Competitive Commission of Pakistan (CCP) has imposed a heavy penalty of Rs. 75 million on Pakistan Flour Mills Association (PFMA) against its role in adopting anti-competitive market practices.
The association has been involved in fixing the market prices of flour along with the production of the mills causing higher prices of the most demanding eatable item throughout the country.
According to CCP, Pakistan Flour Mills Association violated Section 4 of the Competition Act, 2010 by fixing the price of Wheat Flour, providing a platform to share commercially sensitive information and fixing the quantities of production of wheat flour.
CCP took notice of various news items suggesting an unusual price hike in the prices of ‘wheat flour’ or ‘wheat atta’ across Pakistan and carried out a raid of PFMA premises. The inquiry concluded that PFMA is providing a platform to its members for settling of prices to avoid any form of competition which is in violation of Section 4 of the Act.
After hearing the parties, the CCP’s bench, comprising of the Chairperson Vadiyya Khalil and Members Dr. Muhammad Saleem and Dr. Shahzad Ansar, passed the order.
In its order, CCP observed that under Article 38 of the Constitution the State is responsible to ensure the provisions of food and basic necessities at fair prices along with other social and economic benefits to its citizens. Accordingly, Provincial Food Departments set a maximum cap of the Wheat Flour Price under the Foodstuffs (Control) Act, 1958; as wheat is Pakistan’s dietary staple and used by consumers belonging to all socio-economic groups.
Wheat flour currently contributes 72 percent of Pakistan’s daily caloric intake with per capita wheat consumption of around 124 kg per year, one of the highest in the world.
CCP observed that having a maximum cap in the essential food item benefits the consumer to bargain for a lower price and prevents retailers from overcharging consumers. This also enables retailers to discount the product in order to increase their sales. PFMA, in complete derogation of the aforesaid objective, deliberately fixed the rates of wheat flour by conducting meetings and discussing the prices as well as the quantities to be produced and supplied by Flour Mills in violation of Section 4 of the Competition Act.
In its order, CCP further observed that fixing prices by competitors; is one of the most egregious and serious violations of Competition Law; and it disturbs the central nervous system of the economy, hence cannot be tolerated.
CCP also observed that discussion, deliberation and decisions regarding purely business concerns like current and future pricing, production and marketing are anti-competitive and should be avoided at all costs by the associations. Associations have a responsibility to ensure that their forum is not used as a platform for collusive activities.
Given the seriousness of the violation as discussed above and the importance of wheat flour in our daily life and the continued practice of price-fixing since 2009; a maximum fine of Rs. 75 Million was imposed on PFMA.
The association is not requiring its members to comply with the maximum cap determined by the government. In fact, PFMA is fixing one price for all the millers and circulating it for compliance. By giving the instructions to sell the wheat flour at a fixed price, PFMA primarily took away the bargaining power from the retailers and the consumers’ vis-à-vis the sale and purchase of wheat flour independently.
Consequently, the choice of different prices was not made available to the end consumers and accordingly the competition in the relevant market was distorted.
There are about 1,000 flour mills in Pakistan, out of which; as per the submissions of PFMA only 493 mills are operational, which meet the consumption needs of about 40 percent of the population, with the balance met by on-farm consumption.