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Limits of advertising

June 21, 2012

RECENTLY, a new milk company has been running an advertisement campaign in the print media that says that consumers should choose pure and unadulterated milk, one that is good for their health, rather than milk that has all sorts of impurities and chemicals.

The campaign projects that the milk the new company provides is pure and good, and for comparison, though it does not identify any competitors’ product, it shows the large basin that gawalas use for transporting milk thus implying that the gawalas’ milk is unfit for consumption, has impurities and can have other chemicals as well.

Gawala milk is not regulated in Pakistan. People owning animals — the usual herd size is small — collect milk in the morning and transport it to their clients as soon as possible so that it does not spoil. Untreated milk spoils quickly. The gawalas have an incentive to ensure that the milk does not spoil en route to the customer. Is the incentive strong enough for the gawalas to add water and/or ice? Is it big enough for them to try to add chemicals that might prevent the milk from spoiling but may not be good for consumers? Is untreated milk bad per se? Since there is no regulation, and there have been instances when milk with chemicals has been found, some do find the incentive strong enough.

The question, for this article is not whether the milk that gawalas sell is safe and/or whether society or the state should regulate their operations, but whether advertising should be allowed to target the products of competitors directly, without giving evidence, especially when the competitor is much smaller.

Pakistan is among the top five producers of milk in the world. But the entire formal sector and larger milk companies combined do not process more than five to six per cent of the total production of milk. The rest of it goes through the traditional gawala channel. This despite the fact that some of the milk companies have been in the field for decades, trying their best through advertising and campaigns like the above to convince the government to come down hard on the gawalas and to somehow get the gawala channel closed. But, and it might, among other reasons, have to do with the small and scattered holding of animals, the progress has been relatively slow.

A few years ago, there had been an application in the Lahore High Court regarding the safety of milk that these companies had also been selling. The court had tried to get the milk tested in Pakistan, but had not been able to do so as we did not have the relevant expertise. Eventually, the court had samples of milk sent to Germany, to a well-known laboratory, and had the milk tested. On the basis of that report the high court had held that the milk being supplied by the larger companies to clients in Pakistan was within the ambit of the Pakistani law and fit for human consumption.

This was treated as a victory by the milk companies. What is more interesting is that despite the conclusion of the laboratory report the milk companies had requested the high court that the contents of the report should not be published or revealed to the public. The argument made by the lawyers for the milk companies was that the milk was fit for consumption but the companies did put some chemicals in the milk, within permissible limits. However, if information about these chemicals was available to the public it could be misused and there could be a negative campaign against the milk companies and their product.

Sadly, the court bought the argument. Should not the right to information enshrined in the basic rights section of the constitution as Article 19A have prevailed? Should not people have a right to know the truth? And if campaigners for safe milk want to use this information to have a campaign based on facts should they not be allowed to do so? The court did not think so. But let us now connect this to the advertising campaign being run by the milk company mentioned earlier. Can the two things be squared?

The milk companies run a campaign against a large number of very small and unorganised producers of milk. They hold, almost directly, that the milk that all gawalas provide is not safe and they want the sector closed or heavily regulated (which might close it down), and they would like consumers to switch to their product. At the same time, they would rather not tell the consumers in Pakistan what they put in the milk and how they preserve it and what experts find in the milk they sell.

One can understand the incentive of the milk companies in all this. If they could have a much larger market, without the competitive effect of the combined force of all the gawalas and if milk companies were the only channel through which the bulk of the production was reaching customers, the milk companies would make huge profits. It would be a loss for all the gawalas of course (revealed preferences suggest that if the gawalas were better off selling their product to milk companies, rather than doing direct sales, they would be doing so already), while the effects on the consumer depend on the quality of the milk being supplied by the gawalas and milk companies and how the pricing would change.

How does one explain the high court’s reasoning? Should this not be the area where the Competition Authority of Pakistan steps in and defines what sort of advertising can be done and on what basis and what information is allowed to be used in advertisements and what not? After all, it has a responsibility to look into issues of fair and unfair competition and to protect the interests of the public and all competitors.

The writer is senior adviser, Pakistan at Open Society Foundations, associate professor of economics, LUMS, and a visiting fellow at IDEAS, Lahore.