AMul’s plan to enter Karnataka has raised concerns about competition with Nandini, a major player in the state’s dairy market. Former Karnataka Milk Federation officials accused Amul of indulging in predatory practices and violating unwritten rules of cooperatives, resulting in a anti amul campaign on social media.
Amul Plan of to sell exclusively packaged milk and curd through an e-commerce platform in Bengaluru, but it is still being considered as a competitor to Nandini’s. It can be argued that once Amul enters the market in Karnataka, it cannot stop expanding into other areas of business including traditional markets.
But do concerns about competition laws matter?
The primary means of competition between the two brands is likely to be through price competition. Nandini’s products are currently priced at quite a bit Compared to Amul. For example, while Amul sells 1 liter of toned milk for Rs 54 in Delhi, Nandini sells the same quantity of milk for Rs 43 in Bangalore. Similarly, Amul Gold sells at Rs 66 per liter in Delhi, while Nandini sells at Rs 55 per liter in Bangalore. Moreover, Amul curd is costlier than Nandini by Rs.19. Given the current prices, it may be difficult for Amul to capture the Karnataka market.
However, Amul is quite important big player Nandini has a milk handling capacity of 5.2 million liters per day as compared to 1 million liters per day of Nandini. Additionally, Amul deals with 3.64 million producers, while Nandini deals with 2.4 million. Given the size of Amul, Nandini’s concern about the possibility of a price war may be valid, as there is no guarantee that Amul will not lower its prices to compete in the market. From a competition law perspective, this does not necessarily raise concerns in itself. However, the real issue will be how Nandini responds to this potential price war.
Challenge for Nandini in Karnataka
One of the reasons why Nandini has been able to reduce the price of its products is subsidy Karnataka government gives Rs 6 per liter to milk farmers. Nandini’s high market share in Karnataka and Bengaluru also gives it a competitive advantage.
However, if Nandini lowers its prices to the point where it would be impossible for Amul to sustain itself in the market, this could potentially be seen as an anti-competitive practice of predatory pricing. As a major player in the market, Nandini has a certain responsibility to compete fairly and avoid anti-competitive behavior. It will be important for the competition authorities to closely monitor the behavior of both Nandini and Amul to ensure that they are not indulging in any anti-competitive practices.
According to Explanation (b) of section 4(2) of the Competition Act, predatory pricing is the practice of selling goods or services at a price below the cost of production as determined by regulations with the intention of reducing competition or eliminating competitors. . , This strategy is often employed during a price war to reduce a competitor’s profits, and requires the firm to sustain a loss for a certain period of time, compensating them by charging higher prices after the competition is over. with the expectation of refilling. Typically, only firms with the capacity to absorb these short-term losses engage in predatory pricing. While both Nandini and Amul are large government-backed firms and capable of withstanding short-term losses, the important question is whether Amul would consider entering the Karnataka market in light of the prospect of a hypothetical predatory price war.
Additionally, the dairy industry relies heavily on consumer trust and brand loyalty. Customers are often reluctant to switch to a new brand unless they have a compelling reason to do so. Building brand loyalty requires a significant investment of time, effort, and marketing resources. Nandini has a strong reputation in Karnataka and Bangalore, making it challenging for Amul to win the trust and loyalty of consumers. If Nandini lowers its prices to compete with Amul, it would be fair for Amul to charge more without an established brand reputation in the region. So, even if Amul engages in a price war, it may not be enough to sway customers to Nandini. Furthermore, as some observers have noted, the North–South divide may create an initial Obstacle Switching costs for Amul can often act as a deterrent for companies as they give the bargaining power to consumers.
In addition, there may be switching costs for suppliers, such as dairy farmers, who have to pay entrance fees To join your village milk co-operative society and buy at least one share in this co-operative. Convincing farmers who are already members of a cooperative to join another cooperative or independently supply milk to a different buyer may prove to be a challenge.
Can Amul get away with anti-competitive practices?
Amul is leveraging e-commerce channels to enter a market that Nandini has left untapped due to the challenge of convincing customers to switch brand loyalty in established markets. While Nandini has set up parlors in neighborhood stores and sells products in supermarkets, Amul is currently focusing on modern business avenues. This diversified presence across various channels could prove beneficial for Amul.
Hypothetically, Nandini could react to Amul’s entry into Karnataka by changing the terms of its contracts with dairy farmers who supply it with milk, which could potentially result in an exclusion violation. Nandini provides important financial incentives Like Karnataka subsidizing its dairy farmers. On the other hand, where does Amul currently get its milk from? neighboring states Like Andhra Pradesh and facilities are around 120 km away from Bangalore. If Nandini revises its agreements with its suppliers and makes them exclusive distribution agreements, Amul will be unable to get any suppliers in the state, and storage and transportation from another state as GCMMF (Gujarat Cooperative Milk Marketing) will have to bear additional cost. Federation) does not have any plant in Karnataka.
An exclusive distribution agreement refers to a contractual arrangement that limits, restricts or stops the production or supply of goods or services, or allocates a specific territory or market for their sale or distribution. Such an agreement restricts the seller’s freedom of action, and may also contain a territorial restriction. Under Section 3(4)(c) of the Competition Act, an exclusive distribution agreement between enterprises or individuals at different stages or levels of the production chain in different markets with respect to production, supply, distribution, storage, etc. which has a significant adverse effect on competition within India, is deemed to be nil. While the parties are generally at liberty to enter into agreements, if a dominant firm enters into an exclusivity agreement that may harm competition, the Competition Commission of India (CCI) examines the potential competitive advantages against anti-competitive effects. does.
When analyzing the effect of exclusivity agreements on competition, the CCI considers various effects, such as the creation of barriers to entry for new competitors and foreclosure of the market. In the case of a commodity such as milk, which requires local supply to maintain freshness, an exclusive distribution agreement may result in market foreclosure as new entrants face significant barriers to introducing their products and maintaining their freshness. Will have to face
These concerns are relevant to Amul’s entry into the dairy market in Karnataka, where both Amul and Nandini are well-established national brands with high market share. While they are able to compete with each other on the basis of merit, the use of exclusivity agreements can stifle competition and result in anti-competitive effects.
Renu Gupta is a Delhi-based lawyer and co-founding partner of Olive Law. She tweets @renugupta.
Pratiksha Jalan is an associate at Olive Law. She tweets @PratikshaJalan.
Thoughts are personal.