After a detailed inquiry into a major case of abuse of dominance by a business firm, the Competition Commission of Pakistan (CCP) has issued show cause notice to a world's leading food company, for unreasonably raising the prices of most common baby food products in Pakistan.
Abuse of dominance is a violation under Section 3 of the Competition Act, 2010, and the CCP's charge, if proven against the company, could cost the company heavily as under the Competition Law of Pakistan, a company abusing its dominant position can be fined up to Rs 75 million or 10 percent of the company's annual turnover.
According to the CCP sources, the matter is of particular significance due to the vulnerability of the consumers (infant & their parents) involved. The company is the dominant player and Lactogen is the only domestically produced infant formula milk, which is the most relevant to consumers belonging to the low income groups. The price increase has had a significant impact on the pockets of parents. The average monthly household income in Pakistan is Rs 11,550 and the price of a Lactogen (400gm pack) has increased from Rs 315 to Rs 435 (over two years at regular intervals).
The average infant consumes at least two such packs per week and so the effect of the increase is magnified. There is also evidence that some mothers may be inclined towards reducing the prescribed serving per feed for the infants , with the mindset to curb expenditure. Since it is the sole source of nutrition for a vulnerable population ie infant, any reduction in adequate feed would lead to undernourishment.
Sources further said that the CCP's investigation has already been completed which was marked by the submission of the report by the enquiry officers to the Commission. In the present case, the enquiry report concludes there is sufficient prima facie evidence that indicates abuse of dominance by the company in the two identified markets relating to infant and toddler nutrition. Through the show cause notice, the company has been asked to respond in writing within fourteen days and to avail an opportunity of being heard on 18 June 2015.
The show cause notice follows an enquiry by the CCP into allegations regarding an unreasonable increase in the prices of these two products by company over a period of two years. The enquiry report identified two relevant markets; one for domestically produced infant formula & follow-on milk; and the other for domestically-produced packaged cereal-based baby products. The company is a dominant undertaking in both markets on basis of its said two products, respectively.
The enquiry report found that the company increased the prices of Lactogen and Cerelac by 38% and 32%, respectively over two years, which did not correspond to the increase in costs nor was based on any justifiable business reasons. The report concluded that by unreasonably raising the prices of its products, company has, prima facie, abused its dominant position in the market thus violating the Competition Law. The CCP is mandated by the Competition Act to, inter alia, protect consumers from anti-competitive behaviour.
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