CCP finds cartelisation in broiler chick hatcheries

ISLAMABAD: The Competition Commission of Pakistan (CCP) has found collusion and price fixation of day-old broiler chicks by a prima facie cartel of eight hatcheries from 2019 to June 2021.

The CCP initiated the inquiry after receiving several concerns from broiler farmers through Pakistan Citizens Portal, alleging cartelisation in the sector behind the rising prices of day-old broiler chicks.

In this connection, the CCP conducted search and inspections of the premises of the Pakistan Poultry Association (PPA) and a company involved in the sale of the day-old broiler chicks in June 2021.

A forensic analysis of the evidence impounded from these premises revealed that an official of the hatchery played a lead role in the cartel by working as the focal person to announce mutually agreed prices of the day-old broiler chicks.

The rates were conveyed to other hatcheries and PPA daily through SMS and WhatsApp. Discussion on the pricing was also made through the same medium.

Evidence available with the inquiry team shows that the rate announced after mutual discussion between the competitors is the one that actually prevails in the market and that the rate of the day-old broiler chicks is the same for all hatcheries.

For example, on April 26, 2021, the official appointed as the focal person for coordinating rates messaged to another hatchery “Rs82.5 for three days”. When checked, the market information on the day-old broiler chick rates showed that the actual rate was Rs82.5 for the next three days.

PPA was also found in prima facie violation of Section 4 of the Act, as its official was also a part of the WhatsApp group and announcement of rates through SMS and is aware of the pricing discussions and announcements.

In the instant matter, it appears that the companies are making a collective decision on prices, which culminates in the announcement of a single price by a designated official.

This prima facie price fixation arrangement between the competitors clearly violates Section 4 of the Competition Act, 2010.

It is observed that the month-wise average day-old broiler chicks prices fluctuated widely during 2020/21 in the range of Rs20.46/chick (minimum) to Rs79.74/chick (maximum), and the share of the day-old broiler chicks in the total cost changed accordingly.

Its average share in cost was 17 per cent throughout the year, and when the day-old broiler chick was priced at Rs79.74, its share in the total cost per kilogramme of meat was 24.10 per cent.

Another major cost component is the poultry feed, which accounts for approximately 68 per cent of the cost of production of chicken.

In May 2021, the CCP found prima facie cartelisation by the poultry feed companies and issued show-cause notices, leading the inquiry team to conclude that approximately 85 per cent of the total input cost for broiler was artificially increased/controlled by prima facie cartels.

The feed mills have obtained stay orders from the Lahore High Court against the show-cause proceedings.

Most of the hatcheries involved in the prima facie cartel are vertically integrated and involved in the entire poultry supply chain, from breeding to the production of poultry feed.

Following the findings of the inquiry report, the commission will issue show-cause notices to the poultry companies involved in the production and sale of the day-old broiler chicks for prima facie violation of Section 4 of the Act.