UNDERSTANDING TIED OR CONDITIONAL SELLING: PROMOTING COMPETITION IN THE POULTRY SECTOR

1. Introduction

In the recent past, the Competition and Tariff Commission (the Commission) received numerous complaints from poultry farmers alleging restrictive practices in the selling and distribution of day-old broiler chicks and broiler stock feed. Farmers reported that some distributors required them to buy a specified quantity of broiler stock feed before being allowed to purchase day-old broiler chicks, a practice known as tied or conditional selling. This arrangement undermines farmers’ freedom to choose their preferred suppliers, reduces farmers’ profitability, and threatens the poultry industry’s sustainability.

2. What Is Tied or Conditional Selling?

Tied or conditional selling occurs when a supplier makes the sale of one product or service (tying product) conditional upon the purchase of another product or service (tied product), and thus the tying product is not sold separately. In the poultry sector, this occurs when a distributor makes the sale of day-old chicks(DOC) dependent on the farmer purchasing broiler stock feed from the same supplier. Tied and conditional selling is a breach of competition law and policy.

3. Prohibition of Tied or Conditional Selling

Section 2 of the Competition Act [Chapter 14:28] (the Act) defines tied or conditional selling as “any situation where the sale of one commodity or service is conditional on the purchase of another commodity or service.” The Act prohibits tied or conditional selling as a restrictive practice. A restrictive practice is defined in relation to tied and conditional selling as any agreement, arrangement or understanding, whether enforceable or not, between two or more persons, any business practice or method of trading, any deliberate act or omission on the part of any person, whether acting independently or in concert with any other person or any situation arising out of the activities of any person or class of persons, which restricts competition directly or indirectly to a material degree, in that it has or is likely to have the effect of limiting the commodity or service available due to tied or conditional selling.

4. Investigations by the Competition and Tariff Commission

Section 28 of the Act empowers the Commission to make such investigation, as it considers necessary, into any restrictive practice which it believe exists or may come into existence. Following receipt of complaints regarding alleged restrictive practices in the distribution of broiler stock feed and DOC, the Commission carried out investigations as provided for in Section 28 (2) of the Act. The Commission established that certain distributors made the sale of DOC, conditional upon the purchase of feed, particularly during periods of shortage, such as the festive seasons or disease outbreaks, when demand exceeded supply.

Post the investigation, the Commission issued orders against offending distributors, noting that such conduct restricted farmer choice, inflated costs, and unfairly disadvantaged other feed or chick distributors who were not bundling their products in a similar manner. The Commission established that these practices “enhanced the price of day-old chicks as the farmer has limited choice on stock feed suppliers” and “are detrimental to other stock feed distributors as they deny them access to customers.” Such anti-competitive practices encourage inefficiencies, deter investment, undermine fair competition and raise production costs for farmers.

5. Why Competition Matters in the Poultry Sector

A competitive poultry sector benefits both farmers and consumers. When distributors compete freely, they are driven to offer higher-quality inputs at fair prices, fostering efficiency, innovation, and diversity in the market. Conversely, when competition is restricted through tied or conditional selling, farmers lose the freedom to choose and prices usually rise. The overall effect is an unbalanced market that favours dominant players and squeezes out smaller suppliers.

6. Competition Concerns Arising from Tied or Conditional Selling

While some distributors justified their engaging in tied or conditional selling to ensure feed quality or reduce chick mortality, the pro-competitive gains from the conduct were outweighed by the anti-competitive effects on the poultry value chain, including: -

• Reduced Farmer Choice: Farmers lose the flexibility to choose feed brands that best suit their production needs and budgets, potentially lowering productivity.
• Market Inefficiencies: Large firms gain an unfair advantage, making it difficult for smaller suppliers to compete or enter the market.
• Higher Production Costs: it may lead to enhancement of prices of the tied product as farmers are denied access to alternative suppliers. When farmers are forced to buy overpriced feed, it increases their overall costs.
• Barriers to Entry: Actual and potential competitors  may be foreclosed from accessing the market when customers are already locked into conditional agreements, thereby discouraging competition.

7. Conclusion

Competition is essential for a competitive and sustainable poultry industry. Distributors should compete on efficiency and quality of service, and not by engaging in restrictive practices. Farmers, in turn, should exercise their right to choose freely and report anti-competitive conduct to the Commission. Farmers are also encouraged to co-operate with the Commission by providing required information during investigations or market studies.

Distributors are required to uphold fair trading principles by allowing independent purchasing decisions; they should train their staff on compliance with the Act and ethical business practices; and avoid restrictive arrangements that limit market access or distort competition. The Commission remains committed to promoting competition in the sector for the ultimate benefit of the general public. By promoting competition, Zimbabwe’s poultry sector can continue to grow in a way that benefits producers, consumers, and the economy as a whole.