When even bread-makers are cartelising

Written by Pradeep S Mehta | Updated: Aug 15 2012, 05:46am hrs
An unjust economy further impoverishes poor consumers and damages small businesses

People of the same trade seldom gather together, whether for merriment or diversion, but the conversation ends in a conspiracy against the public or some contrivance to raise prices. Adam Smith in Wealth of Nations (1879)

Bread manufacturers in South Africa in the recent past gathered together to fix prices and allocate territories to the disadvantage of the public. They were caught by the competition authority and penalised. Bread is the staple food of the rich and the poor, like salt, which is consumed by all and sundry. This was perhaps not the first time that bakers have come together to discuss not the weather but how to con consumers. One of the first-ever cases taken up by the Peruvian competition authority when it began its operations in 1990s was to break up a bread cartel and thus earn applause from the poor.

Last month, a large number of competition authorities gathered in a conference at Geneva under the auspices of UNCTAD. They spoke about how to protect consumers from colluding businesses, and to find ways to deal with a large number of anti-competitive practices. The parlay resulted in a coordinated action by the competition authorities to target cartel activities that impact the poor. This would include running an international campaign in December 2012, so as to educate consumers about the pernicious effects of cartels.

Cartels are considered the most egregious of anti-competitive practices. As always, it is the poor who suffer the most. In many countries, cartelisation is treated as a criminal activity under the law. While companies have paid heavy fines, senior executives have even undergone jail sentences. Besides, cartels dont only relate to price-fixing but also to divisions of business and territory, restrictions on output, coordinated actions, etc. Further, consumers do not have access to and cannot freely select the quality and variety of goods and services they desire at reasonable prices, and especially if they do not have a choice. The only option is to not buy, but when it comes to essential items like food or fuel, boycott is not an option.

The fixing of a price of a product harms the whole society. The bread cases are examples of how an unjust economy can further impoverish poor consumers, and destroy opportunities for small businesses, especially those that serve the poor. It is important to remember that price-fixing and cartel activity take place in an environment of rising energy prices, food shortage, high interest rates and chronic poverty. The significant increase in the price of basic food stuffs, such as bread and milk, particularly affects those at the lower end of the socio-economic strata.

In Peru, other than tackling bakers, the competition authority, INDECOPI, initiated a suo moto investigation in the poultry market. This was based on preliminary findings that local poultry producers had engaged in price-fixing. During the inquiry, it was revealed that the defendants entered into a series of anti-competitive agreements to curb over-production of live chicken. Among others, it was shown that the parties had agreed on the reduction of stocks, the standardisation of chicken weight and size, and the joint disposal of overstock. INDECOPI decided against the defendants and, taking into consideration the harm caused to the consumers and competitors, the nature and duration of the practices that were undertaken, etc, imposed fines of up to $1 million and ordered criminal prosecution of the cartel members.

Cartels are a crime was the slogan of Brazils Anti Cartels Enforcement Day on October 8, 2008, when huge amount of outreach was done by the ministry of justice to raise awareness about cartels throughout the country. President Lula launched the campaign, and it has been going on since then. In 2009, the campaign was geared up by issuing numerous press releases, organising public events, publishing and distributing posters, handbills, booklets on price fixing, bid-rigging, etc. The ministry sent out over 1,000 letters to CEOs of business houses to promote consciousness about the issues. Comic books were also produced to help ordinary persons to understand the issues in a simple manner.

These issues were discussed during the UNCTADs 12th Intergovernmental Experts Group meeting organised in July 2012 to review the progress of the UN Set on Competition Policy. On December 5, 1980, the UN had adopted the international standard for competition laws under what is called the United Nations Set of Multilateral Principles and Rules for the Control of Restrictive Business Practices, better known in the international community as the UN Set on Competition Policy. This Set has guided a large number of developing countries to draft and adopt new competition laws. From about 30 countries in 1995, today over 120 countries have adopted a new law or improved their existing competition law, and a few more are in the queue.

During the review conference, a proposal was mooted to observe 5th December as the World Competition Day by the International Network of Civil Society on Competition (INCSOC), an international coalition of 164 competition practitioners, civil society organisations, researchers and legislators spread across 66 countries. Large number of delegates at the conference supported the idea and have agreed to celebrate World Competition Day in their own countries on December 5, including Philippines, Pakistan, Russia, Kenya and Botswana. Incidentally, many countries are already celebrating National Competition Days, such as European Union member states, Zambia, Colombia, and of course Brazil. The assembly also agreed that the Day be used to raise awareness and rally common people around the issue of cartels, which have been causing serious harm to poor consumers and the economy.

The author is secretary general, CUTS International. Udai Mehta of CUTS contributed to this article