ISLAMABAD: An enquiry committee of the Competition Commission of Pakistan (CCP) has concluded its enquiry and recommended the initiation of proceeding under Section 30 of the Competition Act, 2010 against urea manufacturers and the Fertilizers Manufacturers of Pakistan Advisory Council (FMPAC). This enquiry recommendation is based on a prima facie violation of Section 4 ‘Prohibited Agreements’ of the Competition Act, 2010, by manufacturers and FMPAC by announcing the ‘Maximum Retail Price’ of urea at Rs 1768 per 50 KG Bag.
The enquiry was initiated following an advertisement published by FMPAC and its members 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 years 2021 and 2022, the enquiry 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 enquiry report, the pricing pattern of different Fertilizer manufacturers 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 Rs. 232 for Engro, Rs. 233 for FFC and Fatima, and Rs. 230 for Agritech. Interestingly, all companies reduced their prices to Rs. 1850 in May 2022, only to increase them again to Rs. 1950 in June 2022. In Layyah district, from January 2021 to November 2021, Engro, FFC, and Fatima (excluding Agritech) experienced an increase in prices by Rs. 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 enquiry concluded that the advertisement by FMPAC and its members 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 producers received subsidized feedstock gas from the government. Considering the variations in cost structures and subsidies received by manufacturers, the similarity or uniformity in prices raises questions.
Pakistan’s agriculture sector, contributing 22.7% to the GDP, relies heavily on fertilizers with an average usage of 207 kg per hectare. Recent price hikes by FMPAC and its members resulted in gains of Rs. 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 Rs.30.3 billion, Engro’s Rs.29.8 billion, and Fatima Fertilizer Company Limited Rs.28.2 billion. However, these gains increased costs for farmers and consumers. The sector’s subsidized gas, costing Rs. 156 billion, raises concerns about fairness.
The advertisement by FMPAC (Fertilizer Manufacturers and Suppliers Association) and its members, in which they collectively announce the price of urea in the relevant market, appears 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 manufacturers 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.