Georgian Mills vs. Monopoly
28 March, 2013
Georgian Mills vs. Monopoly

Georgian mills and wheat traders call on government that the Azeri-based Karmen that is grabbing the market by dumping prices, is supposed to become a monopolist that poses food security risks in the country if anti-trust remedies are not undertaken as soon as possible.


Georgian mills face a problem how to survive the dumping price policy of alleged monopolist comp
any Karmen in the interval of legislative gap, while the anti-trust bill that is under vision at the moment, will become a law. The bill is expected to become a law by end of this spring however the law enforcement related procedures will also take couple of months that cuts much ice with the emerging monopolist: Karmen allegedly covering 50% of the sale market and more than 70-80% of the elevator infrastructure in the country, has plenty of time and resources to go ahead with its dumping prices, hurl small market players away and become a monopolist in wheat and flour market thus undermining the food security of the country. The point is that small mills and traders working on banking loans fixing at least 15% and with restricted elevator access cannot resist Karmen’s predatory dumping policy selling a 50 kilo flour-sack for 41 lari since past December when others have to sell similar sack for GEL 45. In December Karmen [that out of 300 thousand tons of total elevator capacity of the country owns 220 thousand tons of elevator capacity] procured 120 tons of Kazakh wheat for USD 350 per ton that makes three-months reserve for Georgia. The remainder 80% of wheat storing and processing capacity is made by small elevators with mills operating in the country out of which the biggest can handle with the 15 thousand tons. Otherwise nobody can make as big wheat storages as Karmen to compete its pricing. To make equally bigger procurements mills have to refer to Karmen’s elevators that Karmen will either refuse or fix high service prices that will increase the product’s self-price at any rate. Thanks to its huge potential Karmen since December produces around 1350 tons of flour per day that by at least 50 thousand exceeds the Georgian daily consumption of 1200-1300 tons.
Now when wheat price crept to USD 400 per ton Karmen with big reserves in store easily maintains low prices that its competitors cannot afford. Drop in sales put mills on the brim of bankruptcy. To survive mills started importing flour instead of wheat that is cheaper and demands fewer workforces. Commensurately part of labor force is dismissed and Georgian economy is at loss at large as wheat processing, that unlike flour import adds a value in the local economy, reduced.
“All this poses food security risks in the country as Karmen tends to become a monopolist and dictate prices not on flour alone but on locally produced wheat too as impoverished mills cannot buy wheat from local farmers enhancing wheat fields under the state program this year,” Levan Silagava, Head of the Association of Georgian Wheat Producers (AGWP), warns.
Karmen swears it covers just 35% of Georgian market [that is below the 40% legally acknowledged as the benchmark to call a company a monopolist in Georgia] and works on 50% of its capacity. However if it starts working at its full potential [of which the company has full capacity] that will double its market share to 70% and even higher if petty fry will be ousted during its dumping policy. Karmen in its turn accuses Georgian traders in cartel agreement aimed on fixing artificially evened prices that compelled Karmen to leave the AGWP in protest. Silagava assures Karmen quit because the organization discovered Karmen’s monopolist position.
“The point is that since December we discovered that out of around 1200 tons of total daily flour sales in Georgia about 200-250 ton remained in the air and we decided to carry a monitoring to find out who was behind this said volume. Karmen assured it used to sell 300 tons per day however discarded our monitoring idea and quit. Later the owner of the company contacted saying the company sells 600 tons [that actually makes 50% of the entire market daily sales] and plans to sell more,” Silagava explained to Georgian Journal. “That means Karmen with its huge financial and infrastructure resources will become a market monopolist soon as small mills and wheat importers working on expensive banking credits and far smaller capacities cannot compete.”

 

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