IN a recent inquiry report on the role of the Pakistan Flour Mills Association (PFMA) in fixing prices, controlling production and cartelising the staple market, the cartel and trade abuses (C&TA) department of the Competition Commission of Pakistan has advised legal proceedings against the association.

“It appears that the issues of pricing and production have been amongst the most important agenda of the PFMA and its member in all meetings going as far back as 2011,” the inquiry report says.

“The PFMA has, on several counts from time to time and continuously, prima facie violated Section 4 of the Competition Act of 2010,” the report adds.

Section 4(1) of the act prohibits undertakings from entering into any agreement(s) and associations of undertakings from making decision(s) in respect of the price fixing, production, supply, distribution, acquisition or control of goods or the provision of services which have the object or effect of preventing, restricting or reducing competition within the relevant market.

An inquiry conducted by the cartel and trade abuses department of the Competition Commission of Pakistan finds that the Pakistan Flour Mills Association fixed prices for various flour mills, leaving no room for competition

The report notes that the C&TA department initiated the inquiry after noticing several news items in 2015 and 2016 which suggested an unusual hike in wheat flour prices on a regular basis across Pakistan.

“After an initial probe, the C&TA department suspected the likelihood of anti-competitive practices by the Pakistan Flour Mills Association and its members. On Oct 4, 2016, the Competition Commission authorised a team of its officers to conduct an enter-and-search inspection to gather the necessary information and evidence of the suspected violation, pursuant to Section 34 of the act, of the central offices of the PFMA. During the inspection, the authorised officers impounded certain documents and materials.”

From the documents impounded at the premises, it appears that since at least 2011, the PFMA has actively been engaged in communicating to its members through SMS the prices at which flour is to be sold.

Many undated SMSs also appear to point towards the association fixing and communicating price for compliance. In some text messages, it asked millers to increase prices by a certain percentage on different varieties. These instances collectively and individually amount to price fixing and thus violate Section 4(2)(a) of the Competition Act of 2010.

The Punjab government issued no price notification between 2010 and 2013 for price fixing, the inquiry report notes.

According to a study, rice is the predominant staple food in at least 33 developing countries, providing 27 per cent of dietary energy supply, 20pc of dietary protein and 3pc of dietary fat.

As for wheat, per-capita consumption in Pakistan is estimated at around 124 kilograms a year, which is among the highest in the world. It is clear that flour is the country’s staple food, primarily used to prepare various types of breads such as chapati, roti, naan, paratha, etc. It is an essential commodity as most Pakistani foods contain flour.

Atta is produced from wheat grain along with other by-products such as maida, rawa and sooji. Taking into account the dietary habits of consumers, atta is not interchangeable with maida, sooji, rawa or any other product and neither are there any substitutes available for atta. The demand for atta is fairly inelastic at the household level as well as for commercial purposes.

While atta is an essential commodity and available all across Pakistan, there exist slight variations in terms of regulation, policy and dynamics of the industry in different provinces.

The agricultural land and other factors of production vary in each province. Therefore, the relevant geographic market might be sub-segmented into four provincial markets. However, given that the domestically produced flour is within the four provinces and that the economic conditions are fairly competitive with no restrictions on the movement of flour from one province to another, it can be concluded that the geographic market stretches across the country.

The documents impounded during search and inspection of the PFMA premises suggest that it has around 1,171 registered members. Of them, 946 flour mills are located in Punjab, 143 in Sindh, 50 in KP and 32 in Balochistan. There is a daily 280,000 tonnes of installed capacity across the country, whereas the daily demand is 40,000 tonnes. Many mills are not in production.

The inquiry report says the association appears to be fixing prices for various flour mills in Punjab, leaving no room for competition on price among competing millers. “It is not the function of the association to coordinate and decide upon and communicate prices to its member.”

The role that “associations of undertakings” may play in cartels is explicitly recognised under the Section 4 of the act by the adoption of the decision by an association that have the object or effect of preventing, restricting or reducing competition within the relevant market.

Published in Dawn, The Business and Finance Weekly, March 19th, 2018