Boycott has two faces

The Financial Express, June 18, 2011

By Pradeep S Mehta

When it is difficult to find a remedy through the competition law, buyers often gang up to call for a collective boycott to pressure the suppliers. And most of the times it is against a cartelised industry, which may work.

This has been seen in the cases of tyres, cement, fertilisers etc, where the market is infested with cartelised behaviour. These sectors function on the perverse proverb: The competitor is our friend, the customer is our enemy. These are horizontal restraints. Another phenomenon, but on a vertical axis, is when traders use strong-arm tactics against pharma manufacturers to obtain higher margins, using boycott as a tool to make them comply with their demands.

In this article, I deal with both types of cases, where boycott has been used by a section of the trade as an aggrieved group of buyers and as a bunch of traders asking for higher margins. Both actions are violative of the competition law, though the second one is treated more seriously against the boycotting parties. In the earlier case, it is the boycotted parties’ provocative actions that would raise the eyebrows of the competition authority and end up in investigation and prosecution. One cannot expect the competition authority to go after the boycotting buyers, even though it is a violation of the law, while the aggrieved suppliers also do not complain.

In another case, freight transporters called for a boycott of Apollo Tyres because of alleged cartelisation in the tyre sector. The call was made by the All India Motor Transport Congress. It said that tyre prices shot up by 52% in recent times, which is not commensurate with the general inflation trend. The boycott was operationalised by blocking all raw material flows to Apollo’s factories in Tamil Nadu, Kerala and Gujarat.

In another case, but of a cross-border variety, fertiliser companies in India, in early April, called for a ‘holiday’ for importing potash fertilisers, a euphemism for boycott. The boycott is against a global potash cartel because it refuses to bring down its prices from $500 to around $390 per tonne. Later, this offer was raised to $450 but the cartel did not budge, claiming that ‘the markets are not waiting for India and that talk of an import holiday is a negotiating tactic’. The fertiliser industry gets huge subsidies to enable them to sell cheaply to farmers. Unlike tyre or other companies that have to rely upon various externalities, muriate of potash is a naturally mined mineral that has considerably less externalities to cope with. Thus, pricing depends upon the elasticity of demand rather than a result of the competitive forces. While there are just four suppliers in the world—Canpotex of Canada, ICL Fertilizer of Israel, the Belarusian Potash Co, and Arab Potash Co of Jordan—there are few large buyers of potash including the US, China, Brazil and Australia.

Due to varying agriculture seasons, and thus the purchasing cycles, it has been difficult to coordinate among the buying nations to tackle the cartel through monopsonistic action.

The cement sector is one which is the best flavour for competition authorities around the world because of several actions against their collusive practices. In late 2000, cement manufacturers raised their prices in tandem by about 50% in one stroke. The peeved Builders Association of India (BAI) hit back through a collective boycott. Rather than targeting all manufacturers, it launched a selective boycott against Grasim and Gujarat Ambuja, who were believed to be the ring masters. As the AIMTC has done through a selective boycott of one manufacturer, the idea was to create an incentive problem amongst the players, which could lead to a rift. Further, BAI lobbied the finance ministry to lower the import duties on cement, in spite of all efforts by the cement industry against it. Following this, BAI arranged imports of cement from the Far East, which brought cement at a landed cost of R140 per bag as against the local price of R185 per bag.

These are a few cases of how cartels had to be dealt with through either boycott or imports. But the case of rent-seeking by pharmacists is another endemic problem. The pharmacists are organised under the All India Organisation of Chemists and Druggists (AIOCD). They are currently facing an enquiry by the CCI, but this is nothing new for them. In the 1980s, AIOCD and some of their state bodies faced action by the MRTP Commission for boycotting pharma companies on a demand for higher margins. Such margins are never passed onto consumers, though. When faced with action under the MRTP Act, they changed their strategy to call for ‘non-cooperation’ or even negotiate an MoU with particular companies on margins, thus escaping the scrutiny of the competition law.

A similar case has been reported from Brazil, though this also went to the competition authority. Twenty pharma companies operating under a cartel were fined by the competition authority, CADE, for boycotting the entry of new generic medicines into the market by spreading a disinformation campaign against less costly generic medicines in association with general practitioners in 1999 and later to kill competition. The companies included Roche, Aventis, Bayer, GSK, AstraZeneca etc, who are all operating in India as well. There was double collusion here, among the pharma companies, and between them and doctors, a very unhealthy alliance. Barring generics is an issue of grave concern because patients implicitly rely upon the doctors and thus are deprived of quality products at lower prices. This is one area where consumers themselves do not decide which medicine or brand to buy or not. The same thing happens in India also, i.e., collusion between pharma companies and doctors ( Alas, patients cannot gang up to boycott doctors. Subject to various factors they can always shift to another doctor, but there is no guarantee that they will get a fairer treatment. The pharma sector is too clever to allow fair competition, they thrive on sickness!

Pradeep S Mehta Secretary General, CUTS International

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