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Why perishable commodities provide low scope for anti-competitive conduct

Vikrant Singh Kushwah

During the period of December 2010- January 2011, there was a sudden surge in onion prices across the country. According to ‘Times of India’ news article published on 20.12.2010, onion prices raised to about Rs. 60-70 per kg in retail market in Delhi and Rs. 35-40 in many other cities across India. ‘Times of India’ reported that the reason behind such a price rise was hoarding, cartelization and speculations by the onion traders. The Competition Commission of India took suo motu cognizance of the case from the media reports and under section 26 (1) of Competition Act, referred matter to Director General for investigation.   

DG conducted investigation at three biggest onion markets- Lasalgaon and Pimpalgaon in Maharashtra and Azadpur mandi in Delhi. Primary and secondary data related to prices, production and arrival figures were collected from various sources like Agriculture Produce Market Committee (APMCs), National Horticulture Research Development Foundation (NHRDF), National Horticulture Board (NHB), NAFED, Department of Consumer Welfare (GoI), Delhi State Agriculture Marketing Board and agrimarket.nic.in. DG also relied on various surveys conducted by Income Tax department in order to find out evidences of hoarding of onions by traders. After examining the cropping pattern of onion across the country, it was ascertained that onions grown during Kharif season have a short shelf life and are perishable. The crop also gets damaged from water and high moisture content.

The supply value chain of onion involves five important factors, i.e. farmers, commission agents, wholesalers, traders and consumers. Farmers bring crop to the mandis where it is sold through the commission agents to the wholesalers. This ultimately reaches the end-consumers through various traders. It is found by DG that there is always a difference in Mandi rate and retail rate in the market depending on the place of final sale of onions. All these mandis are regulated by APMC. They issue licenses to the commission agents, traders and also issue entry gate passes to the farmers to control the entry of the vehicles. APMC officials conduct the auction and the whole process is transparent given that it is conducted under closed supervision of the officials, who record every data and upload it on the website of APMC. This, therefore leaves meagre chances of cartelization among the traders, an argument finding acceptance in CCI. If there was any opaqueness in the auctioning process, it could have been a valid ground to case a doubt on collusion happening between APMC staff and the traders.

Another fact which rejected the claim of hoarding as already discussed above is shorter shelf life of Kharif onion, which was also considered as perishable commodity. Hoarding can be done only for the commodities which have a longer life span. The same was verified by the IT department’s report on hoarding. The significant reduction in quantity of the said commodity for past four months was not only in Azadpur mandi, but in most other parts of the country as well. This clearly shows that there was reduction in the onion production, rather than the said allegation of cartelization. The reason for such erratic reduction was heavy rainfall during the mid of Kharif harvesting which completely damaged the onion crop. It was already pointed out by DG during examination of cropping pattern that such unexpected rainfall is harmful for the crop. DG for a better evidence could have asked the Indian Meteorological Department (IMD) for rainfall figures during the four months and have inquired with agriculture department of respective state governments for actual figure of total crop damage.   

Reason for having onion at Rs. 60-70 per kg in Delhi was also explained by the fact that irrespective of the high auction price in different mandis, when the said commodity came to Delhi, the transportation cost was added to it. Then it was sold in wholesale and retail markets of Delhi further increased the prices. So the end-consumer price reached to exorbitant level.    Given that the supply value chain of onion involved five major actors   as mentioned above, the onion price surge was not restricted to one particular geographical area but was rather a PAN-India phenomenon. This suggests that likelihood of an operating country-wide cartel in such a perishable commodity, with continuous government supervision, is less.

From the above reasoning it is reasonable for CCI to agree with the DG report as the investigation conducted was sufficient, and the data came from IT department which mostly relies on tech products, thereby making it reliable. With the involvement of different government agencies, it is unlikely that these data figures and reports would be fudged. Even though one of the members, Ms. Geeta Gauri, registered her dissent it seems that the observations provided by her are restricted to one particular area or mandi, incapable of encompassing the greater geographical area where the problem persisted. Also, the said observations are idealistic in the sense they fail to realise the market specifications peculiar to the said commodity. The said analysis would provide reason for change in the price in a particular geography, but not on PAN-India basis.