The Anti-Trust Watchdog has again acted against cartelization in the poultry industry and has completed an inquiry that uncovered nineteen poultry feed companies involved in price coordination, and their alleged anti-competitive conduct that had led to the increased prices of poultry feed in late 2020 that had, in turn, resulted in a sharp increase in the prices of chicken and eggs.
This is the third large-scale action by the Competition Commission of Pakistan (CCP) in the poultry industry. Earlier in 2010, it had imposed a fine of Rs. 50 million on the Pakistan Poultry Association (PPA), and had imposed a fine of Rs. 100 million on the PPA for cartelization again in 2010. This time, the poultry feed mills have come under the CCP’s radar.
Poultry feed is approximately 75 to 80 percent of the cost of broiler meat and eggs. Therefore, the hike in the prices of feed has affected the prices of chicken and eggs that are among the most commonly consumed high protein foods.
The CCP’s inquiry revealed that the feed mills had colluded to raise the poultry feed prices by Rs. 825 per 50 kg bag between December 2018 and December 2020, thus making the feed 32 percent costlier for poultry farmers.
Moreover, data for September 2020 from the Pakistan Bureau of Statistics (PBS) shows that the prices of chicken and eggs had surged by 18.31 percent and 5.2 percent respectively, which had coincided with an increase in the prices of feed by almost Rs. 100 per bag.
After another price hike by poultry feed mills (by Rs.125 on layer and 175 on broiler feed) in October 2020, the prices of chicken had risen by 26.62 percent and eggs by 23.81 percent as compared to the previous month.
In November 2020, the prices of poultry feed rose again by Rs. 150 per bag, and in this month, the prices of chicken and eggs had risen by 20.76 percent and 5.23 percent respectively.
In December 2020, another price hike in poultry feed by Rs.250 per bag had caused the prices of chicken and eggs to rise by 3.21 percent and 14.08 percent respectively.
The CCP took suo motu notice of the concerns and complaints received via the PM Citizens Portal and the CCP’s own online complaint management system that alleged that some of Pakistan’s leading mills had collusively raised the prices of poultry feed. The complainants included poultry farmers whose businesses had been hit by the costlier prices of feed.
In February 2021, the CCP raided two major poultry feed producers and impounded crucial evidence indicating price change coordination among the feed companies. The impounded records revealed that officials of 19 feed mills had been using an active WhatsApp group in which a feed producer would announce his intended price increase and the rest would declare if they desired to follow suit. These price discussions included the effective date and amount of the rise. These discussions and decisions were implemented on the ground, as evidenced by the official price lists of these companies.
In a conversation thread from 7 December 2020 that involved feed mills discussing price increases in the group chat, an official of a feed mill remarked “Everyone would increase, for sure, but what’s about the exact effective date, please”. An official of another feed mill responded, saying, “Dear all owners want immediately but seems from tomorrow”. Another feed mill representative replied, “surely w.e.f 07-12-2020”.
The price lists show that on 7/8 December 2020, the feed mills had increased their prices by Rs. 250 per 50 kg bag.
The inquiry also found that the mills had made price changes between December 2018 and December 2020 in a coordinated manner in short intervals at least 11 times. Additionally, the data revealed that price revisions had been made on the exact dates, and the amounts of the changes in the price were also similar.
To illustrate this pattern, the official of the feed mills that had participated in the WhatsApp group on 10 October 2020 had increased prices by Rs. 125 per 50 kg bag for layer and Rs. 175 per 50 kg bag for broiler feeds; by Rs. 150 per 50 kg bag on all feed rations on 14/16 November 2020; and by Rs. 250 per 50 kg bag on all rations on 7/8 December 2020.
An analysis of the poultry input costs shows that maize (the primary component of feed) constitutes 55 to 60 percent of the feed in terms of physical usage, which is approximately 40 percent of the cost.
Pakistan had a bumper crop of maize in 2020 and it was abundantly available. Moreover, the prices of maize had fallen by seven percent in FY-2019-20 as compared to the previous year and in the first quarter of FY21 which was 22 percent lower than in 2019-20.
On the other hand, soybean meal (another critical raw material) had been priced higher, but it had been witnessed that a rise in the input prices could not be used as a justification to increase the prices of feed uniformly as each mill has a different cost structure and business model.
Poultry feed mills are rivals, and any discussion and coordination on prices are prohibited under Section 4 of the Competition Act, 2010.
Accordingly, following the findings of the inquiry report, show cause notices will be issued to poultry feed companies involved in the prima facie violation of Section 4 of the Act.