Monday, March 7, 2011

Special report: possible predatory pricing by Nestle Philippines?

"Is Nestle Phils guilty of predatory pricing?"
by Joel Pablo Salud, Editor, Philippines Graphic
Published online on 06 March 2011; available on the newsstands on 07 March 2011

"Special Report

NESTLÉ Philippines, a subsidiary of the world’s largest food conglomerate Nestlé International (2008 net profit: $16 billion), is facing charges of alleged predatory pricing before the Department of Trade and Industry (DTI).

Locking horns with Nestlé Philippines are its own distributors—Service Edge Distribution Inc. (Sedi) and FDI Forefront II Trading. Both alleged that the multinational corporation “caused them to incur P300 million in losses because of the strict controls and aggressive sales targets of Nestlé.”

According to Lorna Kapunan, legal counsel for the respondents: “The complaint alleged that the pricing policies of Nestlé constituted predatory pricing because Nestlé was selling its products at a very low price, intending to drive competitors out of the market or create a barrier of entry for potential new competitors.”

Predatory pricing

Predatory pricing, by definition, should not be confused with normal price competition. In a nutshell, predatory pricing is the slicing down of prices to levels way below competitive standards for the mere intention of cutting down competitors.

The practice of vertical price restraint pertains to the agreement between manufacturer and distributor on the setting of minimum price levels at which the product can be sold in the market.

Nestlé Philippines denied the allegations in the complaint, claiming that “the individual respondents did not do anything wrong; that the FDI issue is closed because of the quit claim; and that Sedi’s distribution agreement has been received,” according to the distributor’s counsel.

As such, following the legal technicalities that ensued, Nestlé argued in its motion to dismiss that “the DTI has no jurisdiction over the case because it is merely a civil suit masquerading as a regulatory case to escape the payment of filing fees.”

Furthermore, Nestlé insisted that respondents had failed to solidify a case of predatory pricing by “failing to hurdle the two-pronged test in the US case of Brooke v Brown.”

“We filed our oppositions on the two motions, arguing that the grounds cited in the motions to dismiss is best thrashed out in the trial on the merits and that the hearing officer only followed its mandate to arrive at a just resolution of the case in a speedy and expeditious manner,” counsel for the respondents said.

The hearing officer thereafter issued an order requiring the Bureau of Trade Regulation and Consumer Protection of the DTI to see if there is “probable cause” to file a formal charge against Nestlé.

“We filed a manifestation stating that a formal charge is to enforce the administrative liability and not criminal liability as implied by the term ‘probable cause,” counsel for the respondents explained. “We also informed the DTI that we have filed a criminal case in Quezon City to enforce the criminal liability of Nestle.”

Also last year, following an independent investigation of the case at hand, one of the country’s largest banks—Banco de Oro—hauled Nestlé Philippines in a P170-million legal debacle. To be concluded *This article is originally published in this week’s issue of The Philippines Graphic magazine, which hits newsstands Monday, March 7."

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