Karachi’s Dairy Cartel Involved in Milk Price Manipulation

The Competition Commission of Pakistan (CCP) has concluded an inquiry in the dairy sector which found the prima facie involvement of three leading dairy associations in cartelization and price-fixing of milk in the country’s largest metropolitan, Karachi.

The commission initiated the inquiry after taking notice of media reports and concerns raised in a letter received from a leading consumer association against the raise announced in milk price in Karachi and its proximities.

Media reports also highlighted the involvement of several other dairy associations in the price manipulation of milk.

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It was specifically mentioned that the Dairy Farmers Association (DFA) Karachi raised the price of milk from Rs 110 per liter to Rs 120 per liter with immediate effect, whereas, the official government rate was Rs 94 per liter.

It resulted in daily liability passed on to consumers to the tune of approximately Rs 130 million and an annual impact of approximately Rs 47 billion to the consumers of Karachi.

On the other hand, the market was distorted as there was no control on prices, and consumers were made to pay unfair prices irrespective of the quality of milk.

Milk is an essential commodity and a key ingredient in desi ghee, butter, cheese, a variety of confectionaries, and several cosmetics. Therefore, a change in its price influenced the prices of all related- products throughout the country.

An analysis of Karachi’s milk sector reveals that five cattle colonies located on the outskirts of the city supply fresh milk.

The supply chain consists of dairy farmers, wholesalers, and retailers, where milk is sold to retailers through an annual contract called ‘bandhi’.

In bandhi, the rate and quantity for purchase of milk are fixed by various dairy and retailer associations.

As per the inquiry committee, Karachi Commissioner notifies the prices at all tiers of the milk supply chain, and the last such notification was issued on March 14, 2018, fixing the prices per liter as Rs 85 for the dairy farmer, Rs 88.75 for wholesalers, and Rs 94 per liter for retailers.

However, the official data shows that the notified prices are not adhered to due to the role of various associations involved in the milk supply chain.

There are three dairy farmers’ associations in Karachi named Dairy & Cattle Farmers Association Karachi (DCFAK), Dairy Farmers Association Karachi (DFAK), and Karachi Dairy Farmers Association (KDFA).

In February 2021, an informant shared some video footage of representatives of DCFAK announcing the revised prices of milk in Karachi.

This was followed by the President of DCFAK appearing on various TV programs stating that milk in Karachi would not be available to consumers at the old rate of Rs 120 and that his association will not retract from it.

Similarly, the TV appearances of President DCFAK are presented in the inquiry report where he announced new rates of milk in July 2020.

The statements from various retailers’ representatives and a dairy farmer’s representative revealed that all three dairy associations in Karachi had formed a cartel and fix the rates of bandhi.

If a retailer refused to abide by the association’s set rates, his supply of milk would be stopped.

Under given circumstances, the committee concluded that in July 2020 and February 2021, decisions to fix the prices of fresh milk in Karachi were primarily taken by DCFAK.

It also appears that the other two dairy farmers’ associations-DFAK and KDFA followed suit as the milk prices in the relevant market jumped up immediately after the announcement of new rates by DCFAK.

Not only this but it was also noted that the rise could not have been possible without the collusion of all three dairy associations.

The data shows that prices of milk in Karachi rose immediately after the rates announcement by the DCFAK.

In July 2020, prices raised from an average of Rs 110 per liter to Rs 120 per liter, and in March 2021, the rates increased further and reached Rs 130 per liter.

Once the rate of bandhi was increased by the dairy farmers, it would have an impact on prices at all other levels of the supply chain including wholesalers and retailers.

A city-wise comparison between Karachi, Lahore, and Islamabad-Rawalpindi showed that only Karachi has a uniform milk price, whereas the prices vary in all other cities. Such uniformity in prices also points towards rate fixation by the various dairy associations.

Therefore, the decision to fix the rate of Bandhi in the relevant market is prima facie, a violation of Section 4 of the Competition Act 2010.

In light of the findings, the inquiry committee recommended the commission consider initiating proceedings under Section 30 of the Act against DCFAK, DFAK, and KDFA.