Show-cause notice issued to PFMA for price hike

ISLAMABAD: After examining the impounded records from the premises of Pakistan Flour Mills Association (PFMA), the Competition Commission of Pakistan (CCP) has found PFMA involved in price fixation and decided to launch formal proceedings against them.

According to the CCP’s announcement made here on Thursday, the Commission has issued show-cause notice to PFMA for prima facie violating Section 4 of the Competition Act 2010 by indulging in anti-competitive practices such as price fixing and sharing commercially sensitive information.

A recent inquiry completed by the anti-trust watchdog states: “It appears that the issues of pricing and quantities have been amongst the most important agenda items of the PFMA and its member undertakings in all of its Executive Committee meetings going as far back as 2011.”

The report further states: “… PFMA has, on several counts from time to time and continuously, prima facie violated Section 4 of the Competition Act 2010. It appears that the anti-competitive practices adopted by PFMA and endorsed by its member undertakings have violated Section 4(1) read with Section 4(2)(a) and Section 4(2)(b) of the Act. This may be viewed in light of competition law jurisprudence, which contemplates, inter alia, that even a single instance of price fixing or production limitation or distribution, is sufficient to constitute a violation of Section 4 of the Act.”

According to the report, between 2015 and 2016, the Cartel and Trade Abuses (C&TA) Department of the Commissionnoticed several news items appearing in different newspapers suggesting an unusual hike in the prices of wheat flour on a regular basis across Pakistan. It says, “On June 20, the Pakistan Flour Mills Association (PFMA) announced its first hike of Rs10 for each 20kg bag, citing increasing wheat prices. Barely two days after it, was the second raise of Rs. 10” and on 25 June, came the third increase – on the same pretext – taking the bag price up from Rs. 710 on June 19 to Rs740 by June 25.” The enquiry says that the price of wheat flour continued to rise and though the PFMA called it “market correction,” but commoners thought it was killing – taking food inflation to new highs.”

The CCP’s enquiry further states that the PFMA has 1171 members nationwide, comprising of individual flour mills and has provincial chapters in all four provinces. The central office of PFMA is located in Lahore. The Chairman rotates on an annual basis from each province and the 'Central Executive Committee' makes the decisions that are then implemented by members of the association.

Seeing its role in price fixing, the CCP’s teams had also raided the office of PFMA in Lahore and impounded relevant documents. The CCP also held a meeting with the PFMA representatives in December 2016 where the association informed that the Provincial Food Departments (PFDs) set a maximum retail price for flour as per a formula for pricing set in 2008 according to which the base input costs are plugged in and a margin for the flour millers is set to reach a maximum ex-mill and retail price. The price is still being set through the same mechanism. The flour millers procure wheat from the open market, as it is cheaper than the Government issued rate of wheat. When the prices increase in the open market as the supply depletes, the millers switch to the Government issued wheat as the issue rate becomes cheaper than the open market. Currently, there is a daily 280,000 tonnes installed capacity of producing flour across the country, whereas the daily demand is 40,000 tonnes, so many mills are not in production. Furthermore, if the Government does not stop other entrants, the industry will deteriorate further. The provincial District Food Controller is mandated to communicate the government set maximum prices to the flour mills.

On the recommendations of the enquiry report, the Commission has issued a show-cause notice for violating Section 4 of the Competition Act.