Cartelisation making milk expensive in Karachi: CCP

KARACHI: The Competition Commission of Pakistan (CCP) has found the prima facie involvement of three leading dairy associations in cartelisation and price-fixing of milk in Karachi, a statement said on Tuesday.

The CCP initiated an inquiry after taking notice of the media reports and concerns raised in a letter received from a leading consumer association against the rise announced in the price of milk in Karachi and its adjacent areas by the dairy associations at farm, wholesale and retail levels.

Media reports also highlighted the involvement of several other dairy associations in price fixation of milk. It was specifically mentioned that the Dairy Farmers Association (DFA), Karachi had raised the price of milk from Rs110/litre to Rs120/litre with immediate effect against the official government rate of Rs94/litre.

Since the milk price set by the government was Rs94/litre, the association collusively / collectively sold it at Rs120/litre, which resulted in daily liability passed on to the consumers to approximately Rs130 million and an annual impact of approximately Rs47 billion to the consumers of Karachi and its adjacent areas.

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. Milk is an essential commodity and a key ingredient in desi ghee, butter, cheese, a variety of confectionaries, and several cosmetics. Therefore, a change in the price of milk affects the prices of all these and other products throughout the country, the statement said.

An analysis of Karachi’s milk sector reveals that fresh milk is supplied by five cattle colonies located on the outskirts of the city. The supply chain of milk consists of dairy farmers, wholesalers, and retailers, where milk is sold to retailers through an annual contract called ‘bandhi’ in which the rate and quantity for purchase of milk is fixed by various dairy and retailer associations.

Karachi is also unique in the sense that there milk can also be purchased from the mandi located at Lee (Bolton) market.

As per the inquiry committee, the commissioner Karachi notifies the prices at all tiers of the milk supply chain and the last such notification was issued on March 14, 2018, fixing the prices/litre at Rs85 for the dairy farmer, Rs88.75/litre for wholesalers, and Rs94/litre for retailers. However, the official data shows that the notified prices are not adhered to mainly due to the role of various associations involved in the milk supply chain.

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There are three dairy farmers associations in Karachi, Dairy and Cattle Farmers Association Karachi (DCFAK); Dairy Farmers Association Karachi (DFAK) and Karachi Dairy Farmers Association (KDFA).

In February 2021, an informant shared some video footages of representatives of DCFAK, announcing the revised prices of milk in Karachi; followed by the DCFAK president appearing on various TV programmes, saying that milk in Karachi would not be available to consumers at the old rate of Rs120 and that his association will not take back the increase in milk prices.

Similarly, the TV appearances of the DCFAK president is presented in the inquiry report where he announces new rates of milk in July 2020. Statements from various retailer representatives and a dairy farmer’s representative showed that all the three dairy associations in Karachi had formed a cartel and were announcing the rates of bandhi. If a retailer refused to abide by the association’s set rates his supply of milk would be stopped.

After due process, the inquiry committee reached the conclusion that in July 2020 and February 2021, decisions to fix the prices of fresh milk in Karachi were primarily taken by DCFAK. It also appears that the other two dairy farmers associations – DFAK and KDFA – followed the suit, as the prices of milk in the relevant market rose immediately after the announcement of the new rates by DCFAK. It is observed that the rate rise could not have been possible without the collusion of all the three dairy associations.

Price data shows that milk prices in Karachi rose immediately after the rate announcement by the DCFAK. In July 2020, the prices rose from an average of Rs110/litre to Rs120/litre and, in March 2021, the prices rose from Rs120 to Rs130/litre.

Once the rate of bandhi was increased by the dairy farmers it would have an impact on prices at all other levels of the supply chain, including wholesalers and retailers.

A city-wise comparison among Karachi, Lahore and Islamabad-Rawalpindi shows that only Karachi has a uniform milk price, whereas the prices vary in all other cities. Such uniformity in prices also points towards rate fixation by various dairy associations. Therefore, these decisions to fix the rate of bandhi in the relevant market is a prima facie, violation of Section 4 of the Competition Act 2010.

The rate announcements or even recommendations by the associations to fix the price of milk are decisions by an association in prima facie violation of Section 4(1) read with Section 4(2) (a) of the Competition Act, 2010. This rate acts as a benchmark and the product would be priced at or near this level.

In light of the findings, the inquiry committee recommended the Competition Commission of Pakistan to consider initiating proceedings under Section 30 of the Act against DCFAK, DFAK and KDFA.

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