In the middle of January this year, the Commission for Protection of Competition (CPC) found 14 cooking oil producers guilty of price collusion and levied a collective 1.85 million leva fine.
The fine, hefty by Bulgarian standards, followed allegations that the Union of Vegetable Oil and Oil Derivatives Producers (UVOODP) had been co-ordinating prices at union meetings. The CPC issued the decision after studying documentation and software evidence gathered during searches at companies and branch associations.
The fined companies, in turn, insist that there is no written evidence to support the price-setting allegations. UVOODP said that the companies were in a very bad financial condition and should the fines be paid, many would have to resort to reducing staff or salaries.
All 14 companies are members of the 30-strong union. Bulgaria has about 100 cooking oil producers.
The pool of colluders and their respective fines are: Kaliakra AD, Bisser Oliva and Papas Olio (each fined 0.3 million leva); New Oil and Zurneni Hrani Bulgaria (150 000 leva each); Zvezda, Oliva, Pliska and Niva (100 000 leva each). Rossa, Gaitek Oliva and Zlatna Trakia were fined 80 000 leva and Chris Oil 20 000 leva. The UVOODP will have to pay 5000 leva for allegedly hosting price-setting meetings.
The price of cooking oil tested sky-high levels in 2007, with a year-on-year increase of 76 per cent. Cooking oil marked the largest annual increase among food products. The food products’ category is seen as the main catalyst behind 2007’s double-digit inflation.
With a litre of cooking oil in a plastic bottle averaging three leva and the top price at retail outlets hitting four leva, prices are higher than those in Germany and Greece.
The fined companies announced they would lodge an appeal in the Supreme Administrative Court (SAC) on the grounds the CPC arguments were unsubstantiated. The appeal can first be heard by a three-member panel of judges, and appealed anew before a five-judge panel.
The decision of the anti-trust watchdog has sparked a broad-ranging dispute on the reasons behind the skyrocketing prices.
The camp of cooking oil producers argued the price hike drew on a range of versatile factors. First, the sunflower seed crop last year was half the 2006 harvest. Second, demand for sunflower seed shot up after biofuel producers started using the seed as input material.
Growing demand with contracted supply have pushed the price of sunflower seed from 550 leva a ton as of the turn of 2007 to 780 leva a ton as of December 2007 (UVOODP chief puts it at 900 leva a ton). Producers argue sunflower seed forms 60 to 70 per cent of the price of cooking oil; therefore, any hikes to a major price-forming component are natural to bring up price adjustments to the end product.
In addition, a price comparison between cooking oil prices in Bulgaria and, say, Greece, is irrelevant because the percentage of sunflower seed comprising the end product is different. While Bulgaria uses solely sunflower seed as input material, Greece and other EU countries use rapeseed and soy beans as oil components.
In addition, oil producers incorporate a 20 per cent VAT into the price of cooking oil while in many countries in question the tax is between six and eight per cent.
The other side of the camp says that the 2007 harvest, despite being low, is sufficient to meet internal demand, estimated at 450 000 to 480 000 tons a year. Therefore, lower yield should only bring down exports rather than exercise price pressure on sunflower seed derivatives in the country.
Exports of sunflower seed for the marketing 2005/06 year totalled 230 000 tons and in 2006/07 was 650 000 tons. The main markets were Turkey, Pakistan and Spain, whereas unrefined oil would be exported to Macedonia, Albania and Kosovo. The main Balkan importers of sunflower seed were Turkey, Macedonia and Serbia.
The dynamics of exports through the course of last year showed the pattern in hand. While in January-August exports were double-to-triple the volumes the year before because of the plentiful yield and residual amounts from previous years, in September-December the figure shrunk to 48 000 tons, down from 405 000 tons in the same period a year ago (according to UVOODP the volume was 707 000 tons).
Economic factors aside, UVOODP head Vidyo Videv said the decision of the commission was taken under media – and indirectly by public – pressure. He also contested the CPC’s statement that the sunflower seed price hike was artificial. He also said, as quoted by mediapool.bg, that cooking oil producers were in no position to influence sunflower seed prices because they bought half the sunflower seed yield, the remainder being destined for export.
The CPC-oil producers dispute rests on one of the largest fines ever levied by the CPC. It is also hardly likely to stop here. The outcome of the court action will set a Bulgarian precedent on anti-trust issues that have been under the vigilant eye of the European Commission.
