Baby food market: Nestlé Pakistan under CCP scrutiny

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

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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