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Press Release

COMPAG finds no monopoly in pork market

There was a free play of market forces in the local pork market, a report released by the Competition Policy Advisory Group (COMPAG) said today (December 16).

The conclusion was made having regard to whether there was any monopolising of pork supply, any abuse of collective market power by pig buyers, any predatory pricing adopted by the two supermarket chains and any monopoly of the retail pork market.

COMPAG noted that pork from freshly slaughtered pigs, with a market share of 51 per cent, was not the sole type of pork available in Hong Kong. The report also noted there were also chilled pork (a market share of three per cent) and frozen pork (a market share of 46 per cent) which were gaining increased acceptance by restaurants, Siu Mei shops, younger families and families with westernised habits.

The report stated: "There is no restriction on the origin of live pigs, chilled pork and frozen pork and the on the quantity of imported live pigs and live pigs supplied by local farms.

"Live pigs and pork from different origins are therefore free to compete with each other.

"We agree that the larger the number of players, the more intense the competition will be.

"Although Ng Fung Hong (NFH) does not face any competition as an importer of Mainland pigs, it does face competition from local pigs, chilled pork and frozen pork."

After examining other issues involved, COMPAG saw no evidence of NFH having adopted any anti-competitive practice.

COMPAG also examined whether there was a potential for manipulation of prices given that NFH provided product into the downstream live pig market and its subsidiary company, Shing Lee (Meat Supplies) Hong Limited (SLH) operated as a buyer in that market in competition with others.

"On the question of possible price manipulation, COMPAG has looked into the live pig trade's practice and concluded that such a possibility did not exist in reality. Pork retailers who have engaged SLH as their agent will simply turn to the service of other pig buyers if the price at which SLH bids for live pigs is too high.

"The system is not conducive to the success of any attempt at price manipulation," the report said.

COMPAG acknowledged that collective/collusive action taken by any group of trader to maintain the price of a commodity at a certain level, including the boycott action taken by pig buyers in May 2002, was anti-competitive.

However, COMPAG believed that the absence of restriction to entry to the trade of pork was an effective safeguard against such collective/collusive action. As long as there was no barrier to entry, others would enter the trade and fill the place left by traders who took collective/collusive action when there was demand.

"Retailers are not bound by any rule to appoint a pig buyer since the daily auction at the slaughterhouses is open for all to attend. Some retailers do attend the auction themselves without hiring any pig buyer.

"Besides, there is no restriction on who can become a pig buyer. In some cases, local farms and meat retailers negotiate business deals themselves," the report said.

On whether the two large supermarket chains had adopted a strategy of predatory pricing as their market share increased from five per cent to about 15 per cent after lowering the price of pork, COMPAG could not find any evidence to substantiate the claim.

The report said: "COMPAG found no evidence of the supermarkets selling below cost after looking at the costs involved in the supply chain.

"COMPAG also noted that predatory pricing is unlikely to work in the pork market, as any significant price lift after an initial price lowering would induce market stalls for selling fresh pork to re-enter the market, given that there is little barrier to entry."

In general, COMPAG concluded that there was as much competition in the pork market as the Government could foster, adding that it was not necessary for the Government to take any action to intervene in the operation of the market forces.

Nevertheless, COMPAG recommended the Government to observe closely the following areas:

*The operation of NFH and SLH to ensure that there would not be any collusion or arrangements between the two companies that were to the disadvantage of other buyers on the bidding floor;

*Any change in the rules of live pigs auctioning to ensure that the trading of live pigs at that level was fair for all competitors; and

*Prices offered/set by all market participants at all levels to ensure that there was no anti-competitive practices such as predatory pricing or collusion amongst members of a trade that aimed directly or indirectly at maintaining prices at a certain level or forcing other players out of the trade.

Monday, December 16, 2002