Milking consumers

Would anyone believe that the citizens of Karachi are ‘robbed’ of Rs130 million daily and Rs47 billion annually through overcharging on just one essential commodity?

It has to be believed when such a statement was made by the official Competition Commission of Pakistan (CCP) after it had conducted a thorough inquiry into the mechanism of the fixation of fresh milk price in the megacity.

In June 2021, the CCP announced the findings of an inquiry in the dairy sector of Karachi, pointing out that milk price set by the government was Rs94 per litre. Meanwhile, various farmers’ associations collectively sold Rs120 per litre which resulted in daily liability passed on to consumers to the tune of approximately Rs130m daily. An annual impact of approximately Rs47bn fell on the consumers of Karachi and its adjacent areas.

This raises the question how these dairy farmers’ associations have become so strong that fresh milk in the city is sold only on the price they fix.

The answer has two parts: one relating to monopoly and cartelisation of the farmers’ associations and the other illegal use of powers of the Sindh Bureau of Supply and Prices by the city administration for fixing not only fresh milk price but also prices of other commodities.

Before the introduction of the town-based city district government system of the local government in 2001, the provincial bureau of prices and its district bodies were responsible for fixing and maintaining prices of commodities at district level. However, after promulgation of the Sindh Local Government Ordinance 2001, the powers to fix commodities prices were given to district and city district governments in Sindh.

In 2008, after abolishing the local government system introduced in 2001, the Sindh chief minister revived the provincial bureau and gave it under the administrative control of the provincial agriculture department.

Advocate Tariq Mansoor, who has filed a constitutional petition on the same subject in Sindh High Court, told Bol News that he has assailed a notification issued by the Sindh chief secretary, of August 1, 2011, whereby powers of district controllers of prices and supplies were given to commissioners, additional commissioners and deputy commissioners, additional collectors and assistant commissioners.

He added that after the revival of the provincial bureau of supplies and prices in 2008, the district controllers should have been exercising the powers of fixing prices and the bureau’s inspectors should have been ensuring sale of commodities at fixed prices.

He pointed out that fixing commodity prices under the commissioner and deputy commissioners has become a “stereotype exercise.”

In case of important commodities like milk, meat and chicken, a meeting is called by the commissioner with associations of the commodities and officials of the Sindh Bureau of Supply and Prices in attendance and prices for farmers, wholesalers and retailers are announced, Tariq explained. “The notification in this regard is issued on a plain paper or official letterhead of the commissioner concerned and it never finds place in the official gazette which for every notification is a legal requirement. For the same reason, such notifications are not given any importance by farmers, wholesalers or retailers as their associations from time to time issue their own prices of commodities.”

Interestingly, the official webpage of Bureau of Supply and Prices on Sindh Agriculture Department’s website shows the Sindh Essential Commodities Price Control & Prevention of Profiteering & Hoarding Act, 2005, to be among the list of laws at its disposal.

Tariq further said that for the past few years, the provincial government has been making an allocation under the head of price control for the Bureau of Supply and Prices in the provincial budget. “However, the provincial government instead of appointing a full-time director general of the bureau which … is a legal requirement, runs it through a director while various posts despite approval of budget have been lying vacant.”

Tariq highlighted that under the rules of business of the Sindh government, the notification giving powers of fixing prices of commodities to commissioners and deputy commissioners cannot be issued by the chief secretary on his own.

Retailers’ view

Maskin Malik Gujjar runs a big dairy shop in PECHS. During the CCP inquiry he had appeared before the team conducting the inquiry. He stated that the reason behind the frequent increase of fresh milk prices is “persons behind different associations.” He added that farmers also own the business of wholesale and retail of milk and they have complete control over the associations of wholesalers and retailers as well.

He alleged that these associations do not allow a retailer to sell fresh milk for less than the price they fix. “If a retailer dares to sell the milk at a price less than the one fixed by these associations, they ensure that such retailer(s) does not get supply of milk from any wholesaler of the city. I had filed a petition in Sindh High Court mentioning the same facts but it is still pending adjudication.”

Maskin points out another interesting fact regarding milk price. He said that the farmers’ associations always talk about the cost of production of milk that they claim always kept increasing. He elaborated that the prices of the fodder that makes up the majority of the dairy cattle diet also fluctuates and decreases, but milk price, unlike the price of eggs and chicken meat, never decreases.

The CCP inquiry report also seconds Maskin’s claims.

The reports says that fresh milk in Karachi is supplied by five cattle colonies located on the outskirts of the city and 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.

The report stated that there are three dairy farmers associations in Karachi namely Dairy & Cattle Farmers Association Karachi (DCFAK), Dairy Farmers Association Karachi (DFAK) and Karachi Dairy Farmers Association (KDFA).

It mentioned that 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. If a retailer refused to abide by the association’s set rates, his supply of milk would be stopped. The report found the rate announcements or even recommendations by associations to fix the price of milk are decisions by an association and prima facie violation of Section 4(1) read with Section 4(2)(a) of the Competition Act, 2010.

The enquiry committee had recommended the commission to consider initiating proceedings under Section 30 of the Act against DCFAK, DFAK and KDFA. However, nothing has been done since then and the citizens of Karachi have been left to bear the brunt of wrong decisions of bureaucracy who in cahoots with the associations every now and then increase price of milk but fail to ensure its availability at the official fixed price.