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Explained: Why has CCI penalised beer companies UB, Carlsberg and spared AB InBev?

The CCI found that beer companies also coordinated cuts in supply of beer in Odisha, Maharashtra and West Bengal to oppose moves by state governments to hike excise duties or reduce the price of beer.

Written by Karunjit Singh , Edited by Explained Desk | New Delhi |
Updated: October 13, 2021 3:00:52 pm
The CCI noted that such state policies “cannot be taken as an excuse for entering into price co-ordination by the parties.”

The Competition Commission of India has imposed penalties of Rs 873 crore on United Breweries Ltd (UBL), Carlsberg India Pvt Ltd (CIPL), All India Brewers Association (AIBA) and 11 individuals for cartelisation in the sale and supply of beer. Anheuser Busch InBev India was also found to be part of the cartel fixing beer prices but did not face a fine as it was the first company to provide key evidence in the investigation. We examine the findings by the CCI.

Why are beer companies being penalised

The search and seizures conducted by the Director General of the CCI during an investigation found regular communications between the three companies to coordinate price hikes submitted to state authorities for approval.

The investigation found that key managerial personnel emailed competitors about the price hikes they were planning to propose to state authorities in various states and sought to coordinate price hikes.

Representatives of the beer companies held discussions among themselves about prospective quotes and the way forward with state excise departments and used to meet with excise authority under the umbrella of the AIBA so that they would have a better chance of getting proposed price increases approved. The AIBA was also fined for its role in arranging discussion between beer companies on various issues including pricing. The CCI cited multiple instances of the companies making identical price revisions for competing products.

In the case of Maharashtra, the CCI found that price revisions by UBL and AB InBev since 2011 showed an “uncanny closeness” in timing with Carlsberg India also joining the two companies in making price revisions around the same time since April 2014.

The CCI found that beer companies also coordinated cuts in supply of beer in Odisha, Maharashtra and West Bengal to oppose moves by state governments to hike excise duties or reduce the price of beer.

The CCI also found that UBL and AB InBev had agreements on the price at which they would procure used bottles from bottle collectors for reuse at their breweries.

What was the rationale of the beer companies?

Key managerial personnel from the beer companies who were also penalised by the CCI cited the need to seek approvals from state authorities for any price revisions as a key reason for the need for coordination among competitors. In one case an executive at UBL said that as price changes were only permitted on three specific dates in a year in Karnataka, competitors would exchange notes and price main products similarly to “ensure that we do not suffer huge losses as a result of this policy.”

In its submission to the CCI UBL said that “draconian laws and practices adopted by the states make it impossible for Beer companies to compete in the ordinary course of business,” highlighting the fact that the final price of their products was subject to the approval of state authorities.

The CCI noted that such state policies “cannot be taken as an excuse for entering into price co-ordination by the parties.”

Why was AB InBev not penalised?

All three beer companies, UBL, CIPL and AB InBev had applied for a reduction in penalty. AB InBev was given a 100 per cent reduction in penalty as the company explained the nature of the cartel and submitted evidence of email communications between key managerial personnel at an early stage in the investigation. The final penalty of Rs 751.8 crore on UBL and Rs 120.6 crore CIPL also included reductions in penalties of 40 per cent and 20 per cent respectively for cooperation with the investigation by the CCI.

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