While driving home from work last week I heard a news report on the radio stating the existence of a “Kartoffel Kartell” here in Germany. Given that this translates to “potato cartel”, at first I thought maybe it was a joke. Coming from California, the major cartels that typically make the headlines are the drug cartels out of Mexico, so one could understand my initial skepticism regarding the credibility of this story. However upon further research, it turns out that potato alliances really do exist and it is no small business.
Simply put, a cartel is a formal agreement amongst competing firms. This agreement can come in the form of price fixing, fixed output levels, customer allocation and the like. On the surface this may seem harmless, but such private arrangements leave participants subject to legal liability under competition laws found in the majority of nations worldwide.
The case at hand provides evidence that the 10+ companies involved in the German potato cartel have generated an estimated 100 to 500 million Euro due to the special arrangements and price fixing amongst themselves. These cartel members have over the last 10 years ensured that German potato consumers have been paying too much for their potatoes over the last ten years. Additionally potato farmers have paid dearly as a result of this scandal as evidence points to seed potatoes also being overpriced. Germany’s competition authority has opened an investigation into the issue. The potato cartel is however not constrained by the German borders as a similar issue appeared in the US just last month which brings a nationwide potato cartel referred to as “the OPEC of potatoes” to light.
As demonstrated above, cartels pose a negative threat to many innocent people and organizations. Supply chains are not immune to cartel activity. In fact, the opposite is true. The profits generated by these cartels come at the expense of nearly everyone along the supply chain. It is therefore important that businesses safeguard their supply chains against cartel activity.
While conducting my research for this blog post, I came across a document from the Australian Competition & Consumer Commission which provides some general tips on avoiding cartels and safeguarding the supply chain. One example from the document includes keeping a diverse range of suppliers and remaining alert to the competitive situation in the market. Furthermore, when searching for new suppliers it is important to conduct proper research and obtain quotes from several companies. As potential suppliers become more transparent thanks to tools such as Sourcemap, the ability for businesses to avoid cartels during the supplier selection process can be enhanced.
Cartels represent yet another threat to the smooth operation of supply chains. What tips do you have for safeguarding the supply chain against cartels?
2 comments
Prices of commodities have been siroang in this country for past 3 years significantly. This situation may be possible due to the demand-supply gap. However, in many sectors such as real estate, and even agricultural products like sugar, vegetables etc. are in the run for price carteling, either at small level or at bigger level. These concerns needs to be addressed.What is the most important is that the market has been let to run on its own and there is little or nominal control by the government. Free Market principles and liberalization/privatization have not been properly understood by governments and the bureaucrats. Therefore, the businesses are distorting the market in a way, they want it to which is detrimental to the whole system and the poor in particular.
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