ISLAMABAD: An inquiry by the Competition Commission of Pakistan (CCP) has found that three associations of dairy farmers in Karachi are involved in cartelisation and price-fixing of milk in the city.
The inquiry was initiated after the CCP took notice of media reports and concerns raised in a letter received from a consumer association against the price hike announced by the dairy associations at farm, wholesale and retail levels in Karachi and its adjoining areas. The milk supply chain consists of dairy farmers, wholesalers, and retailers. Milk is sold to retailers under bandhi — an annual contract — in which the rate and quantity for purchase of milk is fixed by various dairy and retailer associations. In various media reports, the involvement of several other dairy associations in price-fixing of milk was mentioned.
It was specifically mentioned that the Dairy Farmers Association had raised the price of milk from Rs110 to Rs120 per litre, whereas, the official rate was Rs94 per litre. The initial CCP report revealed that milk sellers would collude and collectively pocket more than Rs47 billion from the consumers of Karachi in a year.
“The decision to fix the rate of bandhi in the relevant market is a prima facie, violation of Section 4 of the Competition Act 2010, and the Commission has decided to initiating proceedings under Section 30 of the Act against the Dairy & Cattle Farmers Association Karachi (DCFAK), Dairy Farmers Association Karachi (DFAK) and the Karachi Dairy Farmers Association (KDFA),” the CCP said.
Sellers collude to pocket over Rs47bn from consumers in Karachi
“On the other hand, the market was distorted as there was no competition on prices and consumers were made to pay unfair prices irrespective of the quality of milk,” the inquiry said.
“Milk was an essential commodity and a key ingredient in desi ghee, butter, cheese, a variety of confectionaries, and several cosmetics. A change in the price of milk affects the prices of all these and other products throughout the country,” the CCP noted.
An analysis of Karachi’s milk sector reveals that fresh milk in the metropolis is supplied by five cattle colonies located on the outskirts of the city under the bandhi arrangement. There are three dairy farmers’ associations in Karachi including the DCFAK, DFAK and KDFA.
In February 2021, videos of DCFAK representatives were shared announcing revised prices of milk in Karachi. This was followed by the DCFAK president appearing on various TV programmes stating that milk in Karachi would not be available to consumers at the old rate. Price data shows that prices of milk in Karachi rose immediately after the rate announcement by the DCFAK.
In July 2020, milk prices rose from an average of Rs110 per litre to Rs120 per litre and in March 2021 prices rose from Rs120 to Rs130 per litre.
Statements from various retailers’ representatives and a dairy farmer’s representative revealed that all the three dairy associations in Karachi had formed a cartel and were announcing the rates of bandhi. It also appears that DFAK and KDFA followed suit as the prices of milk in the relevant market rose immediately after the announcement of new rates by DCFAK.
Published in Dawn, June 16th, 2021