MyCC imposes record fines of RM416 mil on five feedmillers for price fixing in 'chicken feed cartel'

Sunday 28 Apr 2024

KUALA LUMPUR (Dec 22): The Malaysia Competition Commission (MyCC) has imposed cumulative penalties amounting to RM415.5 million on five feedmillers, including Bursa Malaysia-listed companies Leong Hup International Bhd’s wholly-owned subsidiary Leong Hup Feedmill Malaysia Sdn Bhd, Malayan Flour Mills Bhd's partially-owned Dindings Poultry Development Centre Sdn Bhd and PPB Group Bhd's 80%-owned FFM Bhd, for colluding in a "chicken feed cartel" to fix poultry feed prices.

The others involved are Gold Coin Feedmills (M) Sdn Bhd under Gold Coin Group and PK Agro-Industrial Products (M) Sdn Bhd under Charoen Pokphand Holdings (M) Sdn Bhd, which in turn is a subsidiary of Thai conglomerate Charoen Pokphand Group Co Ltd.

Notably, this is the largest amount of fines that has ever been imposed by the quasi-judicial body in its 12-year history.

"Cartels are a supreme evil in competition law and a form of economic sabotage at the highest level, more so in a public interest case. MyCC has been tasked by the government to eradicate cartels and we will continue to do so without fear or favour," MyCC chief executive officer Iskandar Ismail told a press conference on Friday.

"We are still monitoring the chicken industry since the recent government decision to discontinue subsidies and price control on chickens. We hope the lesson learnt from this case will be a deterrent to all, particularly those cartels-to-be," he added.

MyCC had found that the five enterprises have infringed Section 4 of the Competition Act 2010 (Act 712) by entering into anti-competitive agreements and/or concerted practices in increasing the price quantum of poultry feed that contains soybean meal and maize as its main ingredients, between early 2020 and mid 2022.

Based on its investigation, MyCC said there are a total of 29 feedmillers in the country, and that the five infringing enterprises command about 40% of the total market share.

It was discovered that poultry feed stood out as a significant cost factor in poultry farming, constituting a substantial 72.8% of overall expenses.

The investigation uncovered evidence of identical increment in the quantum of poultry feed prices, of between RM1 and RM4 per 50kg, sold by the parties between January 2020 and June 2022.

Despite variations in the composition of main ingredients, such as soybean and maize, used in each enterprise's poultry feed formula, the enterprises implemented identical quantum increases in prices simultaneously although the unique formulations should result in distinct cost structures to determine the price, according to Iskandar.

"MyCC had also identified several instances where the cost of the raw materials had decreased and despite this decline, the enterprises still opted to increase the poultry feed price by the same quantum. These recurring patterns strongly substantiate the existence of price fixing practices by the enterprises," Iskandar said.

Other evidence obtained from the investigation include communication records including WhatsApp conversations and call logs between the parties, notes of meeting and discussion before, during, and after meetings held by the Malaysia Feedmillers Association (MFA), as well as statements of witnesses corroborating the activities of the cartel.

However, Iskandar maintained that MFA was not involved in the cartel, but was used as a platform by the infringing parties being members of the association.

In addition to the financial penalties, MyCC had also issued directions to be adhered to by the enterprises, including a cease and desist order against the cartel, monthly reporting on poultry feed prices, reviewing and enhancing of compliance training programmes, and recognition of competition law infringements as misconduct in the companies' code of conduct.

In August 2022, MyCC provisionally found that the five enterprises had infringed the competition law, and later granted the companies opportunities to submit written and oral representations.

Parent companies Leong Hup International and PPB Group had previously rejected MyCC's provisional findings and said the allegations against its units were without merit.

The parties may still appeal against the final decision and penalties imposed to an independent Competition Appeal Tribunal (CAT), and are given 30 days to submit their appeal application.

In September last year, CAT had ruled that MyCC had committed a fundamental error in its findings and allowed the appeal by Persatuan Insurans Am Malaysia (PIAM) and its 22 members against MyCC’s decision in 2020, deeming an agreement on the application of trade discounts on automotive parts prices and hourly labour rates for motor vehicle repairs done under the PIAM Approved Repairers Scheme (PARS) as a breach of the Competition Act 2010.

In that decision, MyCC imposed financial penalties on each of the insurance companies ranging from RM137,918.45 to RM24.73 million, which amounted in aggregate to RM173.65 million.

However, following the appeal, MyCC had filed a judicial review at the High Court to review CAT's decision. The matter is currently still being litigated at the High Court.

Edited ByLam Jian Wyn

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