Rice, flour, shipping: Price fixing a normal business practice in TT

Normal business practice in Trinidad and Tobago includes price fixing by Trade Associations, importers and possibly others. However, there is no sense of wrongdoing, hence the fact that this is done quite openly and published in the papers. Last year, the Bakers’ Association increased the price of some types of bread, thereby fixing prices. Shipping Agents agreed to increase handling charges. Recently, the importers of rice met and decided to raise the price of rice by approximately fifteen percent. This is not to say that the importers should not raise the price of their product if they see fit to do so. Indeed, given that it is reported that the price of rice has not been increased for the past eight years, one could accept that the importers have been absorbing the increased costs.

However, what is anti-competitive in their conduct is that they met and agreed to increase the price. The process of competition requires that this should be an individual business decision. If, for instance, NFM increased the price of rice on its own, then JMH Enterprises and Happi Products would have the option of following the leader by matching that price, or could decide on a lesser increase in order to compete better, or even decide to maintain the existing price, advertise this, and capture market share. While the importers have done nothing illegal, nor did the Bakers’ Association and Shipping Agents, for that matter, it is only a matter of time before the Fair Trading Law (otherwise known as Competition or Antitrust Law) is passed, and then such conduct will be sanctioned by the Fair Trading Commission.

Hefty fines could be charged. It is therefore imperative that the business sector in this and other CARICOM countries understand what types of business conduct will be proscribed under the Fair Trading Law and adjust their business conduct accordingly. Research in the CARICOM region conducted by the Sir Arthur Lewis Institute of Social and Economic Studies of the University of the West Indies concluded that competition law is needed in even the Lesser Developed Countries (LDCs) of CARICOM. Heavy industry concentration is inevitable in small economies because of the need to achieve the minimum efficient scale required to be profitable and to compete. This level of concentration of wealth in the hands of a few businesses is exacerbated in the Caribbean region by the continued retention of plantation wealth and control of the economies by a few families. While this is less so in Trinidad and Tobago, with the rise of the Syrian businesses and the take over of many of the French-Creole businesses in Port-of-Spain, there is still heavy concentration in some sectors in T&T, but much more so in other CARICOM territories. Moreover, this inherited wealth is now moving into the new dynamic areas like downstream tourism industries in St Lucia and the Bahamas.

Where there is excessive concentration, and hence dominant firms operating as oligopolies, there is a need for competition law because of the high risk of abuse of a dominant market position. For instance, there is some evidence to suggest that in the highly publicised case of the seemingly excessive increase in price by the poultry producers last year, one player had been engaging in predatory pricing at excessively low rates for an extended period in order to drive competitors out of the market and increase his market share. He succeeded in doing this with the demise of two of his competitors, and then he raised the price of poultry. There are accusations by the downstream steel industries of predatory behaviour on the part of ISPAT, a monopoly provider, which is driving producers out of the market. If there were a competition law in TT, the Fair Trading Commission could have investigated these alleged predators.

It has been questioned internationally and in the region whether merger control regulation (MCR) is needed in small economies. Indeed, the CARICOM competition policy does not include merger control regulation because the majority of states in the region did not feel that it was appropriate for their economies. Findings of the research conducted in the region point to the need for MCR, however. In all CARICOM economies, there is a non-tradable sector, that is, a sector that is not exposed to competition from imports or foreign investment. For instance, public transport in TT is in the non-tradable sector. For instance, in Belize, there were mergers within this sector that proved to be very harmful to competition and to consumers. There were six bus companies plying the countrywide route when in late 2002, one company is alleged to have engaged in predatory conduct to drive the others out of the market. This company succeeded in taking over four of its competitors, extracting a commitment from them not to apply for a license to operate that route for fifteen years. It then took over the final company on that route, and became the sole provider. Once consolidated in its position, it almost doubled fares, causing riots in the streets of Belize.

This shows that even in the LDCs of the region, merger control regulation would be useful. A formula has to be found for evaluating proposed mergers that could allow consolidation to achieve economies of scale for export or competitiveness purposes, while dealing with firms in the non-tradable sector with the full force of merger control in the interest of consumers. It is hoped that the draft competition law could be revised and sent to Parliament soon. 

The views expressed in this column are not necessarily those of Guardian Life. You are invited to send your comments to guardianlife@ghl.co.tt