Islamabad July 12 2023: Urea manufacturers should not engage in activities that have an adverse effect on competition as the prices of urea fertilizer are deregulated says Competition Commission of Pakistan.
An inquiry committee of the Competition Commission of Pakistan (CCP) on Tuesday concluded its inquiry and recommended the initiation of proceeding under Section 30 of the Competition Act, 2010 against urea manufacturer and the Fertilizers Manufacturers of Pakistan Advisory Council (FMPAC).
This inquiry recommendation was based on a prima facie violation of Section 4 ‘Prohibited Agreements’ of the Competition Act, 2010, by manufacturer and FMPAC by announcing the ‘Maximum Retail Price’ of urea at PKR 1,768 per 50 KG Bag, said a press release issued here.
The inquiry was initiated following an advertisement published by FMPAC and its member on 26th November 2021, announcing a ‘Maximum Retail Price of Urea’ during a period of rising urea prices and reported shortages.
According to the Fertilizer Policy of 2001, urea prices were deregulated, and respective provincial agriculture departments notified urea prices from time to time as it is considered an essential item. These prices, as already fixed by the Companies, are notified by the agriculture department to use as a reference to check on any profiteering.
It was noted that the companies issue their price lists, which are then notified by the respective Deputy Director of Agriculture (Extension) under the authority of the Punjab Essential Articles (Control) Act, 1973. To obtain copies of these price notifications and the underlying company price lists for the year 2021 and 2022, the inquiry committee contacted the Agriculture Department of Punjab.
The department provided notifications from 22 districts, as detailed in Table 14 (copies of the notifications have been provided). As per the finding of the inquiry report, the pricing pattern of different Fertilizer manufacturer in the urea Industry exhibit price parallelism (uniform pricing) pointing towards possible collusion in the industry.
Specifically, the prices of Engro, FFC, Fatima, and Agritech show a parallel movement, with minor differences between them. For instance, in Rawalpindi, between February 2021 and June 2022, the prices increased by PKR 232 for Engro, PKR 233 for FFC and Fatima, and PKR 230 for Agritech.
Interestingly, all companies reduced their prices to PKR 1,850 in May 2022, only to increase them again to PKR 1,950 in June 2022. In Layyah district, from January 2021 to November 2021, Engro, FFC, and Fatima (excluding Agritech) experienced an increase in prices by PKR 482 per bag or 27.26% between February 2022 and November 2022. These findings highlight the trend of price similarity and the common pricing practices within the urea industry.
The inquiry concluded that the advertisement by FMPAC and its member constituted a prima facie decision by an association, specifying the selling rate for urea fertilizer. Furthermore, it was observed that the announced price was implemented by urea companies, raising concerns about whether this pricing consistency was coincidental or a result of collusive/coordinated activities.
The urea sector in Pakistan comprises six companies. FFC dominates the market with a 39% share, followed by Engro at 36%. Fatima Fertilizer holds a market share of 13%, while Agritech accounts for 4%.
It is worth noting that urea producer received subsidized feedstock gas from the government. Considering the variations in cost structures and subsidies received by manufacturer, the similarity or uniformity in prices raises questions.
Pakistan’s agriculture sector, contributing 22.7% to the GDP, relies heavily on fertilizer with an average usage of 207 kg per hectare. Recent price hikes by FMPAC and its member resulted in gains of PKR 1.8 billion during the Rabi season.
Major fertilizer companies like FFC, Engro, and Fatima Fertilizer saw significant profits in 2021, except for Agritech. FFC’s profit before tax in 2021 was PKR 30.3 billion, Engro’s PKR 29.8 billion, and Fatima Fertilizer Company Limited PKR 28.2 billion.
However, these gains increased costs for farmer and consumer. The sector’s subsidized gas, costing PKR156 billion, raises concerns about fairness.
The advertisement by FMPAC (Fertilizer Manufacturer and Supplier Association) and its member, in which they collectively announce the price of urea in the relevant market, appear to constitute a decision according to the Act.
This decision is a prima facie violation of Section 4(1) read with Section 4(2)(a) of the Act as the announcement of prices is considered a purely commercial decision that falls outside the permissible activities of an association.
Associations should not engage in activities that have an adverse effect on competition. As the prices of urea fertilizer are deregulated, both the association and the urea manufacturer have committed a prima facie violation of Section 4(2)(a) of the Act.
They are collectively fixing the price of urea instead of independently intimating their respective prices to the government, which goes against fair competition principles.