150 Percent Growth In Kuwait’s Food Imports In The Last 10 Years

A study prepared by the Competition Protection Authority on improving the performance of the agricultural food auctions market and its impact on the sector and related markets concluded that the price inflation of vegetables and fruits from the auctions of cooperative societies reaches 400 percent, while the annual expenditure rate in auctions in this market is 57 million dinars annually.

According to the study, sales of fresh vegetables in cooperative societies, without the rest of the outlets, amount to 65 million annually, noting that the average domestic product from the agricultural and fishing sector reaches 185 million annually, while the growth rate of food imports has reached about 150 percent during the past 10 years.

She pointed out that the economic inefficiency of the Kuwaiti Federation auctions could be reflected in the difference between auction prices and retail prices, noting that there is one thing to note is that there is not a lot of packaging or reprocessing of these goods between auctions to retail markets, which can cause Significant price differences are justified, which may be over 500 percent.

The study reported a lack of transparency of correct data and information, which constitutes one of the problems of examining fruit and vegetable auctions in Kuwait.

In the short term, the “Protection of Competition” study recommended reforming the land allocation process by adopting a competitive annual allotment of land for commercial production, and ensuring the anonymity of the seller in the Kuwait Farmers Union auction in a manner similar to a plentiful market, in addition to adopting direct purchase by representatives of associations in auctions As buyers and abolish the role of the intermediary.

In the medium term, the study recommended the introduction of an electronic platform to operate the auction in the farmers’ union market and any similar auction markets. The study indicated that there are some prominent conditions in the market indicating the presence of major market distortions and behaviors harmful to competition, explaining that auction rules and government systems either overlap with each other or contribute to the occurrence of market exclusions, while the total agricultural subsidies during the past 10 years were estimated at about 300 million dinars. .

According to the study, which focused on the sectors of subsidies, intermediaries, wholesale markets and auctions, anti-competitive behavior is strongly present in the vegetable and fruit market, and illegal practices need to be investigated in order to enforce the law.

The study of the “Competition Authority” pointed out that there is a vast difference between the prices announced in the official auctions and their counterparts in the outlets, whether in cooperative societies or in parallel markets, which indicates the profit margin for the supplier intermediaries, in addition to the fact that the quantity in one package sold in the auction is much more than in Associations, meaning that the prices offered in associations are actually many times higher!

The study dealt with how to address the market by submitting regulatory proposals to reform the mechanism of auctions, while recommending a set of treatments, as follows:

• The Ministry of Commerce and Industry reviewed the draft auction regulations, rules and requirements that apply to auction operators, in relation to the following:

1 – Auction operators meet the minimum technological infrastructure to ensure process impartiality and address the challenges of information asymmetry.

2 – Ensure the availability of the minimum physical infrastructure requirements to provide adequate space, appropriate organization, and handling.

3 – Displaying the products offered for sale by public auction, and maintaining sound records electronically to enable the regulatory authorities to review the data on a regular basis.

4 – Ensure full disclosure of quantities before the start of auctions, transactions and pricing.

5 – Introducing conflict of interest rules in connection with the operation of auctions.

6- Requesting an external evaluation to ensure quality annually.

The study indicated that employment and capital investments in the food industry were attracted to the local economy, whose population had high growth rates and families maintained a high level of disposable per capita income.

She revealed that vegetables and fruits represent about 25 percent of the diet, indicating that Kuwait is still far from self-sufficiency rates for some products.

Auction prices

The study suggested that the way auctions are managed, the possibility of bidding in them, subsidies, lack of transparency of information, dominance and concentration formed by intermediaries (accredited buyers in auctions), will affect the competitive behavior in food markets locally.

Data issued by the Kuwait Farmers Union indicate the distribution of auction prices for 34 products, with an average cost of 70 percent less than 1.18 dinars (for different packages and weights) and 30 percent above this price.

The study stated that by looking at the average prices, the average gross margins remain remarkably high, and that these numbers also support the possibility of benefiting from a negative selection problem, noting that the controversy regarding the high (artificially inflated) expenses in production can be used to justify the high prices. To collect them at the retail level more likely, or even to claim operating losses with suppliers, or near bankruptcy, while noting the growing appetite for increased control of the agricultural food crop, seems like an economically meaningless contradiction.

The study indicated that high-quality levels were produced and traded at higher prices at auctions, as the markets indicate corrective incentives to produce (A) level goods, while it appears that rules and regulations distort incentives, and that the market tends to goods of (D) level.

As the study notes empirically, the rules and regulations alter the intended relationship between these variables and, in turn, create market distortions and related practices harmful to competition.

In terms of the percentage of the price level, the study showed that relatively high subsidies are paid, and therefore the circulation of low-quality goods is high, pointing out that traders are willing to charge little with the expectation of earning more through subsidies and coordination of retail rules that ensure the placement of their products in the market .

enhance competition

In order to enhance competition in the vegetable and fruit market, the study saw the importance of introducing regulatory reforms to address distorted incentives and behavior harmful to competition, pointing out that competition promotion depends on 3 complementary pillars, namely strengthening pro-competitive systems and government interventions, and competition culture, in addition to strengthening non-distorting government support measures. And developing an effective competition law enforcement mechanism through the availability of accurate data for circulation in the sector.

She stated that the first pillar involves removing legal or artificial monopolies as a result of market power and non-competitive relations, and enacting systems that allow access to basic facilities, explaining that this would stimulate competitive business and fair markets.

As for the second pillar, it includes monitoring government support to reduce distortions and ensure equal opportunities regardless of ownership. The third is related to the enforcement of competition law to control practices harmful to competition in violation of the law.

The study showed that the current regulatory framework for vegetable and fruit markets impedes the competition process.

She pointed out that the current applicable rules for agricultural subsidies impose restrictions on sales points available for locally produced fruits and vegetables, explaining that the rules may facilitate collusion due to the degree of concentration they create in the wholesale market, especially since one of the markets for the auction of vegetables and fruits represents a union of farmers, which may increase the risk of collusion results. .

Auction Markets

The study noted that the vegetable and fruit auction markets lack unified organizing rules, noting that the Ministry of Trade published a proposed regulatory framework for organizing auctions to unify rules and enhance transparency and competitiveness, while local producers believe that the current structure of auctions is harmful to competition and facilitates collusion.

She stressed that the lack of anonymity mechanism for sellers in Kuwait Federation auctions may lead to collusive results and a potential conflict of interest, indicating that the identity of the farmer who sells his product is known to the bidder and that this may raise a potential conflict of interest, as some of the farmers participating in the auction are Also board members or affiliates of the Kuwait Farmers Union.

She stated that this practice can contribute to collusion and discrimination against other producers, in addition to protecting the private interests of some local producers, and to reduce these risks, the identity of the sellers must be unknown, noting that concealing the identity of the sellers is a practice and a rule, as it is believed that managing the process in this way more effective.

She pointed out that the participation of the Federation in managing and supervising the auction in the Andalusian market may facilitate collusive behavior, noting that despite the fact that trade associations, in general, may play an important role for the benefit of their members and the market, it can also be used as a platform to restrict competition.

She stated that what the union’s regulations require that members of the board of directors be local producers may raise a conflict of interest when selling their products in the auction that falls under their supervision, indicating that the presence of an independent auction operator will limit potential collusive behavior.

She stated that the inefficiency of auctions is reflected in the difference between auction prices and retail prices, stressing that it should be noted that there is not much packaging or reprocessing of these goods from auctions to the retail market, which can justify the price difference of more than 500 percent. .

As a step towards reforming the vegetable and fruit market and creating a fair competitive environment, the study indicated that it is necessary to start with the first supply chains (the approved auction market – the upstream market) and have the most impact on the food sector and the interconnected downstream markets.

brokers license

The “Protection of Competition” study stated that brokers’ license should be expanded to regulate unfair commercial practices, pointing out that brokers are currently subject to the “trade” decision, which needs to be amended to include other unfair practices such as false or misleading statements related to transactions, in addition to explicitly preventing brokers from coordinating With other brokers in the bids.

The proposed changes in the study are intended to ensure impartiality and reduce the risk of collusion between brokers and other actors in the auctions.

She noted that the current application of direct selling, which gave the farmers’ union full authority, led to ensuring the association’s supply of agricultural food products.

The study raised more than one question, the most important of which are:

Does the current mechanism provide an opportunity for all farmers to display their products in the associations? Or is there a preference for some influential people?

Does the union play its role as a link between producing farmers and associations by providing their agricultural food products at the same price sold in the auction? Or are the prices so far doubled with a profit margin?

 

 

SOURCE  ALRAI
 

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