In a press statement released earlier this week, the Competition Commission of Pakistan (CCP) notes that broiler chicken prices “experienced a rise of 110 percent” between March 2020 and May 2021”. The selection of 14 months old base price makes for a curious choice. Had CCP used May 2020 as its base period – the more common-sense practice of drawing a year-on-year comparison - the price increase would reduce to less than half, just 43 percent. Pakistan’s competition watchdog can do better than fiddle with the base so whimsically.
Why March 2020? Because that’s when prices of poultry products bottomed out due to the great Covid crash: the first ever nationwide lockdown was imposed during the last 10 days of the month bringing domestic perishables prices tumbling down. Comparisons with bottom and peaks are important, because they lay bare what overnight demand and supply shocks can do to commodity prices. But they do not and should not be used as proxy for firm or sector wide profitability, especially of commodities with a brief shelf life.
It should come as no surprise that in a year of extreme demand and supply volatility, some poultry growers and processors may have made abnormal profits. But it is equally likely that a similar number may have made significant losses. In its just released quarterly State of the Economy report, the SBP notes that credit offtake to poultry sector was lower as the sector “suffered losses during the lockdowns…” “attributed to the lower demand for poultry products, given the reduced frequency and scale of weddings in marriage halls and large public gatherings in the wake of Covid-19”. SBP’s claim is not without basis; between March and August 2020, unit prices of Day-Old Chicks fell twice below the ten rupees threshold. Levels at which it makes more sense for poultry farmers to cull their crop than to take it through the entire lifecycle. This was around the same time when retail broiler chicken live prices fell below Rs 115 per kg, and commercial demand for poultry crashed due to ban on social gatherings.
But does it mean there were no winners? Au contraire. If poultry prices crashed and peaked all throughout 2020, so did prices of their inputs. Back in June 2020 when it seemed that the pandemic had no end in sight, ex-farm prices of spring maize crop crashed as well. It is intuitive that farmers with low inventory holding power would have seen their fortunes take a turn for the worse, to the benefit of feed mills. Why? Simply because unlike both the maize farmers or poultry growers and processors, feed mills produce a commodity that does not easily perish. Poultry meals can be stored and sold later, allowing feed millers to better time the market, and record windfall profits when prices peak. Abnormal? Yes. Illegal? Not necessarily.
Which brings us to the question of collusion over prices. The CCP has alleged that the impounded electronic/digital data shows that the firms in the sector colluded over prices, “announcing muttahida plan on action on social media platforms”. Earlier, CCP had also alleged that price information is exchanged over Whatsapp groups. Well, surprise surprise! Some may even feel a sense of déjà vu. Last year, a similar accusation was made against sugar mills, who were alleged to exchange price-related information over Whatsapp groups.
Does the regulator see a pattern yet? Even the rehri walas outside mosques on Fridays communicate over prices of mangoes. In a country where infrastructure for commodity exchanges does not exist, and firms do not have access to formal means of monitoring price trends, it is little surprise that they use digital means to communicate over prices. For obvious reasons, the need to do so becomes exacerbated at times of extreme price volatility as witnessed in poultry products over last year, to avoid extreme price movements. Moreover, the regulator should be wary of penalizing what it cannot monitor or stop: can communication over Whatsapp between individual managers of firms ever come to an end, even if outlawed? Does the same not happen on daily basis between salespersons of brokerage houses at the stock exchange?
Establishing functional commodity exchanges or more transparent markets/mandis may be beyond the scope of Competition Commission. But if we must use price bottoms as proxy, poultry feed input prices – maize and soybean – have doubled since April 2020 globally. Of course, that is an invalid analogy, but it helps emphasize a crucial point: at a time when the poultry industry is witnessing extreme volatility and possibly also battling deadly diseases – both ranikhet and the more recent respiratory disease in birds – is it wise to go out on a witch hunt and further risk distorting the market? If there is any doubt how this will end, just look at the predicament of the infamous inquiry into sugar prices of last year, spearheaded by the PM himself!