Cooperation between industry players can benefit their collective interests by establishing a more predictable environment.
However, it is vital for industry players in
On
(a)
(b)
(c)
(d)
(e)
(Collectively referred to as the Parties.)
The Commission found that the Parties had engaged in agreements and/or concerted practices that infringed the prohibition under Section 4 of the Act over three periods of infringement spanning from
We set out below the key takeaways from the Commission's decision.
Background
Poultry feed represents a significant portion of the cost structure in chicken farming. As a result, any increase in the price of poultry feed has the potential to impact poultry production, which would lead to higher cost of chicken and eggs.
Agreement and/or Concerted Practice
Section 4(1) of the Act provides that a horizontal or vertical agreement between enterprises is prohibited insofar as the agreement has the object or effect of significantly preventing, restricting, or distorting competition in any market for goods or services. By virtue of the definition of 'agreement' under Section 2 of the Act, the Section 4 prohibition applies to agreements that are both legally enforceable and non-enforceable, whether written or oral.
Under section 4(2) of the Act, without prejudice to the generality of subsection (1), a horizontal agreement between enterprises which has the object to fix, directly or indirectly, a purchase or selling price or any other trading conditions is deemed to have the object of significantly preventing, restricting, or distorting competition in any market for goods or services.
It is important to note that concerted practice may fall within the ambit of Section 4 of the Act. The concept of informal contact may cover concerted practice through parallel behaviour.
The Parties are members of the
Information Sharing and Parallel Conduct
Through the Commission's investigations, it found that formally there were no agreements or recorded minutes during the meetings of the MFA in relation to the poultry feed prices.
The Commission, however, relied on evidence of informal exchanges of information between the Parties through various means such as WhatsApp conversations, audio recordings, communications via email and text, personal notes during informal meetings prior to and after the MFA meetings by the Parties' representatives, CCTV footages, and call logs implying information sharing through communications between the Parties. When the totality of the evidence was examined in conjunction with the proximity to the dates of price announcements and invoices, the Commission observed that there were perfectly parallel increases in the quantum of poultry feed prices in
The Commission cited the case of Brazilian Newspaper Cartel1 where four of the largest newspapers in
The Parties cited the case of Wood Pulp2 to support their agreement that the Commission should have considered alternative explanations for the parallel behaviour, as well as the principles in Suiker Uni3 and Polpropylene4 to argue that the identical behaviour was mere 'parallel behaviour with no element of concertation' and that parties are free to independently determine the prices of its goods, taking into account the increasing costs of raw materials.
The Commission, however, distinguished Wood Pulp. In the present case, the Commission did not solely rely on parallel behaviour but also the evidence of communications between the Parties, which supplements the evidence of parallel conduct.
The Commission was unable to agree that the parallel behaviour occurred naturally in the market and was free from concertation as Parties failed to provide its independent calculations, resulting in a lack of evidence regarding independent price determination. The Commission also noted that the quantum of poultry feed price continued to rise exceeding the cost of raw materials.
Rebates and Discount
The Parties argued that although the base price of the poultry feeds was the same, it did not affect the competition as parties were free to offer rebates and discounts from the base price.
The Commission took the view that exchanging sensitive information allowed the Parties to coordinate their pricing strategies. This coordination between the Parties led to a situation where the apparent diversity in discounts did not prevent them from collectively setting a fixed quantum of price increase for poultry feed.
The recent decision of
When considering the use of discounts by the Parties, the Commission found that it is also evident that the discounts were not uniformly extended across all customer segments. Rather, they were selectively offered to well-established clients, with special discounts and enhanced rebates primarily tailored to bulk purchases.
The Commission does not need to prove anti-competitive effect once the deeming provision is invoked
The Parties argued regarding the need to prove anti-competitive effect. However, the
The ability to deem the anti-competitive effect demonstrates the existence of a sufficient degree of harm, dispensing with the need for any effect analysis.
The Commission also established that it is a common understanding among other feed millers and downstream customers that the Parties are among the biggest producers in the relevant market.6
The identical and parallel quantum of price increases contradicted the Parties' allegation of independent behaviour in the market. Increases in the quantum of prices exceeding the costs of production inflate the final prices of poultry feed, and as a result, inflate the costs of chickens and eggs. This demonstrated evident harm to the end consumers. As such, the conduct of the Parties was deemed to have the object of significantly preventing, restricting, or distorting competition.
Financial Penalty
Section 40(1)(c) of the Act provides that the Commission may impose a financial penalty when it determines that any party has infringed Section 4 of the Act. Section 40(4) of the Act provides that the financial penalty shall not exceed 10% of the worldwide turnover of each of the Parties throughout the infringement period.
In this present case, the Commission did not find any mitigating factors. Ultimately, the Commission imposed the following financial penalty to the Parties:
Party | Financial Penalty (RM) |
FFM | 42,689,583.64 |
Gold Coin | 97,511,670.48 |
157,470,027.02 | |
PK Agro | 47,800,793.00 |
Dindings | 70,023,622.35 |
Conclusion
The Commission is equipped with powers to impose hefty penalties for any infringement of the Act. As such, it may be wise for industry players to ensure thorough compliance with the Act, whether in their cooperation with other industry players or as part of their sales and marketing strategy.
The full decision by the Commission can be accessed here.
We understand that four of the Parties have indicated their intention to appeal against the decision to the
Footnotes
1. Decision by the
2. Joined cases C-89/85, C-104/85, C-116/85, C-117/85 and C-125/85 to C-129/85 A. Ahlstrom Okakeyhktio and others v
3. Joined Cases 40-48, 50, 54-56, 111, 113-114/73 Suiker Unie and Others v Commission, at paragraphs 173-174.
4. Case No L 230/1 Polypropylene (1986) 86/398/EEC.
5.
6. Decision para. 394
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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