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Baby food market: Nestl Pakistan

under CCP scrutiny
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Baby food market: Nestl

Pakistan under CCP scrutiny
By Farooq Baloch
Published: June 13, 2015

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Unjustified? 38% is the price increase for Lactogen over the past two years, while the prices of Cerelac were
raised by 32%.

KARACHI:
The Competition Commission of Pakistan (CCP), the
countrys anti-trust watchdog, is investigating Nestl
Pakistan a subsidiary of the worlds largest foods giant
for alleged abuse of its dominance (leadership position) in
the infant and baby foods market.

Based on an inquiry report, the apex consumer

watchdog stated that the local arm of the Swiss foods
giant raised prices of Lactogen and Cerelac, its infant
and baby food products, by 38% and 32%, respectively
over the past two years, which did not correspond to
the increase in costs nor was based on any justifiable
business reasons.

The report concluded that by unreasonably raising the

prices of its products, Nestl has, prima facie, abused
its dominant position in the market thus, violating
Section 3 of the Competition Act, 2010, which prohibits

dominant undertakings from abusing their positions in

the market.
The report identified two relevant markets; one for
domestically produced infant formula and follow-on
milk; and the other for domestically-produced
packaged cereal-based baby products. Nestle is a
dominant undertaking in both markets on the basis of
its Lactogen and Cerelac products.
This matter is of particular significance as the products
are for infants between the ages of zero and 24 months
and parents are significantly affected by price
fluctuations, the CCP said.
Nestle is committed to following and respecting all
applicable local laws in each of their markets, the
company said in a statement on Friday. The report on
the CCPs website is only an initial enquiry and pending
further deliberations, it said of the June 4 show cause
notice which is equal to a statement of objections.
The company did not divulge further details but,
according to the inquiry report, a copy of which is
available with The Express Tribune, it cited six reasons
to justify the price increase: general inflation, average
cost increase of imported skimmed milk powder (MSK),

devaluation of Pakistani rupee against the dollar,

increase in farm gate price of fresh milk, rising labor
cost and increase in fixed factory overhead costs and
depreciation.
The report acknowledged that the international price of
MSK fluctuated during the period under consideration.
However, it noted that on an overall basis the
international prices of MSK fell by 29% between 2012
and 2014.
The report further said overall, the Pakistani rupee
depreciated by 14.6% against dollar between 2012 and
2014 but dollar depreciated between January 2012 and
October 2013, and then also fell sharply below Rs100
from February to June 2014. This decrease in dollar
value, which is limited to the import of MSK, did not
reflect in the price of Lactogen, it said.
The report found that prices of fresh milk went up
significantly, but added that the impact on Nestle was
smaller than the overall increase because the company
is the biggest buyer of fresh milk and benefits from
economy of scales.

Year-on-year inflation trends show inflation declining

from September 2013 onwards and reaching record low
as a result of falling petroleum prices, it said.
The increase in prices does not appear to be justified
on the basis of reasons given by the company, it said.
The company has not revealed much detail on the
subject and seems to be defending its position before
the Commission.
The CCP has given Nestle an opportunity of being
heard on June 23, 2015, the company said, adding,
Nestle Pakistan is confident that we will be able to
satisfy and address CCPs concerns.
Published in The Express Tribune, June 13 th, 2015.
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