CCP Exposes Collusive Practices and Cartelization in Fertilizer Sector

The Competition Commission of Pakistan (CCP) has unearthed Collusive Behaviour by the Fertilizer Manufacturers and cartelization in the fertilizer sector. The CCP has released a draft report titled “Competition Assessment of the Fertilizer Industry in Pakistan”, exposing that the probability of cartel formation is higher for homogeneous products, like various types of fertilizers. This possibility increases even more when the number of players is low and the market is concentrated. Therefore, as per Section 4 of the Competition Act, 2010, the CCP needs to monitor closely the possibility of a cartel to fix prices and production. This is even more crucial when the industry depicts a pattern of price parallelism for urea and high profit margins, CCP added. In the downstream fertilizer market, to guarantee the sale of fertilizer stock, the fertilizer manufacturers obligate the fertilizer dealers to buy DAP with urea or vice versa. Similarly, to buy slow-moving micronutrients with Urea/DAP. To stay in the business, the dealer is obligated under the dealership agreement. This is an abuse of dominant position by the fertilizer manufacturers, and therefore a violation of Section 3 (2)(e) of the Competition Act. Therefore, this Report suggests the CCP to monitor the conduct of the fertilizer manufacturers under Section 3(2)(e) of the Act. The fertilizer industry is prone to cartelization, having an oligopolistic market structure and homogeneous inputs required for production.136 Therefore, a brand-wise competition review reveals ‘price parallelism’ in the industry, even when applicable gas prices are different, thus raising competition concerns. The behavior of the fertilizer manufacturers may attract certain provisions of the Competition Act, 2010, Sections 3 and 4 in particular. It is therefore recommended that the CCP strengthen its regulatory oversight of the industry. Furthermore, the SECP under its current regime may seek a cost audit of the fertilizer industry to gauge any irregularities. This eventually will help CCP determine patterns indicative of anticompetitive behaviour. The CCP, vide its Policy Note “Reinstatement of Requirement for Cost Audit under Companies Act, 2017” dated 8th May, 2020, has recommended the SECP to reinstate the requirement of cost audit for Fertilizer industry, among others to facilitate policy interventions in a fair, transparent, and independent manner, CCP report added.