July 2021 - In 2018 the Turkish Competition Board (the "Board") issued a decision (11 October 2018, numbered 18-38/619-M) that launched an ex officio preliminary investigation to examine price increases in the fertiliser sector, to determine whether the undertakings operating in the sector were in violation of Article 4 of Law No. 4054 (the "Law"). Within the scope of this preliminary investigation, dawn raids were conducted at six undertakings and at one union of undertakings, and during these on-site investigations, various types of information and documents were requested from the relevant undertakings. As a result of the preliminary report, an official investigation was initiated against six undertakings-BAGFAS, GEMLIK, GÜBRETAS, IGSAS, TOROS and EGE-while GÜID was excluded from the investigation.
Fertiliser market structure in Turkey
As a result of the investigation, the main features of Turkey's fertiliser industry were determined as: (i) having an oligopolistic market structure, due to the homogeneous nature of the product and the limited number of large players operating in the market; (ii) having a high dependence on raw materials and imports; (iii) being dependent on international product prices and exchange rates; (iv) having a non-exclusive dealership system with corresponding transparency in the market, which is a result of imports from similar players in the market; and (v) being susceptible to fluctuations in consumption due to seasonality and the stock risk that arises due to these fluctuations.
Most of the basic and main inputs used in the chemical fertiliser production process in Turkey are imported, and thus the sector is significantly sensitive to international market conditions and currency fluctuations. Product demand changes seasonally, which causes insufficient product supply in periods of increased demand. Consequently, an increase in fertiliser prices is observed and the tendency to import also increases proportionately. The six producer/importer undertakings involved in the investigation represent approximately 80% of the market.
Following examinations of the sales channels in the market, the Board acknowledged that a large amount of sales are conducted through dealers and that there is no exclusive dealership practice in the market. As a result of the non-exclusive dealership system, the market is structured as a transparent market, on the grounds that imports are made mostly from the same sources and with the same methods. The fact that dealers have the opportunity to work with more than one supplier indicates that they are able to acquire information regarding the prices and payment terms of competing suppliers and can use this information for bargaining purposes. The absence of an exclusive dealership system enables players in the sector to gather information on commercial decisions across the market, especially regarding the price strategies of their competitors, which creates a transparent market structure.
International publications are also used as a source of information to gather price information on players operating in the market and to estimate their costs. The Board also observed that suppliers mainly use the same ports and warehouse facilities. Undertakings that use the same warehouse in different time periods are able to obtain price information on their competitors. Another factor that contributes to the transparency of the market are the sales that occasionally take place between providers. The commercial sales and purchase relationship between competitors also allows undertakings to calculate each other's estimated costs. Given that the customers of fertiliser products mostly consist of low-income farmers and that there is no dependency on a specific brand of fertiliser, the Board evaluated that the most significant parameters in determining the competition structure of the market are price, payment and transportation. From the information gathered during the on-site inspections, it was concluded that the competitors follow each other by adding/subtracting the average transportation cost of the difference between the cash prices and shipping conditions. In addition, publishing price lists (price circulars) appears to be a common practice in the sector. When the prices of undertakings are evaluated on an annual basis, it was observed that fluctuations in the exchange rate in 2018 created uncertainty with respect to prices. On the other hand, due to the intense and frequent flow of information in the sector, it was observed that prices can even fluctuate on an hourly basis.
Within the scope of its decision, the Board evaluated the findings obtained from the on-site investigations conducted at the premises of the relevant undertakings. Numerous e-mail messages containing statements about price increases were encountered. The on-site inspections carried out during the preliminary investigation and official investigation period did not uncover any evidence to support a coordinated determination of fertiliser prices among the undertakings.
Finding number "20" obtained during the dawn raids was examined in detail. The finding included the statement "... Igsas said last week to Gemlikciler (...)/ton fot on Tuesday (for tomorrow) and Gemlik increased the price last week. They said that if it does not increase tomorrow, the urea market may also loosen." The Board ruled that this statement regarding competitors sharing sensitive information does not meet the standard of proof for a competition law violation by itself, as it was made by a third party. Consequently, the Board examined whether the price changes in the urea market were compatible with the content of the document. As a result of this examination, the Board found that the actual prices of the undertakings showed differences and that they could exhibit different behaviour regarding the price increase/reduction of competitors on a daily basis. In light of the findings above, the Board decided that the price increases that occurred in the relevant time period is likely to have occurred for reasons other than the undertakings' behaviour. In conclusion, the Board decided that there is no concrete evidence to support a violation of competition law.
The investigation included an economic analysis conducted by the Department of Economic Analysis and Research, which stated that there was no finding that could indicate an explicit or implicit price agreement and that the change observed in the prices of the fertiliser types in question during the relevant time period could be explained by changes to other variables.
The mutual defence submitted by the undertakings subject to the investigation can be summarised as follows: (i) the structural characteristics of the fertiliser market are appropriate; (ii) none of the documents obtained constituted evidence of a competition law violation, and this was also accepted by the investigation committee; (iii) the economic analysis made reflects market realities; (iv) it would not be reasonable for players to share sensitive anti-competitive information in a market that is already transparent, as information can be acquired from the market, and even if there were to be an exchange of sensitive anti-competitive information, competitors cannot act in a way that is independent from foreign market conditions; and (v) market shares were volatile during the relevant time period, yet market shares are expected to follow a more stable course in an anti-competitive market.
With its decision dated 26 November 2020 and numbered 20-51/718-317, the Board unanimously decided that the undertakings in question did not violate Article 4 of the Law and decided not to impose any monetary fine.
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