Govt issues show cause notices to fertilizer manufacturers for alleged price fixing

April 03, 2024 (MLN): The Competition Commission of Pakistan (CCP) has issued Show Cause Notices to the Fertilizer Manufacturers of Pakistan Advisory Council (FMPAC) and six leading fertilizer companies for allegedly fixing urea prices, a prima facie violation of Section 4 of the Competition Act, 2010.

Urea prices play a crucial role in determining the prices of essential food commodities.

Any arbitrary increase in urea prices by fertilizer companies can lead to higher costs for farmers, ultimately resulting in more expensive food prices for consumers.

CCP’s inquiry found FMPAC and its six-member firms, including Engro Fertilizers Limited (EFERT), Fauji Fertilizer Company Limited (FFC), Fatima Fertilizer Company Limited (FATIMA), Fauji Fertilizer Bin Qasim Limited (FFBL), Agritech Limited (AGL), and Fatimafert Limited, of prima facie violating the Competition Law.

The inquiry was prompted by an FMPAC’s advertisement in November 2021, where they announced a 'Maximum Retail Price of Urea at Rs 1768 per 50kg bag', during a time of rising prices and reported shortages.

The inquiry proceedings revealed that urea prices were deregulated under the Fertilizer Policy of 2001.

The advertisement contents were seen as a decision by an association on the sale rate of urea, a violation of Section 4(2)(a) of the Act.

The inquiry also noted a pattern of uniform pricing and price parallelism among urea companies, suggesting potential collusive activity.

Despite receiving subsidized feedstock gas from the government, which varies in rate for each plant, these companies' prices showed uniformity in some instances.

This raises questions about their cost structures and subsidies received.

From a competition law perspective, the announcement of prices by an association, even if relaying government-set prices, is considered a commercial decision beyond permissible activities.

CCP has repeatedly directed business associations to refrain from engaging in price fixing or other collusive practices.

The persistent double-digit food inflation in Pakistan over the past few years underscores the ripple effect of urea price hikes on the broader economy.

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