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Cars & Cartels of Nation: Fresh Milk cartel robs consumers of Rs47 billion in Karachi through artificial price-hike

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

ISLAMABAD: Fresh milk sellers’ cartel in Karachi and adjoining areas has robbed consumers of about 47 billion rupees in a year by artificially raising price of milk. In Karachi, the government has fixed 94 rupees per liter price of fresh milk, but dairy sector sold it at the rate of 120 rupees per liter. At one time, fresh milk was also sold at Rs130 per liter in some areas in Karachi and raised a hue and cry over cartelization in fresh milk sector in Karachi.

Resultantly, the Competition Commission of Pakistan (CCP) conducted an enquiry in the dairy sector and found the involvement of three leading dairy associations in cartelisation and price-fixing of milk in the country’s largest metropolitan, Karachi.

According to CCP, Dairy Farmers Association (DFA) Karachi had raised the price of milk from Rs. 110 per litre to Rs. 120 per litre with immediate effect, whereas, the official government rate was Rs. 94 per litre.

In Karachi, three dairy farmers associations – Dairy & Cattle Farmers Association Karachi (DCFAK); Dairy Farmers Association Karachi (DFAK) and Karachi Dairy Farmers Association (KDFA) and marketing fresh milk and other dairy products.

Therefore, these decisions to fix the rate of bandhi in the relevant market is a prima facie, violation of Section 4 of the Competition Act 2010. Rate announcements by associations to fix the price of milk are decisions by an association in prima facie violation of Section 4(1) read with Section 4(2)(a) of the Competition Act, 2010. This rate acts as a benchmark and the product would be priced at or near this level.

In light of the findings, the enquiry committee recommended the Commission to consider initiating proceedings under Section 30 of the Act against DCFAK, DFAK and KDFA. 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 the price of milk affects the prices of all these and other products throughout the country.

Analysis of Karachi’s milk sector reveals that fresh milk in Karachi is supplied by five cattle colonies located on the outskirts of the city. The supply chain of milk consists of dairy farmers, wholesalers, and retailers, where milk is sold to retailers through an annual contract called ‘bandhi’ in which the rate and quantity for purchase of milk is fixed by various dairy and retailer associations. Karachi is also unique in the sense that there milk can also be purchased from the mandi located at Lee (Bolton) market.

As per the enquiry committee, the Commissioner Karachi Division notifies the prices at all tiers of the milk supply chain and the last such notification was issued on 14th March 2018 fixing the prices per litre as Rs. 85 per litre for the dairy farmer, Rs. 88.75 for wholesalers, and Rs. 94 per litre for retailers. However, the official data shows that the notified prices are not adhered to mainly due to the role of various associations involved in the milk supply chain.

A city-wise comparison among Karachi, Lahore and Islamabad-Rawalpindi shows 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.

The enquiry committee after taking into account: (i) statements of retailers’ representatives, dairy farmers and (ii) the above mentioned video footages reached the conclusion 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 prices of milk in the relevant market rose immediately after the announcement of new rates by DCFAK. It is observed that the rate rise could not have been possible without the collusion of all three dairy associations.

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