Training Course on Market Studies KPPU-JFTC-UNCTAD 9 February 2017

1. Training Course on Market StudiesKPPU-JFTC-UNCTAD9 February 2017 Ebru GökceDessemond Legal Officer Competition and Consumer Policies Branch UNCTAD

2. Market Studies Purpose To identify problems in markets and their causes, whether and how they affect consumers and businesses, and develop appropriate policy measures.

3. Market Studies Market Selection • Complaints from consumers/consumer organizations • Complaints from businesses and trade associations • News in the media • Competition authorities’ concerns based on competition cases and need for competition advocacy

4. Market Studies Market Selection Priority principles: • Impact on consumers • Wider economic benefits • Strategic importance to the competition authority • Risks involved in terms of achieving a successful outcome, and resources.

5. Market Studies Stages of market studies - Launch - Data collection and analysis - Consultations on the findings - Publication of the study - Dissemination of findings and recommendations to relevant stakeholders Duration of market studies: 6 to 12 months

6. What do market studies “study”? • Provide a review of public policies (trade and agricultural policies) and government regulations applicable to the market. • Analyze the market structure and interactions between market players, including the relationship between consumer behavior, businesses’ behavior and the market structure. • Analyze the production costs and product prices at different levels of the value chain including the retail price of the end product to consumers. Market Studies

7. Market Studies What do market studies “study”? • Establish market shares ofthe largest players. • Identify barriers to entry, if any. • Identify the competition issues and other relevant problems in the market (ex: excessive prices, dominant firms and abuse of market power etc.). • Provide appropriate policy measures to address the problems identified and to improve the functioning of markets in the best interest of consumers.

8. Data collection and analysis • Data from businesses, consumers and relevant national (statistics bureau) and international organizations (UN, UNCTAD, FAO, World Bank, IMF) • Questionnaires, surveys, interviews with relevant stakeholders • Visits to businesses, business and consumer associations • Meetings with relevant government ministries and sector regulators • Comparative work – Similar markets in other developing countries. Market Studies

9. Market Studies Data collection and analysis Type of data • Quantitative data: Import/export statistics, production volumes/values, producer prices and retail prices etc. • Qualitative data from surveys, meetings and interviews with consumers and other market players may provide insights into the structure and functioning of the market.

10. Benefits of market studies • Provide a broader analysis of the market structure and the relationship between and conduct of major players, whereas competition enforcement is more focused and specific to certain behavior. • Help identify problems in the market and develop appropriate policy measures to address them. • Identify ways to make markets more competitive and improve consumer welfare. • Provide a sound analytical tool for competition agencies to advocate for competition friendly government policies, regulations and measures. Market Studies

11. Benefits of market studies • Provide a good basis for initiating and conducting competition investigations in case of anti-competitive practices identified. • Market studies are complementary to enforcement and non-enforcement work (competition advocacy, consumer education) of competition authorities. • Provide a link between competition and consumer protection policies: Informed consumers engage more proactively and drive competition and more competition encourages firms to deliver higher quality, lower prices, and innovative products and wider choice for consumers. Market Studies

12. Market Studies Outcome of market studies • Consumer oriented actions/measures • Competition law enforcement • Policy measures for Government authorities • Recommendations to businesses • Well-functioning markets in the interest of consumers if recommended policy measures are taken

13. Market Studies by UNCTAD:«Tobacco industry in Malawi» The main objective of the study To analyze the context, structure and functioning of the tobacco industry and the various stages of the tobacco value chain from a competition perspective.

14. Market Studies by UNCTAD:«Tobacco industry in Malawi» Specific Objectives • To analyze the market structure of the tobacco industry in Malawi, • To establish the level of collaboration between the regulatory authorities and promote harmonization of the legislation to facilitate entry and effective enforcement of competition laws, • To determine capacity building needs of the Malawi Competition and Fair Trade Commission • Provide CFTC with a basis on which to effectively contribute to policy formulation and to promote in the tobacco sector.

15. Tobacco industry in Malawi The main limitations of the study Lack of data at firm level that would have enabled an analysis of the market structure, conduct and performance at various stages of the tobacco value chain.

16. Tobacco industry in Malawi The study looked into: • The structure of the tobacco industry: Production, transport services, tobacco grading and marketing • International and regional perspectives • Sectoral policies and support programmes– national tobacco policy, internal trade, foreign trade, fiscal policy, subsidy programmes

17. Tobacco industry in Malawi The study looked into (cont’d): 4. Institutional and legal framework • Institutional framework: Policy formulation and directives, regulation of growers and buyers, competition promotion, support services, tobacco markets, and farmer and exporter organizations • Legal and regulatory framework for tobacco industry actors (growers, auction markets, buyers, exporters), and competition policy and legisslation.

18. The study looked into (cont’d): 5. Production and commercialization services • Composition of production and producers • Seeds and fertilizers • Prices and auction markets 6. Market structure, conduct and performance • Production concentration and performance • Transport services concentration and performance • Auction markets, buyer concentration and performance • Vertical integration and relationships • Regulatory capture and vested interests Tobacco industry in Malawi

19. Tobacco industry in Malawi 7. Conclusions • Conditions prevailing in the market • Role of the State and public policies in the market • Transparency in the sector • Practices restricting competition in the sector • Regulatory capture and vested interests 8. Recommendations

20. Conclusions of the study I. Conditions in the market • Lack of effective competition and weak law enforcement - adverse effect on profitability of smallholder farmers • Low tobacco prices due to monopsony power, transactions costs, regulatory issues and industry structure • No improvement in the productivity of farmers and no incentives for farmers to increase productivity • Liberalization of tobacco in 1992 – Failure to regulate production afterwards so oversupply, lower prices and poor quality and poor grading, increased rejection rates at auction markets. Tobacco industry in Malawi

21. Conclusions of the study II. Competition at various stages of the value chain • Production – under contract or auction sales: Competitive, dominated by smallholder farmers. • Transport sector: • Preference for domestic transporters (charge more) over internationals for transportation of tobacco to auction markets. • Allegations of collusive tendering by Malawian transporters • Vested interests – transporters which are also tobacco farmers Tobacco industry in Malawi

22. Conclusions of the study II. Competition at various stages of the value chain • Marketing – main challenges of competition • Lack of competition at twolevels: auctionfloors and buyer concentration. • Auctionfloors–monopoly operating all auctionfloors in Malawi; lobbying against entry despitedemandfrominvestors and farmers, hencehigher transaction costs for farmers. • Exporting: Vertical integration–Buyers of tobacco export and ownprocessingfacilitiessofarmerscannotadd value to the crop. Tobacco industry in Malawi

23. Tobacco industry in Malawi Conclusions of the study III. Public policies and regulation in the tobacco industry • Regulation of production, grading and marketing by Tobacco Control Commission • Regulatory capture by tobacco growers, buyers and exporters • Failure to detect collusion and price-fixing among buyers • Weak regulation due to lack of production and market information

24. Conclusions of the study IV. Market transparency • Lack of information on the number and categories of growers, the number of registered vs. actual growers and updated auction market information. • Doubts about auction operator monopoly lobbying the Government against new entry. • Lack of transparency and hence weak and ineffective regulation. Tobacco industry in Malawi

25. Conclusions of the study V. Practices limiting competition in tobacco industry • The oligopolistic structure of the global cigarette industry determines the extent of entry into tobacco marketing at the domestic level. • Possible collusive pricing behaviour, which is difficult to detect due to lack of marketing information as well as vertical relationships between growers, growers’ associations, sector regulator and buyers. Tobacco industry in Malawi

26. Conclusions of the study V. Practices limiting competition in tobacco industry • Undervaluation of quality of tobacco in the markets. • Strong vested interests with many players aligned with the Government and growers. • International mergers affecting the level of competition in the domestic market through declining number of buyers, thereby increasing monopsony power. Tobacco industry in Malawi

27. Tobacco industry in Malawi VI. Other factors affecting competition: Sales through auction markets versus contracts • Sector regulator allocates contract volumes to a small number of buyers so growth in contract marketing implies less competitive marketing of tobacco. • Contract marketing can be a barrier to new entry while it facilitates access to inputs by smallholder farmers. • Contract marketing requires a good understanding of the nature and conditions of contracts. Without regulation and monitoring, these contracts can be to the disadvantage of growers. • Contract marketing is an alternative to auction markets and hence weakens competition in the latter.

28. Recommendations of the study • Improve the regulatory framework to promote competition in the tobacco sector. • Revise the legislation to make the sector regulator and competition authority independent and free of vested interests and regulatory capture: Both the Tobacco Control Commission (TCC) and the Malawi Competition and Fair Trade Commission (CFTC) have representatives from organizations with vested interets on their Boards. • Privatize the share of the Government (42.6 %) in Auction Holdings Limited, the monopolist operating all auction markets in Malawi. Tobacco industry in Malawi

29. Tobacco industry in Malawi Recommendations of the study • Strengthen the capacity of the sector regulator (TCC) and competition authority (CFTC). Some allegations of anti-competitive practices could be investigated by CFTC if they had adequate technical staff. • Increase the resources of the CFTC, both human and financial, so that allegations of anti-competitive practices can be investigated.

30. Market Studies - UNCTAD SomeMarketStudiesprepared by UNCTAD 1. Competition Issues in the Tobacco Industry of Malawi (2011) http://unctad.org/en/PublicationsLibrary/ditcclp2011d5_en.pdf 2. The Petroleum Industry in Zambia: A study on market structure and competition (2011) http://unctad.org/en/Docs/ditcclp2011d1_en.pdf 3. Cocoa Study: Industry Structures and Competition - A study prepared by the UNCTAD secretariat (2008) http://unctad.org/en/Docs/ditccom20081_en.pdf

31. Thank you for your attention Ebru Gokce Dessemond E-mail: ebru.gokce@unctad.org