The Consumer Council today (August 7) released the findings of its study on the live pig trade.
The study followed a public outcry over the sharp price fluctuations of live pigs in January this year.
It sought to ascertain if there might be any anti-competitive conduct in the importation and auctioning of live pigs for the fresh pork market.
The issue of vertical integration that exists in the trade and the possibility of market power being misused was also examined.
The study was based on information and data both publicly available and provided by the Food and Environmental Hygiene Department, and operators in the trade.
In the study, the Council has not found any direct evidence of restrictive practices or abuse of market power that hinders the competitive environment of the live pig trade.
On the whole, the auction processes were observed to be open with improved information transparency in the operation of the auction market.
The new measures introduced, including seeking the Mainland Ministry of Commerce's assistance in maintaining a sufficient and stable supply of pigs to Hong Kong, and the Hong Kong Government's public announcement on a daily basis on the supply of live pigs for the following day, have improved transparency in the operation of the live pig auction market.
Further, the study found the issue of limited supply of 'laans' in slaughterhouse no longer a problem.
Earlier, new logistical arrangements were put in place for auctioning the livestock immediately upon arriving at the slaughterhouse. In the latest Government initiative in opening up 'laans' to new entrants, early morning auction sessions have now been resumed.
As there is no barrier to entry in the market for buying pigs for supply to retailers, the retail level is characterized by many fresh food stores, and the big supermarkets have only a small share of the fresh pork market.
The study noted that the Council's ability to examine issues of anti-competitive or collusive practices is limited, as it is not an investigative body with power to obtain evidence similar to that available to authorities that administer competition laws.
It cited as examples some conditions in the live pig wholesale market that could be considered conducive to collusive conduct, i.e. swapping price information, discussions between competitors.
However, their mere presence does not mean that action should be taken to remove them, because by and large some of these market practices are necessary features of the efficient operation of the trade.
The Government has indicated that it will introduce a general competition law that will prohibit collusive price agreements and bid rigging.
The task of investigating such issues is therefore a matter best left to the future competition authority that will administer the law with appropriate investigative powers.
In the study, the Consumer Council, however, has found some unusual patterns of "aggressive" bidding in the auction of live pigs.
Such instances of aggressive bidding inevitably caused the maximum prices to deviate substantially from the average price in the wholesale auction market at the time.
Government data available to the Council have shown that a few buyers (with only a small market share) were engaged in unusual patterns of aggressive bids.
The bidding behaviour of these buyers in question was observed to be in sharp contrast to that of the average bidders.
The Council is concerned over the impact, although it has no evidence, that such abnormal aggressive bidding might have on the market and on the ultimate retail pricing of fresh pork.
Retail prices of fresh pork have remained at a consistently high level despite a drop of 9% in average wholesale prices since March The retail price increased to $39 a catty in February and has since remained at this level. The price of fresh pork has increased by more than 62% in a year.
The study also emphasized the importance of adequate supply to meet demand; though to an overwhelming extent, this is being met and depends on Mainland supply and demand conditions.
Because of the decline in the local farming of pigs in Hong Kong, due to environmental concerns, domestic supply has a limited impact in smoothing out occasional supply discrepancies that might arise in the market.
Price fluctuations at auction could be induced by small shortages in the market. However, the Council has found that temporary shortage of supply only mildly affects the average auction price.
Pending the introduction of the proposed cross-sector competition law, the Council has recommended the formation of a complaints handling scheme as a condition for the operation of slaughter houses.
Further, depending on the extent to which a dominant operator's vertical integration evolves in the future affecting the market competition environment, the Government could consider whether "firewall" measures should be introduced to ensure fair competition.
The report of the Study on Live Pig Pricing is available at the Council's website at www.consumer.org.hk.