CCP issues Show Cause Notices to Fertilizer Firms
Staff Report
The Competition Commission of Pakistan (CCP) has finally issued show cause notices to fertilizer firms over alleged monopolistic practices to fix prices of urea.
It issued notices to the Fertilizer Manufacturers of Pakistan Advisory Council (FMPAC) and six leading fertilizer companies over the alleged monopoly to fix urea prices.
According to CCP’s inquiry, FMPAC and its six-member firms were involved in monopolistic practices by setting prices of urea.
These companies who violated competition law included Engro Fertilizers Limited, Fauji Fertilizer Company Limited, Fatima Fertilizer Company Limited, Fauji Fertilizer Bin Qasim Limited, Agritech Limited, and Fatimafert Limited.
The urea industry had been charging higher prices from the farmers during the previous tenure of a caretaker government.
The caretaker government had tried to cut the prices down but fertilizer manufacturers had not cooperated.Government Clampdown Squeezes Engro Amid Fertilizer Industry Scrutiny
Following this, the caretaker government referred a case to the Competition Commission of Pakistan to probe fertilizer manufacturers for fixing urea prices.
Urea is a key input for crops that farmers use and their prices are a major contributor in determining the prices of essential food commodities.
Any arbitrary increase in urea prices by fertilizer companies has been leading to higher costs for farmers.
Ultimately, it results in more expensive food prices for consumers.
CCP initiated an inquiry following an FMPAC advertisement in November 2021.
The fertilizer manufacturers body FMPAC had announced a ‘Maximum Retail Price of Urea at Rs 1768 per 50kg bag’.
The price was announced during a time of rising prices and reported shortages.
The inquiry proceedings further revealed that urea prices were being deregulated under the Fertilizer Policy of 2001.
CCP had seen the advertisement contents as a decision by an association on the sale rate of urea that was a violation of Section 4(2)(a) of the Act.
The inquiry further revealed that a pattern of uniform pricing and price parallelism among urea companies had suggested potential collusive activity.
The fertilizer manufacturers have been receiving subsidized feedstock gas from the Government of Pakistan.
This subsidy varies in rate for each plant. However, these companies’ prices revealed uniformity in some instances.
The price uniformity had raised serious questions over the price-setting mechanism by manufacturers and the subsidies they were receiving.
CCP considers a commercial decision beyond permissible activities from a competition law perspective relating to the announcement of prices by an association, even if relaying government-set prices.
CCP has been repeatedly directing business associations to avoid engaging in price fixing or other collusive practices.
The urea prices have the ripple effect of the urea price hikes on the broader economy.
They have also contributed to persistent double-digit food inflation in Pakistan over the past few years.
