T.R. Chandran Vs National Egg Co-ordination Committee (Competition Commission of India)
i) NECC, while declaring and disseminating egg prices, 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;
ii) NECC shall cease and desist from issuing any directives/threats (verbal or in writing) that non adherence 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; and
iii) 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 so as to ensure compliance with the provisions of the Act.
iv) NECC to file a compliance report with regard to (i) and (ii) above within 60 days from the date of receipt of this order by it. NECC to also file compliance report in respect of (iii) above within 180 days from the date of the receipt of this order.
FULL TEXT OF THE ORDER OF COMPETITION COMMISSION OF INDIA
1. The Information in Case No. 09 of 2017 was filed by Mr. T. R. Chandran (hereinafter, Informant No. 1/IP-1) under Section 19(1)(a) of the Competition Act, 2002 (hereinafter, the Act) alleging contravention of Section 3(3)(a) of the Act, by National Egg Coordination Committee (hereinafter, NECC/OP-1). The Information in Case No. 36 of 2017 was filed by People For Animals (hereinafter, Informant No. 2/IP-2) under Section 19(1)(a) of the Act, alleging contravention of Section 3(3)(a) and 3(3)(b) of the Act by NECC, its directors and Agro Corpex India Limited (hereinafter, ACIL/OP-2) and its directors/members. Informant No. 1 and Informant No. 2 are, hereinafter, collectively referred to as Informants/IPs. Upon consideration, based on the substantial similarity of the issues and allegations in Case No. 09/2017 and Case No. 36/2017, both information were clubbed by the Commission vide order dated 25.01.2018, in accordance with the provisions of the Act.
2. IP-1 is stated to be an individual residing at Namakkal, which is a hub for egg production in the state of Tamil Nadu.
3. IP-2 is stated to be a trust registered under the Indian Trusts Act, 1882 and claims to be a reputed animal welfare organization in India. It is primarily engaged in the rehabilitation of sick and needy animals, running shelters and sterilization programmes. IP-2 also promotes awareness and education with respect to animal rights, animal protection and welfare and works with the government on animal rights and policies.
4. NECC is a public charitable trust registered as a society under the provisions of the Bombay Public Trusts Act, 1950 and the Societies Registration Act, 1860,. NECC has claimed that it is the largest association of poultry farmers in the world with more than 37000 farmers as its members. NECC is a three-tier organization consisting of 81 Local Committees at the grassroots level, 28 Zonal Committees at all important egg production and consumption centres and an Executive Committee at the apex level, the members of which are elected once in five years.
5. ACIL is a private company incorporated in 1982 under the provisions of the erstwhile Companies Act, 1956, inter-alia, with the objective of evolving such marketing systems whereby poultry farmers are able to obtain fair and remunerative price for their products. ACIL claims to be engaged in the procurement of eggs from farmers at a fair price and also provides cold storage facility for eggs produced, during the lean demand period, to help farmers tide over the glut crisis. More than 2000 farmers in India are stated to have subscribed to ACIL’s share capital, which commenced its operations at Vijayawada, Andhra Pradesh, and expanded its operations to other areas such as Hyderabad, Ajmer, Noida, Ludhiana, Ambala and Anaparti.
6. Both the above Information contain allegations of anti-competitive practices in the egg industry stating, inter alia, the following:
Case No. 36 of 2017
i) The production of eggs on a commercial basis broadly takes place in the following manner: (a) commercial hatcheries artificially incubate and hatch chicks that have increased egg laying capacities; (b) day old female chicks are sold by hatcheries to individual farms, the cost of which includes a mandatory contribution to NECC; (c) individual farms artificially brood chicks under heat lamps; (d) at about 2-3 weeks, chicks are transferred to long line cages and are also de-beaked; and (e) at about 14-16 weeks, hens are transferred to cages to lay eggs.
ii) The supply chain follows the traditional producer/wholesaler/retailer levels, yet there is a large amount of integration in the egg industry, which allows entities to participate and control the production process without owning or operating farms. It is averred that these integrator companies control some or all of the aspects of egg production i.e., day old chicks required to produce eggs, antibiotics, feed, farm equipment etc.
iii) Egg production in India is concentrated in the states of Tamil Nadu, Andhra Pradesh and Telangana, followed by Maharashtra, Haryana, West Bengal and Punjab. In general, the demand for eggs in India drops in summer months and festive seasons such as Navratri and increases during winter months. The production of eggs is fairly constant, but on account of their perishable nature and short shelf life, they cannot be stored at the farms where they are produced.
iv) It is alleged that NECC and ACIL indulge in conduct that ensures that fluctuation in the demand for eggs, does not affect egg prices negatively.
v) It is claimed that NECC, in furtherance of its objectives, fixes and declares daily egg prices at various production and consumption centres and publishes price information on its website under two heads, namely ‘NECC Prices’ in production centres 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.
vi) It was further alleged that 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.
vii) With regard to OP-2, it is contended that ACIL is projected to be a company owned by poultry farmers; however, it is actually owned and controlled by NECC and its members. It is alleged that ACIL’s management has always been from M/s Venkateshwara Hatcheries Group (VH Group), which controls NECC. It is further alleged that NECC uses ACIL to siphon surplus stocks of eggs by providing cold storage facilities for preservation and their movement to areas of high demand, in order to maintain higher prices.
viii) ACIL exports eggs through M/s Bharat Egg Producers Association (BEPA) as well, either directly or through conversion of egg into egg powder to ensure that the prices of eggs in India are maintained at the decided level. These activities of ACIL are in line with the objectives of NECC outlined in its Memorandum of Association, “monitoring and managing the egg stock levels in different production centers, and regulating its movement from surplus to deficit regions so as to maintain a balance between demand and supply of eggs”. It is alleged that these deliberate limitations on the supply of egg to customers, to manipulate prices, is in contravention of Section 3(3)(b) of the Act.
ix) IP-2 has also alleged that the functioning of NECC is opaque, which is controlled by large egg producers, and its management is a skewed representation of the seven founding members, who are also permanent members of the Central Committee. NECC also has a restrictive membership policy, wherein only poultry farmers with at least 250 layer hens or traders handling a minimum of 12000 eggs a day can become members of NECC.
x) Poultry farms in the State of Tamil Nadu produce more than four varieties of chickens. Barring a few, the majority of poultry owners are small ones, who make their own feed for chickens in their own crushing mills. All poultry farms do not provide similar quality of feeds to their hens. Similarly, all of them do not operate in similar hygiene conditions. Normally, eggs weigh between 35 to 70 grams; however, no hen can produce the same quality and quantity of eggs throughout the year. Further, the size, quality and quantity of the eggs produced are different across poultry farms.
xi) It is stated that the 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. Further, it is alleged that 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 consideration by the Commission and directions to the Director General
7. The Commission considered both the Information on 04.10.2017 and directed the parties to file additional information, and subsequently, held a preliminary conference with all the concerned parties on 21.12.2017.
8. During the preliminary conference, the IPs reiterated facts and allegations as contained in the Information. NECC, however, contended that it is a voluntary movement of poultry farmers to address exploitation by traders during the early 1980s and is not involved in any anti-competitive practices. ACIL, on the other hand, claimed that it has procured a meagre share of 0.6% of the total eggs produced in 2015-16 and does not limit or control egg supply.
9. The Commission carefully considered the Information and material placed on record, as well as the submissions (written and oral) of the parties, and was prima facie satisfied that there existed a case of contravention of Section 3(3)(a) read with Section 3(1) of the Act. Accordingly, the Commission directed the Director General (‘DG’) vide order dated 25.01.2018 passed under Section 26(1) of the Act, to cause an investigation and submit a report within the stipulated time period.
DG investigation
10. Pursuant to the aforesaid directions of the Commission, the DG conducted an investigation into the matter and submitted its Investigation Report to the Commission on 04.12.2020. The findings are as under:
11. The DG identified the following issues for investigation:
i) Whether NECC has indulged in determination and declaration of prices of eggs?
ii) Whether the egg price determined and declared by NECC is implemented and followed?
iii) Whether NECC is engaged in limiting and controlling the production and supply of eggs?
iv) Whether the declaration of price by NECC adversely affects the price discovery process of tenders floated by different state governments and other public procurement agencies?
12. A brief summary of the issues identified by the DG for investigation and its findings thereon is noted below. Further, certain findings of the DG qua the issues and the submissions of the parties on the DG Report are separately dealt with in the analysis of the Commission and have not been stated hereunder for the sake of brevity.
Issue I: Whether NECC has indulged in determination and declaration of prices of eggs?
13. According to the DG Report, NECC has been publishing egg prices on its official website on a daily basis. The declared egg prices, since January 2009 are available on the NECC website, and accordingly, the DG has taken the period from January 2009 till the completion of its investigation i.e. 2020 into consideration for the purposes of investigation. As per the DG, the organisational structure of NECC consists of three-tier committees, viz. the Central Committee/Executive Committee at the apex level, Zonal Committees at the middle level and Local Committees at the bottom level.
14. The Central Executive Committee has all the powers to manage and run its business and affairs. At the intermediate level, there are 28 Zonal Committees at important egg production and consumption centres. The bottom tier consists of Local Committees at important poultry pockets.
15. NECC has zonal offices at major production/consumption centres. NECC’s Zonal Committees, including the Committees located in surplus production zones, consult with the Zonal Committees located in the deficit zones (consumption centres) as well as other production centres, and after a thorough analysis of the prevailing market condition and the demand-supply situation, recommends daily prices for eggs. Production centres are centres with surplus production, and they cater to the demand of other deficit zones. Consumption centres are centres where demand or consumption is more than production. Generally, production centres cater to the demand of consumption centres.
16. The price determination mechanism is similar in production centres and consumption centres. The Zonal Chairmen have the responsibility to decide and declare the price. In most cases, they consult with a few major farmers of the zone while fixing egg prices. 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.
17. NECC has developed a mechanism of WhatsApp groups, through which information about egg rates of a particular zone are disseminated to all other zones. Teleconferences are held amongst the major Zonal Chairmen for facilitating the exchange of information regarding egg prices. Accordingly, the egg rate of a particular zone is not dependent upon the demand and supply situation of that zone; rather, it depends upon the egg prices declared by other NECC zones. During the deposition of Mr. B. Samara Reddy, a large-scale poultry farmer having egg production of approximately 3.3 lakhs per day, the DG found that 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.
18. Further, in certain zones, NECC egg prices are neither determined nor declared. The Zonal Chairmen of these zones simply follow the prices of neighbouring zones. These zones are Ambala (Haryana), Sangroor (Punjab) and Lucknow (Uttar Pradesh). Further, the statements of the Zonal Chairmen of these zones categorically show that NECC prices in their zones are not independently determined; rather, they follow the prices of other zones only.
19. The DG found that NECC has been determining and declaring egg prices on a daily basis through coordination among different Zonal Chairmen. The coordination is facilitated by weekly teleconference calls between different Zonal Chairmen, which are moderated by senior persons in the Central Committee of NECC. DG also found that the Central Executive Committee of NECC controls the process of determination and declaration of prices of eggs by active intervention through its three-tier structure and reporting by Zonal Chairmen. As per the DG, the explanation given by NECC, that the egg prices are declared on the basis of demand and supply conditions was untenable and the DG found that the determination of egg prices was a result of collusion at the zonal level between the Chairmen of Zonal Committees and at the national level by the Central Executive Committee.
20. On the basis of the evidence/materials/statements of parties, the DG concluded that the determination of sale price of eggs by NECC amounts to contravention of Section 3(3)(a) of the Act.
Issue II: Whether the egg price determined and declared by NECC is implemented and followed?
21. NECC submitted before the DG that the declared egg price is not mandatory or binding upon the farmers or traders, and the poultry farmers and traders are under no compulsion to follow the price declared by NECC. However, it did not submit any evidence to substantiate its claim, as stated by the DG.
22. From the statement of Mr. B. Rajendar, who is a partner in Sun Foods and Feeds, which has a daily egg production of around 1.5 lakh eggs, and has been a special invitee to the National Executive Committee of NECC since 2013, it was seen by the DG that 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.
23. As per the DG, in addition to coordination between zones, the stock and supply situation at different zones was monitored via different platforms of NECC to maintain a certain price.
24. The DG, from various statements of OPs officials, its members and farmers, noted that NECC declares the egg prices in various zones and also directs its members to follow it. It is stated that such decisions regarding the implementation are taken at teleconferences which witness the participation of various Zonal Chairmen of NECC. Further, the DG stated that certain practices such as the imposition of penalties on farmers for nonadherence to NECC declared egg prices and other measures are proposed and sometimes used by the NECC at zonal levels. For example, in the meeting dated 29.09.2016, it was decided that under the leadership of the NECC Chairperson, all Zonal Chairmen and prominent egg traders of various zones were required to take responsibility to see that no farmer sells eggs below the minimum price of Rs. 3.75 and/or the price fixed by NECC.
It was further decided that the NECC Chairperson may appoint a committee to oversee the strict implementation of the same.
25. The DG also found that, contrary to the claim that prices declared by NECC are only suggestive, efforts were made both at the central level and zonal level of NECC for strict implementation of the declared price. DG also stated that advisories and directions were issued to the farmers and stakeholders to implement the declared price by cooperation and coordination.
26. Further, after the investigation commenced, NECC started using the term ‘NECC suggested egg price’ in order to make it look like as though the prices fixed are only suggestive for facilitating trade and are not mandatory. In a WhatsApp message dated 20.04.2019 of the Zonal Chairman, Chandigarh, it was mentioned to other members of the group that a penalty of Rs. 0.25/ per egg shall be imposed on farmers and traders each in case the prices declared by NECC are not adhered to. Thus, the DG concluded that the practice of determination and declaration of egg prices and implementation of these declared prices amounted to contravention of Section 3(3)(a) of the Act.
Issue III: Whether NECC is engaged in limiting and controlling the production and supply of eggs?
27. As per the DG, NECC ensured that the declared price is duly followed and implemented in the market by limiting and controlling the production and supply of eggs, which is as under:
i) Early bird culling
(a) As per the Food and Agricultural Organisation (FAO), the typical production cycle of birds in case of layer eggs lasts about 72 weeks and involves three phases. Birds typically lay eggs for twelve months, starting when they are about 21 weeks old and lasting until they are about 72 weeks old. Post their laying period, layer birds are culled and their meat is sold in the market. On 26.02.2015, the Chairperson of NECC, Ms. Anuradha Desai, sent an email to the Zonal Chairmen of five major production zones, viz., Namakkal, Barwala, Hyderabad, Hospet and Vijaywada, directing them to advise 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 also directed them to take other measures required to not let the prices of eggs decrease in the market. Subsequently, the email was forwarded to numerous stakeholders by Mr. Sanjeev Chintawar, an executive of NECC.
(b) The statements of the Zonal Chairmen and other functionaries of NECC who received the email dated 26.02.2015, were recorded on oath by DG. The statements of Mr. M. S. R. Prasad, Chairman of Hospet Zone of NECC, Mr. Praveen Garg, Chairman of Chandigarh/Barwala zone of NECC, Mr. V. S. Balasubramaniam, Senior Manager (Co-ordination) of NECC stationed at Namakkal, Mr. Sanjeev Chintawar, Business Manager of NECC Hyderabad, Mr. Ajit Singh, Chief Executive of NECC, Mr. M. B. Desai, Chairman of NECC Mumbai zone and Mr. Satish Babu, Zonal Chairman of the Mysore zone of NECC, revealed that for controlling the excess supply of eggs, NECC directs farmers for early culling of flocks. 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.
(c) Further, it was noted that 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 DG, from the minutes of the meeting dated 16.12.2016of the Central Executive Committee, found that the Chairperson of NECC requested that the farmers be educated to cull the birds in order to have remunerative egg price and to take the prices to the desired level.
(d) DG also found that some of the NECC zones also declare the bird cull rates i.e., the rate at which the meat of aged layer birds is sold. Such declared rates were communicated to various stakeholders through WhatsApp messages or email. From the WhatsApp messages and email of Mr. Balasubramanium, an employee of NECC at Namakkal, the cull bird rate at Namakkal was Rs. 53/- per kg and the same was increased to Rs. 59/-per kg on 21.03.2019 and again increased to Rs. 64/- per kg on 23.03.2019.
ii) Cold storage subsidy
(a) For maintenance and due implementation of its declared price, NECC provides cold storage subsidies to farmers. This measure is adopted when there is lower demand or surplus supply in the market and farmers are unable to sell eggs on the NECC declared price. 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. Further, the cold storage expenses incurred by the farmers are also compensated by NECC.
(b) In this regard, various emails were exchanged amongst the officials of NECC, which have been investigated by the DG. One such email, dated 27.07.2015, was found to have been sent by the Chairman of Ahmedabad zone asking for the approval of the subsidy amount.
(c) In the statement of Mr. M. B. Desai, Zonal Chairman of Mumbai zone and Vice Chairman of Central Committee, recorded on oath, it was noted that a subsidy is given by NECC to the farmers for keeping their eggs in cold storage. This is done when there is lower demand or surplus supply in the market and in order 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.
iii) Restricting supply through co-ordination and creation of check posts
(a) Evidence was found by the DG that NECC indulged in restricting egg supply between different zones. A meeting was arranged by NECC on 06.08.2015 at Rajahmundry in order to regulate the Kolkata egg market, wherein it was unanimously agreed that all the flow of eggs between West Bengal and Odisha should be monitored and regulated in a way that all farmers can get good prices of eggs.
(b) Mr. Gurram Chandrashekar Reddy, Chairman of Hyderabad zone in his statement before the DG, admitted that movement of trucks loaded with eggs is monitored through border check posts created by NECC. Mr. Praveen Garg, Chairman of Chandigarh/Barwala zone of NECC, also mentioned in his statement about the existence of check posts at Hyderabad zone. Another evidence was an email dated 23.01.2018 sent by the Vizag zone of NECC to Ms. Anuradha Desai, Chairman NECC, seeking approval to shift NECC check-post.
iv) Controlling supply of eggs through ACIL
As per the Information and DG findings, ACIL is formed and managed by the members/functionaries of NECC. The Chairperson of NECC is also one of the directors on the Board of ACIL. Further, ACIL is used by NECC as an alternative source for controlling the supply of the eggs in the market so as to stabilize and implement its declared price. As per the DG, 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. DG also found during investigation that ACIL operates mostly in Andhra Pradesh and Northern India and in cities like Vijayawada, Hyderabad, Ajmer, Ludhiana and Ambala. It procures eggs from farmers and depending on the market situation, stores eggs in cold storages or transports the produce to places from high supply to low supply areas. The eggs are then stored in the cold storage for such time when the demand is low and sold when demand increases. Thus, the DG found that the role played by ACIL substantiates the fact that NECC indulged in controlling and limiting the production and supply of eggs in the country.
28. The DG found that NECC was indulging in limiting and controlling the production and supply of eggs through practices including early culling of layer birds, storage of eggs in cold stores, restricting the inter-zonal supply of eggs and procurement through ACIL, all of which amounted to contravention of Section 3(3)(b) of the Act.
Issue IV: Whether the declaration of price by NECC adversely affects the price discovery process of tenders floated by different state governments and other public procurement agencies.
29. The Govt. of Tamil Nadu was procuring eggs through district wise monthly tendering system up to April 2013, and vide order dated 17.10.2012, the Govt. of Tamil Nadu decided to introduce a state-level annual tendering process for procurement of eggs and also decided that quotations received through the open tender system should be compared with the average NECC rates and the reasonableness of the quoted rate should be ascertained. Further, in August 2018, the Govt. of Tamil Nadu modified the procurement process and introduced a state-level zone wise (six zones) tendering system.
30. For the purpose of analysis, the DG procured information about the tenders floated by the Tamil Nadu Government for the procurement of eggs from 2012 to 2018, details of the participants and copies of their respective price bids. Notices were issued to the Zonal Chairmen of Namakkal, Chennai and Chittoor Zones, and details of average NECC egg price in their zones during tender months were also gathered. The same is tabulated below:
Table: Trend of Average Egg Price in Tender Month
