Competition Issues in the Agricultural Sector Cornelius Dube CUTS Centre for Competition, Investment and Economic Regulation (CUTS CCIER)

2 Introduction and Outline Agriculture sector chosen for detailed research under 7up4 Many competition concerns in broad agriculture sector –Stock feeds; dairy; beef; agrochemical; farm implements etc. Presentation –focus on crop produce only –examines the value chain »Input supply »Crop production »Marketing

3 Input Supply Stage Focus on seed and fertiliser purchase –Conduct of suppliers, i.e supply terms and pricing Significance: multiplier effects downstream, especially on production decisions, thus prices and supply Implication for policy: Check anticompetitive behaviour, especially abuse of dominance

4 Competition Concerns in Seed Sector Concerns about varieties produced under intensive research technology by MNCs: –exploitative monopolistic practices –Excessive pricing, unfair buying conditions e.g. difficult minimum buying quantities –Unfair use of power stemming from IPR –DuPont alleges Monsanto abuses its IPR in genetically modified corn and soy bean seeds (June 2009) Cartelisation (price fixing and market allocation) – Co-existence of Shortages and abundance Outcomes of government induced outcomes –Price controls and poorly designed subsidy programmes

5 Competition Concerns in Fertiliser Sector Policy induced and behavioural anticompetitive conduct Price controls and poorly designed subsidy regimes –Shortages in developing countries »Subsidies on Bangladeshi publicly run urea factories shut out private players (7up2) Monopolised and cartelised production processes –Record fine for Sasol in SA for abuse of dominance and collusion

6 Competition Concerns in Production/Farming Stage Few competition concerns, and only arising from market power –Crops dominated by huge firms / associations »tea for domestic use in Mauritius, Zimbabwean sugarcane –Companies initiating contract farming/ controlling vertically integrated processes »financial institutions in Bangladeshi soybean market »Discrimination against non-contract farmers

7 Competition Concerns in Marketing Stage Importance: determines profits –Reduces profit margins, thereby re-investment and hence future output Harms by reducing quantities available for consumption Implication: Prioritise Control

8 Marketing Stage: Three perspectives Middle men – Cartels, monopsonistic buying (Nigeria, India, Bangladesh) – Loss to commodity exporting countries estimated at over USD 100 bn (World Bank 1997) Processing Firms –Abuse of monposony (grain purchase in Laos), – Unfair trading practices (Zambian cotton, Malawian tobacco) –Cartelisation (Nepalese sugarcane, Indian basmati) Government controlled monopsonies – Artificially low prices paid to farmers adversely impacting economic viability and number of producers (Nigerian palm oil, Mauritian tobacco)

9 Role of Competition Authority/Govt. : Dealing with Issues Address behavioural competition issues: cartelisation and abuse of dominance »Action: Effective implementation of competition laws Removal of policy induced barriers (price control, subsidy, marketing related policies) »Action: Advocacy to harmonise govt policies to minimise anti-competitive effects Deal with anti-competitive effect of middlemen »Action: Alleviate market imperfections / asymmetric information to benefit farmers

10 THANK YOU For further details