An inquiry conducted by the Competition Commission of Pakistan (CCP) has found collusion and price-fixing of day-old broiler chicks by a prima facie cartel of eight hatcheries from 2019 to June 2021.
CCP initiated the inquiry after receiving several concerns expressed by broiler farmers through Pakistan Citizens Portal, complaining of cartelization in the sector behind the rising prices of day-old broiler chicks. CCP conducted search and inspections on the premises of the Pakistan Poultry Association (PPA) and a company allegedly involved in the sale of day-old broiler chicks in June 2021.
A forensic analysis of the evidence impounded from these premises revealed that an official of the said hatchery played a leading role in the cartel by working as the focal person to announce mutually agreed prices of day-old broiler chicks. The rates were conveyed to other hatcheries and PPA daily through SMS and WhatsApp. The same medium was used for discussion on pricing.
The evidence available with the inquiry team shows that the rate announced after mutual discussion between the competitors is the one that actually prevails in the market and that the rate of day-old broiler chicks is the same for all hatcheries. For example, on 26 April 2021, the official appointed as the focal person for coordinating rates messaged to another hatchery “Rs. 82.5 for three days”.
When checked, market information on day-old broiler chicks rates showed that the actual rate was Rs. 82.5 for the next three days. PPA was also found in prima facie violation of Section 4 of the Act, as its official was also a part of the WhatsApp group and announcement of rates through SMS and was aware of the pricing discussions and announcements.
In the instant matter, it appears that the companies are making a collective decision on prices which culminates in the announcement of a single price by a designated official. This prima facie price-fixing arrangement between competitors clearly violates Section 4 of the Competition Act, 2010.
It is observed that month-wise average day-old broiler chicks prices widely fluctuated during the year (2020-21) between the range of Rs. 20.46/chick (minimum) to Rs. 79.74/chick (maximum), and the share of day-old broiler chicks in total cost changed accordingly. Its average share in cost was 17% throughout the year, and when the day-old broiler chick was priced at Rs. 79.74, its share in total cost per kilogram of meat was 24.10%. The other major cost component is poultry feed which accounts for approximately 68% of the cost of production of chicken.
In May 2021, CCP found prima facie cartelization by poultry feed companies and issued show-cause notices, leading the inquiry team to conclude that approximately 85% of the total input cost for broiler was artificially increased/controlled by prima facie cartels. The feed mills have obtained stay orders from Lahore High Court against the show cause proceedings.
It is also interesting to note that most of the hatcheries involved in the prima facie cartel are vertically integrated and involved in the entire poultry supply chain, from breeding to the production of poultry feed.
Following the findings of the inquiry report, the Commission will issue show-cause notices to poultry companies involved in the production and sale of day-old broiler chicks for prima facie violation of Section 4 of the Act.
Source: Pro Pakistani