Competition and Consumer Protection Commission Chilufya Sampa Executive Director

Presentation Outline  Are sugar prices really high?  Prices as compared to the cost of production  Comparison with region  Why are prices high?  What can CCPC do?  conclusion

Are sugar prices really high? Sugar prices are high High prices not prohibited by competition law but excessive prices are. What constitutes excessive pricing? Charging prices that cannot be reasonably justified by the cost of making the product/service available to consumer. This should include cost of production, distribution costs, costs of capital (economic costs), etc if a company sustains profits higher than it could expect to earn in a competitive market. Problem: no objective and universally recognized criterion exists in case-law to determine what profits are “excessive”. Sugar prices are high, but are they excessive?

Are sugar prices really high? There is consensus among stakeholders that prices are higher than they should be. MCTI 2010 : Zambia National Sugar Strategy recognises that sugar prices in Zambia are “significantly higher than the regional market price”. ODI 2010: “Although production costs are low, and Zambian sugar exports are internationally competitive, Zambia still has very high domestic sugar prices”. Thomson Kalinda and Brian Chisanga 2014: “the price is significantly higher than the cost of production”. African Competition Forum 2014: “millers therefore have the ability to price domestic sugar at the highest price with high margins, even when Zambia is a low-cost sugar producer”.

Prices as compared to the cost of production Many researchers agree that the price of sugar in Zambia is unreasonably high. This means the prices cannot be justified by the cost of production. See papers cited above. The ACF research has confirmed this assertion. Research shows that margins are low at distribution and retail levels. This means prices are hiked at the factory gate.

Comparison with region Again researchers agree that sugar prices in Zambia are higher than the region; see MCTI 2010, ODI 2010 and Kalinda and Chisanga ACF 2014 finds that only Kenya was more expensive than Zambia in their sample. The Commission’s own survey has revealed that Zambia is more expensive than Zimbabwe, Botswana, Malawi, Tanzania, South Africa and Namibia. All in all, sugar prices in Zambia is more expensive than in the region and world, see ODI.

Why are prices high? Studies show that costs of production in Zambia are among the lowest in the world. Costs of doing business in Zambia are higher than most countries in the region and globally. However, studies show that margins at distribution and retail levels are very low. This shows that high sugar prices cannot be attributed to high cost of doing business. The most probable reason cited by researchers is lack of competition, both domestic and foreign. See MCTI 2010, ODI 2010, etc. The Commission thinks that the sugar sector in Zambia is highly productive but lacks competitive efficiency. The lack of healthy competitive rivalry, both domestically and foreign drives prices upwards. Domestic competition is impaired by dominance while foreign competition is impaired by policies and regulations that stifle imports, e.g. Vitamin A fortification n requirement and bureaucratic import procedures.

What can CCPC do? The CCPA No. 24 of 2010 prohibits abuse of position of economic power including excessive pricing. The Commission is very concerned with happenings in the sugar sector and has intervened in the past including the highly quoted 2009 investigation. Proving excessive pricing is highly complicated and very difficulty. This is complicated by lack of objective and universally recognized criterion in case-law to determine what constitutes excessive pricing. The Commission does not make decisions on its own investigations. In an event that the Commission conducts an investigation, the decision will be made by a autonomous body. 7/3/2015 Competition and Consumer Protection Commission8

Conclusions Sugar prices are high in Zambia as compared to most countries in the region and world. Sugar prices cannot be justified by the cost of production as Zambia is highly productive. There are policies and regulations which stifle foreign competition such as fortification and burdensome import procedures. Such should be amended.

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