Business

Baby food market: Nestlé Pakistan under CCP scrutiny

Foods giant allegedly raised prices unjustifiably, says anti-trust watchdog.

Farooq Baloch June 13, 2015

Unjustified? 38% is the price increase for Lactogen over the past two years, while the prices of Cerelac were raised by 32%.

KARACHI:

The Competition Commission of Pakistan (CCP), the country’s anti-trust watchdog, is investigating Nestlé Pakistan – a subsidiary of the world’s largest foods giant – for alleged abuse of its dominance (leadership position) in the infant and baby foods market.

Based on an inquiry report, the apex consumer watchdog stated that the local arm of the Swiss foods giant raised prices of Lactogen and Cerelac, its infant and baby food products, by 38% and 32%, respectively over the past 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, Nestlé has, prima facie, abused its dominant position in the market thus, violating Section 3 of the Competition Act, 2010, which prohibits dominant undertakings from abusing their positions in the market.

The report identified two relevant markets; one for domestically produced infant formula and follow-on milk; and the other for domestically-produced packaged cereal-based baby products. Nestle is a dominant undertaking in both markets on the basis of its Lactogen and Cerelac products.

This matter is of particular significance as the products are for infants between the ages of zero and 24 months and parents are significantly affected by price fluctuations, the CCP said.

“Nestle is committed to following and respecting all applicable local laws in each of their markets,” the company said in a statement on Friday. “The report on the CCP’s website is only an initial enquiry and pending further deliberations,” it said of the June 4 show cause notice – which is equal to a statement of objections.

The company did not divulge further details but, according to the inquiry report, a copy of which is available with The Express Tribune, it cited six reasons to justify the price increase: general inflation, average cost increase of imported skimmed milk powder (MSK), devaluation of Pakistani rupee against the dollar, increase in farm gate price of fresh milk, rising labor cost and increase in fixed factory overhead costs and depreciation.

The report acknowledged that the international price of MSK fluctuated during the period under consideration. However, it noted that on an overall basis the international prices of MSK fell by 29% between 2012 and 2014.

The report further said overall, the Pakistani rupee depreciated by 14.6% against dollar between 2012 and 2014 but dollar depreciated between January 2012 and October 2013, and then also fell sharply below Rs100 from February to June 2014. This decrease in dollar value, which is limited to the import of MSK, did not reflect in the price of Lactogen, it said.

The report found that prices of fresh milk went up significantly, but added that the impact on Nestle was smaller than the overall increase because the company is the biggest buyer of fresh milk and benefits from economy of scales.

Year-on-year inflation trends show inflation declining from September 2013 onwards and reaching record low as a result of falling petroleum prices, it said.

The increase in prices does not appear to be justified on the basis of reasons given by the company, it said.

The company has not revealed much detail on the subject and seems to be defending its position before the Commission.

“The CCP has given Nestle an opportunity of being heard on June 23, 2015,” the company said, adding, “Nestle Pakistan is confident that we will be able to satisfy and address CCP’s concerns.”

Published in The Express Tribune, June 13^th, 2015.

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COMMENTS (7)

Atheist_Pakisani | 9 years ago | Reply Any check and balance of local companies? I think they are being targeted because they pay tax. Easy prey.

Jameel ur Rasheed | 9 years ago | Reply If there is no local or international competitors to Nestle and its products, what's their fault in that?? And when you say 60% of the Pakistan's population lives below the poverty line, they don't even know what Nestle is. It is safe enough to say that 70% of the Pakistan grows without eating of taking nestle products and rest of 30% is rich enough to afford whatever price is offered. Matter blown way out of proportions. If CCP has nothing better to do, they must go home and save government money!

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Ali | 9 years ago | Reply @Asfandyar: I've read the enquiry report. It just confirms what I stated earlier. It's written by mediocre and 'petty' bureaucrats. It doesn't state anywhere as to why the company is not entitled to charge a price it considers the market will accept. Who is to decide what is a 'reasonable' or an 'unreasonable' price increase. I believe as there are competitive products available in the market each company is free to decide what to price its products. Neither Lactogen nor Cerelac are life saving drugs where anyone will lose their lives if they were denied access. It's strange that on the one hand Nestle is criticized for selling and promoting Infant formula as it isn't an effective or real substitute for mother's milk and on the other hand it is being taken to task for increasing its price which would in fact encourage mothers to switch from Lactogen back to breast feeding. The report talks of 'innocent consumers' being exploited whereas Nestle has been successful because it has given consumers what they want. Superior quality products! I am sure if we were to go to the competition commissions offices or visited the homes of the authors we would find a number of Nestle products. Maybe the authors have never used Nestle Purelife water or used Everyday or Milkpak in their Tea? Nestle has sales in excess of Rs 100 Billion mainly because it respects the consumer not because it exploits their innocence. It is being targeted because it has been successful.

Asfandyar | 9 years ago | Reply @Ali: Please go through the CCP's inquiry report before you pass any judgment in favour of Nestle, CCP is there to protect the consumers and to promote a culture of fair business practices without discrimination. Best

A Peshawary | 9 years ago | Reply @Ali: A stereo type analogy by Mr. Ali. If CCP is not going to protect the consumer,s than who will look after the fair business ethics and other related issues. . Well done! keep the good work going on rather expand it to others as well. A Peshawary

Ali | 9 years ago | Reply It's quite unfair. Companies which follow the law are persecuted and the ones who flout the law, evade taxes,steal electricity and gas, sell unhygienic and unsafe products and infringe on well known brands operate with impunity. Nestle contributes billions in terms of direct and indirect taxes,sells high quality products and over the years has developed a trained work force and sets standards towards which others aspire. They should be given a medal and not hounded like this by mediocre bureaucrats.

Haroon Rashid | 9 years ago | Reply Endrose the report of Infant Formula Food being investigated by CCP Nestle has long not taken Pakistan seriously for milk products. The real market is the Pasturised milk with limited shelf life is the product Nestle should launch to prove visibility, and quality. The pasturised milk is being sold in huge quanity at very reasonable price. Other imported products of powdered milk for tube feeding patients by Nestle are also on high premium. Please review this as well.

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