On March 30, the BRICS Working Group for the Research of Competition Issues in Food Markets met on the topic "Volatility in World Food Markets: Challenges and Solutions.”
AndreyTsyganov, Deputy Head of FAS Russia, opened the meeting with a discussion of global issues related to the current changes on the global food market. Disruptions in food supplies and price instability undermine the well-being of citizens and food security and, consequently, lead to increased socio-political instability. However, the coordinated work of the regulators of the BRICS countries and other partner countries can contribute to the development and implementation of adequate measures in response to the challenges of the global food market.
The Russian agricultural markets are very competitive, they have many players, and antitrust control measures should be applied carefully, said Larisa Vovkivskaya, Head of the Department for Control over Agro-industrial Complex of the FAS Russia. The development of the exchange trade and implementation of antimonopoly compliance became the main FAS activity directions in the agricultural sector. Another important topic is control over the provision of subsidies to agricultural enterprises, Andrey Tsyganov added.
"Five to ten years ago we saw violations in almost every subject of the Russian Federation: unclear conditions for granting subsidies, attempts to allocate money to their favorites, setting complex criteria for farmers, etc. Now the situation is getting better. Before there were hundreds of such violations, today the order of numbers has changed greatly,"
said the Deputy Head of the FAS.
Nadezhda Sharavskaya, Head of the Department for Social Sphere, Trade and Non-productive Services of the FAS Russia, addressed the measures to preserve the affordability of goods for the citizens. They include price monitoring and control of dominant business entities, structural prescriptions for trade networks and approval of voluntary commitments of retailers to limit markups. An important area of work is also the development of marketplaces and ensuring equal access of producers to them.
Compared to consumer goods (that are subject to government control) prices for agricultural goods are more susceptible to fluctuation, said Alexey Ivanov, Director of the BRICS International Competition Law and Policy Centre. Serious growth of export restrictions in different countries leads to significant destabilization of the global market. Russian farmers find themselves squeezed between two established oligopolies — traders who control the global supply chain, and suppliers of means of production (seeds, agrochemicals, equipment and various kinds of IT solutions). With low grain prices, export restrictions, and the country's gradual disconnection from the global infrastructure, the negative consequences for our farmers are intensifying.
The concept of global value chains can provide antitrust regulators with a more complete and accurate understanding of markets. It was described in detail in the book “Global Food Value Chains and Competition Law”, published by Cambridge University Press in 2022. The BRICS Centre experts diagnosed stress points at different levels of the global chain and proposed solutions to eliminate problematic bottlenecks in it.
One of the big problems often ignored by antitrust agencies is the financialization of the food sector, which is highly dependent on fluctuations in global capital markets.
"The global companies that control the chain know where and at what point problems are going to happen. They can significantly influence supply and demand and provide financial speculation. For them, fluctuation, endless volatility, is a source of income and a way to increase their market power. This power stems not from the control of commodities, but from the control of information and work in the financial markets,"
In addition, there is increasing market concentration on several fronts. Through vertical mergers, traders gain control of infrastructure, buy ports and carriers. Also, all sorts of conglomerates and partnerships are created, which at first glance look positive, but, on the other hand, form a strong core of monopolists. There is also the problem of concentration of market power in certain elements of the global chain. Thus, the bargaining power of 10 global traders exceeds that of 1.5 billion farmers. The terms on which farmers will work with these traders may prove to be bondage. Such tight economic dependence is a critical antitrust problem, Ivanov emphasized.
One of the possible solutions of these problems could be the project "Agrofinmost", which implies a shift from speculative trading mechanisms to the mechanisms of partnership long-term financing of grain procurement and production. If we talk about Eurasian space, the major producers are Kazakhstan and Russia, and consumers are Turkey, Egypt and Iran.
To ensure a return steady flow of financial resources for farmers, an Islamic banking mechanism was proposed to help avoid speculation.
"It is very important to connect the very 42% of the world's population that lives in the BRICS+ countries. This is an imperative for future development. We need to create normal working mechanisms linking producers and consumers of these countries with each other,"
Alexey Ivanov is convinced.
In conclusion, the Director of the BRICS Centre suggested gathering a consortium of antimonopoly agencies of the countries integrated into the grain trade in the Eurasian space and conducting a joint Comprehensive Sector Inquiry.
"We need a mechanism of relations, including transport, financial interaction, activity on joint procurement of means of production. We could think about how to overcome the bottlenecks in the chain and build a scheme of cooperation in the Eurasian space.”
The relevance of the global value chain concept mentioned by Alexey Ivanov was emphasized by Hardin Ratshisusu, Deputy Commissioner of the Competition Commission of South Africa (CCSA). He noted that the Commission addressed this concept during the Fresh Produce Market Inquiry launched in March.
“The market inquiry will follow a value chain analysis approach to fully understand the dynamics of competition in the identified markets. In essence, from seeds, farming and to the retail shelves. This is something that BRICS Competition Law Centre has been advocating and we will start applying those tools in understanding some of the challenges we are facing in our markets. And this is one of such, I suppose, appropriate inquiries that these tools can be adopted to.”
Rowan Wael Aziz, Economic Researcher, Competition Authority of Egypt, highlighted the problems that are in the focus of the Egyptian regulator. She stressed that a breakdown in one part of the value chain affects other elements, and the interdependence of the economies of different countries affects food security. For example, 62.8% of Egypt's wheat is imported from Russia. At the same time, Russia accounts for 33% of Egyptian citrus exports and 13.3% of potato exports. Wheat and potatoes are socially important products in both countries. The problems of increasing vertical integration in the food chain and the growing power of retail chains in Egypt through the promotion of private labels were also mentioned.
Aldash Aitzhanov, President of JSC "Center for Development and Protection of Competition Policy", NGO "Eurasian Alliance of Antimonopoly Experts, Kazakhstan, noted that last year the Agency for Protection and Development of Competition of Kazakhstan together with the sectoral state bodies adopted a road map to develop competition in the agricultural sector. The document provides for control over fair distribution of state subsidies and transition from state regulation of prices for socially important food products to targeted assistance, among other things. Aldash Aitzhanov also expressed the readiness of the "Center for Development and Protection of Competition Policy" to participate in the Comprehensive Sector Inquiry proposed by Alexey Ivanov.
CUTS International is ready to join the Inquiry, noted Ujjwal Kumar, Associate Director, CUTS International. He raised the issue of the need to adjust the global mechanism for allocating subsidies in the agribusiness sector. The WTO Agreement on Agriculture is written in such a way that the priority for subsidies is given mainly to developed countries. Thus, 7 WTO members account for 96% of all support measures in the agricultural sector. The global reform of the subsidy mechanism is an issue to be put on the agenda of the annual ICN Annual Conference. This issue also needs to be discussed by the competition authorities of the BRICS countries, emphasized Ujjwal Kumar.
At the end of the session Alexey Ivanov drew attention to the fact that in many countries antimonopoly regulation has become a technological thing in itself and is losing relevance to political and economic management.
"This should not be the case. In the United States, for example, the political value of antitrust regulation is very clearly understood. Authorities generally understand that through the means of antitrust regulation, efficiency in other industries can be substantially improved, better outcomes can be achieved, inequality can be addressed, etc. Positive advocacy, demonstration of utility is a very important thing."
The event was held within the framework of the Roundtable on "Activities of antimonopoly authorities in socially significant food markets in modern conditions” held on March 27-31 in Kazan.