CCI Admonishes And Restrains NECC From Fixing Egg Prices In India

CCI vide its order dated 14.01.2022 found National Egg Co-ordination Committee (NECC)  guilty of violating the provisions of Section 3(3)(a) read with Section 3(1) of the Competition Act, 2002 ("Act") by its conduct of enforcing/seeking to enforce its declared prices of eggs.

Background

Two different cases were filed against National Egg Co-ordination Committee:

1. R. Chandran Vs. National Egg Co-ordination Committee (NECC) Case No. 09 of 2017
2. People for Animals (PFA) Vs. National Egg Co-ordination Committee (NECC) & Agro Corpex India Limited ("ACIL") Case No. 36 of 2017

Based on the substantial similarity of the issues and allegations in Case No. 09/2017 and Case No. 36/2017. CCI vide its order dated 25.01.2018 clubbed both the matters.

Allegations

Both the above Cases contain allegations of anti-competitive practices in the egg industry stating, inter alia, the following

1. NECC and ACIL indulge in conduct that ensures that fluctuation in the demand for eggs, does not affect egg prices negatively.
2. NECC, in furtherance of its objectives, fixes and declares daily egg prices at various production and consumption centers and publishes price information on its website under two heads, namely 'NECC Prices' in production centers where price of egg is fixed and declared, and 'Prevailing Prices' in places where no regional committee of NECC is present. The price declared by NECC is the de facto price in the market, as NECC represents the interests of a majority of the egg producers in the market.
3. NECC has no statutory right vested in it and is a private association of egg producers, yet it engages in setting and disseminating egg prices, in contravention of Section 3(3)(a) of the Act.
4. NECC uses ACIL to siphon surplus stocks of eggs by providing cold storage facilities for preservation and their movement to areas of high demand, to maintain higher prices.
5. NECC branch at Namakkal District, Tamil Nadu fixes prices for 800 egg producers by convening meetings thrice a week i.e. on Monday, Thursday and Saturday. It is alleged that the price fixed is common for all kinds of eggs, resulting in lesser prices for eggs produced under higher standards. In the absence of price fixation by NECC, small eggs would be sold for 50 paise less. Thus, price fixing by NECC is unjustified.
6. Egg prices are artificially increased around the time when the Government of Tamil Nadu issues tenders for centralized, large-scale procurement of eggs for mid-day meal scheme for school children.

Prima Facie Order

CCI vide its order dated 25 January 2018, formed a prime facie opinion that the act of NECC to indulge in deliberate limitations on the supply of egg to customers, to manipulate and fixing prices through understanding and by exchange of WhatsApp messages, teleconferences constituted anti-competitive conduct and accordingly directed the DG to cause an investigation into the matter.

DG Investigation

DG in its investigation report dated 04 December 2020 noted that, NECC has been publishing egg prices on its website on a daily basis through coordination among different zonal chairman, since January 2009. The most important factor while fixing the egg rate of a particular zone is the prevailing egg rates of other zones. It was also found that there is strong coordination amongst the Zonal Chairmen of the different zones for the determination and declaration of egg prices. Further, in certain zones, NECC egg prices are neither determined nor declared. The Zonal Chairmen of these zones simply follow the prices of neighboring zones. These zones are Ambala (Haryana), Sangroor (Punjab) and Lucknow (Uttar Pradesh). DG Investigation stated the following findings:

1. NECC developed a mechanism of WhatsApp groups, teleconference through which information about egg rates of a particular zone are disseminated to all other zones. The Central Executive Committee of NECC controls the process of determination and declaration of price of eggs by active intervention. Also, the NECC rates are arbitrarily decided by the Zonal Chairmen of each zone along with other committee members without any basis or calculation of costs or other factors to decide egg prices.
2. NECC declare egg prices in various zones and directs its members to follow it. The farmers in each zone are informed not to sell below the NECC declared price and are liable to a penalty in case of non-compliance. There exists no evidence to state that NECC declared egg price is not mandatory or binding upon the farmers or traders. NECC declared price is taken as the benchmark price and even in case of open tender, the reasonability of the quoted price is assessed by comparing it with the NECC price.
3. The standard age to cull a layer bird is 72 weeks and the same is lowered to 65 weeks to control supply of eggs in the market as it helps to stabilize the egg price by controlling the production of eggs. The decision of bird culling is made to restrict supply of eggs, which is also discussed in the Annual General Meetings of NECC in the presence of the zonal heads and Central Executive Members, including the Chairperson. The Chairperson of NECC, advised the farmers to cull birds above the age of 65 weeks as this would have an immediate, positive impact on the demand-supply situation, and consequently, the price, and directed them to take other measures required to not let the prices of eggs decrease in the market.
4. NECC provides cold storage subsidies to farmers, as a countermeasure, the farmers are asked to store their eggs in cold storage so that they do not sell the egg below NECC price. This is done when there is lower demand or surplus supply in the market and to maintain the NECC declared price of eggs. BEPA and All India Poultry Development Services Pvt. Ltd. (AIPDS) are related entities of NECC, having cold storage facilities which are provided on rent to poultry farmers at a subsidized rate.
5. ACIL is formed and managed by the members/functionaries of NECC. The intention behind the incorporation of ACIL was nothing but to limit the supply of eggs in the market and maintain and implement the NECC declared price. The eggs are stored in the cold storage for such time when the demand is low and sold when demand increases.
6. DG found WhatsApp messages, teleconferences as evidence relating to determining the pricing strategy between the Zonal Chairman which defy any business rationale. The depositions recorded how everyday each head at different point of time determined the egg rates and thereby formed an anti-competitive action.

Based on the above, the DG had concluded that NECC, by determining, declaring the egg prices and limiting the supply of it is in contravention of 3(3)(a) and 3(3)(b) of the Act.

CCI Findings

Price Fixation of Eggs: CCI agreeing with DG, relied upon certain WhatsApp evidence and emails, while finding NECC to be contravening the provisions of the Act. Egg price was decided keeping in consideration the prices of all other NECC Zones and co-ordination at national level takes place through teleconferences. Further, the purpose of these teleconferences was stated to sustain egg prices at a certain specified level in a coordinated manner. The same also showed that the Chairmen of various zones were responsible for the determination and declaration of egg prices at their respective zones. Thus, the contention of NECC that egg prices are declared as per prevailing market conditions falls flat, as established from the evidence and CCI found no merit in  the submission that egg prices are dependent on prevailing market conditions. The Commission also found the active role of NECC's Central Executive Committee, which controls the process of determination and declaration of prices of eggs by active intervention through its three-tier structure and reporting by the Zonal Chairmen at annual meetings.

Price Declaration of Eggs: The Commission noted that, whilst investigation had commenced, NECC changed the mandatory price of eggs to 'suggestive price', which showed that NECC had the intention to enforce price of eggs. Though there was no direct evidence of imposition and collection of penalties, but the three-tier structure of NECC coupled with the knowledge among members that prices had  to be followed strictly to avoid unpleasant action in itself created an ecosystem where the requirement of strict adherence permeates to each nook and corner. This, coupled with the fact that substantial majority of trades are committed trades and members also knew about the existence of checkpoints, ensures a systematic adherence to the diktats of NECC. The Commission, having considered the above, agreed with the DG's finding that NECC is declaring egg prices and the same were also being put to implementation by various means and coordination.

Not Limiting Supply of Eggs: The Commission observed that for a poultry farmer, the expenditure on laying chicks, i.e., feed costs, medication of the livestock, insurance cost, losses of livestock due to diseases, etc. are incurred costs, which remain constant despite the prices at which poultry products, including eggs, are sold. The poultry farmers, due to the downward spiraling demand and considering the perishable nature of eggs, were forced to sell the eggs at significantly lower prices and, at times, below the cost of production of eggs which causes the poultry farmers, especially smaller poultry farmers, to suffer huge losses and therefore, during such periods, NECC, in the interest of farmers, issues advisories to maintain surplus eggs in the cold storages. The Commission was ,therefore , of the view that neither can cold storage of a perishable commodity such as eggs be construed as anti-competitive, nor the subsidy for cold storage be viewed as anti-competitive in the facts and circumstances of this case.

Role of VH Group:  The position of the NECC Chairperson and Vice Chairperson posts being held by Mrs. Anuradha Desai and Mr. M. B. Desai, who hold prominent positions in VH Group. The DG also found that some employees of VH Group closely monitor the activities of NECC and the information collected through aegis of NECC is used to further the economic interests of the VH Group. VHPL collects Rs. 1/- from all farmers who buy BV 300-layer chicks from it and transfers the same to NECC, regardless of the fact whether those farmers are NECC members or not. The Commission was of the view that NECC should take up the matter appropriately with VHPL to ensure that any payment by farmers remains voluntary and the farmers/ buyers are adequately apprised about it.

Consequently, CCI concluded that NECC, trying to enforce such prices mandatorily by levying penalties/threatening to levy penalties on farmers, is not in consonance with the provision of Section 3(3)(a) and 3(1) of the Act. This undoubtedly indicated that NECC was wanting to control the price of eggs without giving freedom to farmers to decide their own prices. While farmers may have the benefit of price information but to force them to sell at a NECC's declared price is clearly anticompetitive and result of a concerted approach and therefore, CCI directed the NECC, as under:

1. While declaring and disseminating egg prices, it shall give sufficient and prominent disclaimers (including on its website) at all times that the prices so declared are only suggestive, and for the information of trade and industry.
2. NECC shall cease and desist from issuing any directives/threats (verbal or in writing) that nonadherence to the declared egg prices shall have any penal/other (non-monetary) consequences upon any of its members or constituents of trade or poultry industry and ensure that no such adverse action is taken on any person. The same shall be prominently disseminated on its website at all times.
3. NECC to foster a culture of competition compliance within its organization including its Zonal Committees and Local Committees and to sensitize its members/stakeholders by bringing into place a Competition Advocacy/Compliance Programme to ensure compliance with the provisions of the Act.

COMMENT: This case illustrates the lack of awareness about competition law in the egg delivery sector. It is quite interesting to note that even after 12 years of enforcement, private institutions such as NECC assumed a self-regulatory role and kept on declaring and fixing egg prices without any fear of the law. CCI took a soft stand in this case and did not impose any penalty apparently for lack of any mala fide intentions and perhaps conceded ignorance of law as valid defense which hope fully may not become a precedent in future.   

Note: This article first appeared on the  Antitrust & Competition Law Blog on 23 February 2022

Specific Questions relating to this article should be addressed directly to the author.

Article by MM Sharma, Head Competition Law & Policy Practice, Vaish Associates, Advocates, New Delhi, India

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