Philippines Graphic responds to Nestle

"Nestle response has no legal basis - NPI distributors"

by Joel Pablo Salud

Published in Business Mirror and Philippines Graphic on 21 April 2011

(Original article available online here)

"Nestlé Philippines, Inc.’s (NPI’s) response to accusations of predatory pricing appears to be based on unfounded generalizations than what is actually founded on law.

Atty. Lorna Kapunan, counsel for Nestlé’s distributors, said what Nestlé has is a “vertical price agreement,” which is a competition restriction between firms that governs products made by NPI. This agreement “is still considered predatory pricing.”

Nestlé’s distributors have accused the biggest food conglomerate of predatory pricing, and ending distributorship agreements without so much as fundamental basis based on Philippine laws.

“The practice of vertical restraints are closely monitored by international courts, with many of the agreements being ruled as unlawful per se. NPI currently engages in the practice of setting a minimum price by which its Filipino distributors are required to sell their products. This does not take into consideration the operational costs shouldered by Filipino Small and Medium Enterprises to distribute the products. Decent profit margins are therefore very difficult to attain, considering capital outlay and the lack of marketing and promotional support from NPI.”

Counsel added that non-compliance with the low prices results in NPI threatening to end the distributorship agreement. Thus, small- and medium-scale entrepreneurs (SMEs) like FDI2 find themselves scrambling to reach break-even status by trying to honor the terms of agreement.

Nestlé Philippines’ head of Corporate Affairs Edith de Leon acknowledged in the reply that Nestlé products are not the cheapest in the market and that competition among lower-priced products remains intense. De Leon’s statement allegedly avoids the issue of vertical price agreements with its Filipino partners.

De Leon also stated that Nestlé complies with the country’s laws and standard trade practices, a statement Atty. Kapunan quickly puts in context. Kapunan stressed that NPI knows there are no standards on vertical price agreements in the Philippines.

The Senate is now in the thick of addressing this matter and other issues regarding antitrust through the promulgation of various bills in the Upper House.

According to Atty. Kapunan, by Swiss standards, NPI’s distributorship model is patently illegal. The standards laid down by the Swiss Competition Council in Switzerland would make NPI’s existing distributorship agreement here restrictive of trade, thus subject to penalties.

Similarly, she mentioned, that the case mentioned by de Leon filed with the Department of Trade and Industry (DTI) was dismissed, not for lack of merit as she previously stated, but for lack of jurisdiction on the part of the DTI.

“While FDI2 has filed a motion for reconsideration of DTI’s decision, the case itself is public domain and anyone may see that DTI did not even delve into the merits of the case. To date, no case against NPI, with the exception of the one filed by FDI2 in DTI, has been dismissed,” Kapunan explained.

Moreover, accusations made against Nestlé by its distributors may not be quite as unfounded as the company would have the public believe.

In the case of “Nestlé Philippines, Inc. vs. FY Sons, Inc.” (05 May 2006, G.R. No. 150780), the Supreme Court ruled that FY Sons, also a Nestlé distributor, was lured to invest huge sums of money, time and effort in order “to abide by such distributorship agreement, and to develop market areas for [Nestlé’s] products.

Thereafter, Nestlé breached the distributorship agreement by committing various acts of bad faith such as, but not limited to, failing to provide promotional support, and concocting falsified charges to cause the termination of the distributorship agreement without just cause.”

These incidents are not new, Kapunan explained, as NPI executives John Miller, Shahab Bachani and Doreswamy Nandkishore have been charged with “perjury for issuing conflicting statements in their affidavits with respect to the policies of Nestlé in agreements with their distributors and other Filipino partner firms.”

Cases against Nestlé are now pending in the courts of Quezon City and Makati City. G"