Antimonopoly control on the food and drug markets after the abolition of COVID-19 emergency measures
COVID-19 virus pandemic and decline of the Ruble led to certain changes in food and drug pricing in the last few months, due to which the Russian Federal Antimonopoly Service (FAS) immediately tightened control over the situation on these markets. However, should the companies plan on the ease of control over product pricing after the abolition of COVID-19 emergency measures and stabilization of the epidemiological situation?
How the FAS is going to control food and drug markets?

During the following months the enhanced control of the FAS and its' territorial bodies will survive on the markets of food products, drugs and personal protective equipment.

The control of the antitrust authority results in unscheduled audits of retail and pharmacy chains in order to check the level of prices for different products and / or insure that there is no product shortage. This relates especially to the socially important and essential food products, included in the List, such as milk, bread, eggs, etc., which prices the FAS now monitors on a daily basis.

However, not only retailers are under the risk of audits and antitrust accusations, but also other participants of a supply chain. The reasons for unscheduled antitrust audits of food and drug manufacturers and suppliers in this crisis period are as follows:

Daily monitoring of prices for socially important and essential food products;

Prosecutor's demand (by order of the President of Russia the antitrust authority actively interacts with the Office of the Prosecutor General of Russia to suppress an unjustified price increase, the Decree of the Government of Russia was issued in April allowing the Prosecutor General and regional prosecutor's offices to initiate antitrust audits in 2020 year);

Public statements and recommendations of the company's representatives, consumer and trade unions about the upcoming price increase or product shortage (e.g. recommendations of the consumer union of the Tatarstan Republic to increase prices for bread and bakery led to filing of an antitrust case concerning coordination of prices for bread in this region);

Complaints of food and pharmacy retailers filed to the FAS in regard to inflated wholesale prices for products;

Complaints of individuals filed to the FAS in regard to an increase of retail prices for food or medicines;

The appointment made by the FAS of its territorial bodies to investigate companies on the particular market in regard to an unjustified price increase or cartel agreement.

The good news is that the FAS cancelled all planned audits for 2020 year, however this doesn't eliminate the risk of unscheduled audits, which have been conducted much more often since march.
Current problems of pricing for food products

The most closely watched by the FAS in terms of price control will be the wholesalers and manufacturers of products, which inflate the selling prices for retailers.

Many factors contribute to the increase of selling prices for products during pandemic. However, the FAS upholds only a number of economic reasons influencing the production costs, including:

Reduced supplies from abroad and increase of prices by importers. However, it has to be considered what percent of all production costs constitutes the imported component. If, for example, only one non-essential ingredient of a product is imported, it is hard to justify higher price for the product by the raise of import prices for this ingredient only.

Panic buying, which is caused by consumer misleading news in the media: 1) about the healing effect of certain products against COVID-19; 2) about upcoming increase of prices and / or product shortage.

Seasonal demand for certain food products, which occurs every year.

In addition, retailers may refuse to accept new selling prices of suppliers if they consider the reasons for their increase unreasonable. Retailers often monitor each other's prices in order to determine if a supplier has raised the price only for a particular retail chain or for all of supplier's contractors on the retail market. An increase in selling prices for one particular retailer will not only lead to retailer's rejection to accept new prices, but may also violate antitrust laws.

Any pressure on the retailer in the crisis period in order to achieve agreement on new prices creates the risk of the retailer contacting the FAS. Also, due to the opening of borders and the resumption of imports, retailers may switch to direct supplies of products from abroad at lower prices if the Russian supplier unreasonably raises its trade margin and refuses to ship products when the retailer does not accept new inflated prices.

Main antitrust charges against manufacturers and wholesalers

In this crisis period manufacturers of food products and drugs are most often accused of unreasonably raised selling prices and unlawful refuse to supply products to retailers at prices agreed before the pandemic, as in the case with Mistral Trading LLC. In recent months, the main tool used by the FAS to prevent antitrust violations was the issuance of warnings to businesses regarding inflated prices or in case of public statements made by the company's representatives about the plans to increase prices for their products, or similar statements and recommendations by the members of professional communities, such as the warning to the Head of Rusprodsoyuz. This strategy used by the antitrust authority helped to react quickly to the unjustified price increases and not to bring excessive pressure on business in the time of crisis. However, after the abolition of emergency measures in Russia, the FAS is likely to return to tougher response measures and will initiate antitrust cases in regard to similar violations.

For the past few month, several cartel cases were initiated by the FAS, including cartel agreements on the drug market. Wholesalers on low-competitive markets are those who are at the most risk to be accused of cartel agreements in the crisis period, such as in the case against suppliers of medical masks in Krasnoyarsk who supplied masks at inflated prices to two neighboring regions (Khakassia and Tyva) that do not have their own production of masks.

Recommendations for manufacturers and wholesalers

Based on analysis of the law enforcement practice of the FAS of the last few months, we recommend manufacturers and wholesalers to:

Refrain from making any public statements about upcoming increase of prices for consumer goods, including recommendations to increase prices or forecasts about higher prices for particular products, as well as forecasts about product shortage;

In case of increase in selling prices for wholesalers or retail, state clearly the reason for such price increase by sending a written notice to the contractor;

Before sending a notice about increase of selling prices, analyze whether the specified economic reasons for such increase are upheld by the FAS in the law enforcement practice of the crisis period;

Refrains from contacts with competitors.
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