed that PPA feed mill wing met to discuss, deliberate and took decisions regarding the price of various poultry feeds. PPA in its defense stated that feed is a perishable product and prices of perishable products cannot be manipulated as stock cannot be stored. PPA also took the plea that the decision taken by the wing was merely suggestive or indicative and no decision was taken to fix the price of the feed. The Bench however observed “We will let the record speak for itself regarding the second contention.” Anyone who can read will be able to tell that detailed discussion took place before PPA decided to increase the price of various poultry feeds with effect from particular dates in the future. PPA has contended before the Bench that ‘price determination through free market mechanism of demand and supply negates the existence of a cartel in the poultry industry’. The Bench observed from the evidence that is available on record, it needs to be appreciated that the PPA stance stands clearly negated because prices are being determined collectively under the umbrella of PPA. In a free market, prices are determined by negotiation between independent buyers and suppliers – there has to be an offer and acceptance between the two. A collective approach in decision making on economic aspects, as practiced by PPA, is averse to competition and negates the idea of a free market and only substantiates the existence of a cartel. It is stated in the Order that despite a fair performance in terms of economic growth in the most years of the current decade, Pakistan has fallen behind most nations in terms of fair competition. While cartelization may allow greater profits, the consumer suffers direct and indirect losses due to artificial caps on the supply or artificial price hikes. Thus there is a loss in the total economic surplus and firms also experience efficiency losses due to under utilization of their capacity. A bad state of competition erodes competitiveness in the economy, results in productivity losses and leads to, or accelerates, economic decline.
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