2022 edible oil crisis: Shabnam Vegetable Oil fined Tk32.44cr for market manipulation

The Bangladesh Competition Commission has imposed a Tk32.44 crore administrative fine on T K Group-owned Shabnam Vegetable Oil Industries Ltd after finding the company guilty of restricting edible oil production and supply and colluding with other market players to artificially inflate prices during the 2022 edible oil crisis.

The body issued its final order on 29 April this year in Suo Motu Case No 11 of 2022, according to a press release signed by Bangladesh Competition Commission Secretary Mahbubur Rahman Khan yesterday (11 June).

The case was filed under the Competition Act, 2012, over allegations of abnormal increases in edible oil prices through collusion and the limitation or control of production, supply and market operations.

The commission concluded that between 1 January and 30 June 2022, Shabnam Vegetable Oil Industries restricted production and supply of edible oil and coordinated with other producers and supply order holders to control the market, causing prices to rise abnormally within a short period.

"These actions constitute punishable offences under Section 15(1), Section 15(2)(a)(i) and Section 15(2)(b) of the Competition Act, 2012," the commission said.
Findings linked to 2022 edible oil crisis

The investigation stemmed from a probe by the Directorate of National Consumer Rights Protection into the sharp rise in edible oil prices during February and March 2022.
The consumer watchdog found evidence that eight companies had created supply shortages and committed irregularities involving supply orders.

Based on those findings, the Competition Commission formed a three-member inquiry committee, which initially found prima facie evidence against five companies, Globe Edible Oil Ltd, City Edible Oil Ltd, Meghna and United Edible Oil Ltd, Bangladesh Edible Oil Ltd, and Bashundhara Multi Food Products Ltd, for allegedly manipulating prices and restricting supply.

Subsequently, relying on its own investigation and the consumer rights directorate's report, the commission decided to bring charges against Shabnam Vegetable Oil Industries.
Expired supply orders and collusion

According to the commission, Shabnam Vegetable Oil used expired supply orders in violation of the Essential Commodities Marketing and Distributor Appointment Order, 2011.
Under Clause 9(3) of the order, supply orders remain valid for a maximum of 15 days and cannot be extended under any circumstances.

Products cannot legally be delivered against expired supply orders.

However, investigators found that edible oil continued to be supplied against expired SOs.

The commission said this indicated indirect collusion between the company and SO holders, amounting to an anti-competitive agreement under Section 15(1) of the Competition Act.

The commission further alleged that the company's failure to deliver products within the stipulated period created an artificial shortage in the market, effectively limiting supply and controlling the market in breach of Section 15(2)(b).

It also found that the same supply orders changed hands multiple times. Each successive buyer allegedly increased prices in pursuit of profit, resulting in repeated mark-ups and a continuous rise in edible oil prices, violating Section 15(2)(a)(i) of the law.

The commission noted that Shabnam Vegetable Oil took no effective measures to prevent supplies against expired SOs or curb the resulting price increases.

Production cut despite Ramadan demand

Examining the company's records, the commission found that Shabnam Vegetable Oil utilised only 56.35% of its production capacity during February and March 2022.
During the same period, other edible oil manufacturers operated between 39.06% and 84.61% of their installed capacities.

The commission observed that major soybean oil producers simultaneously reduced production despite continued market demand.

It also found that Shabnam Vegetable Oil and several other companies cut market supplies while maintaining substantial stocks of crude soybean oil at their factories.
The period coincided with increased consumer demand ahead of Ramadan in April and Eid-ul-Fitr in May 2022.

"Despite rising demand, major soybean oil producers reduced production and supply, which contributed to higher prices in the market," the commission said.

Data from the Trading Corporation of Bangladesh (TCB) showed that between January and May 2022, prices of loose soybean oil rose by 22.47%, while bottled soybean oil prices increased by 26.67%.

The commission said the explanations offered by Shabnam Vegetable Oil regarding the price hikes were not satisfactory.

The Tk32.44cr fine

In determining the penalty, the commission considered the company's average annual turnover based on audited financial statements for the 2019-20, 2020-21 and 2021-22 fiscal years, as well as the fact that this was the first case filed against the company before the Competition Commission.

Under Section 20 of the Competition Act, the commission imposed an administrative financial penalty of Tk32.44 crore.

The company has been instructed to pay the fine within 30 working days from the date of the final order.

However, it retains the right to appeal or seek a review of the order in accordance with the law.