Agency orders probe into edible oils cartel

Consumers of sugar and edible oils are buying them above the market price as manufacturers and distributors rake in huge profits from price fixing.

The Monopolies and Price Commission, charged with promoting fair competition in the economy, has called for in-depth investigations into activities of the manufacturers and their distributors for “possible cartel activities.”

“Edible oil firms may be colluding to fix prices thus denying consumers the benefits of liberalisation,” says Mr Wang’ombe Kariuki, the acting commissioner on the team’s 2009 annual report.

“At the wholesale level there is limited competition both in the edible oils and sugar sector as indicated by price analysis,” he added.

The twin industries generate annual sales in excess of Sh60 billion, according to Kenya National Bureau of Statistics estimates.

This is the first admission by Treasury of the rising incidence of unfair business practices in corporate Kenya, giving clout to the movers of the price control Bill, which seeks to control prices of basic goods such as cooking oil, sugar, maize flour, rice and Kerosene.

It comes at a time when the cost of sugar and cooking oil has nearly doubled over the past three years on what manufacturers attribute to increased cost of doing business with the commission adding price fixing to the price equation.

The price of a 2-kg packet of sugar has risen from Sh140 in 2006 to Sh200, while that of edible oil products has increased 50 per cent over the same period.

The verdict of the anti-competition watchdog is also a blow to the image of edible oil makers—Bidco Oil, Kapa Oil and Pwani Oil—and sugar millers Mumias, Sony and Chemelil at a time when they are emerging as blue chip firms in corporate Kenya.

Legal experts reckon that the commissions lack of legal clout to punish firms found guilty of price manipulation and the lighter sentences are not likely to deter the culprits.

The current Restrictive Practices Act provides for a range of penalties including a maximum fine of Sh200, 000 or a jail term of up to three years for offending companies, a light sentence for companies whose annual turnovers are in excess of Sh10 billion and pales in comparison to international practice where firms such as software giant Intel was fined Sh127 billion or four per cent of its annual sales for restrictive business practice.

“Enactment of a new competition law should be expedited to effectively address challenges that come with the adoption of free market policies like collusion to fix prices, charging of excessive prices and abuse of market dominance,” said Mr Kariuki.

Treasury has sponsored a bill in parliament in April for the creation of an independent competition authority, but debate on the bill has not gone beyond the introduction read.

However, the local sugar and edible oil manufacturers firms have strongly defended their business practices, arguing that the commissions report failed to appreciate the depth of their businesses.

“Its impossible to collude. There is overcapacity in the market and everyone is fighting to grab market share,” said Vimal Shah the managing director of Bidco Oil.