On June 4, 2019, the Office for Competition received a letter from a local supplier of infant formula and similar products alleging that the public contract for the supply of infant formula to Mater Dei Hospital was distorting competition in the private retail market for infant formula and follow-on formula (‘secondary markets’).
The World Health Organisation recognises breastfeeding as the best feeding practice to nourish an infant. However, this inquiry focused on the competition aspects of the market in cases where parents use and purchase infant formula in the first years of their infant’s life. If for any reason, an infant is not breastfed, then infant formula is the only appropriate alternative milk source until the age of one.
Following preliminary investigations, the Office for Competition initiated a sector inquiry in terms of article 11A(1) of the competition act on the supply of infant milk formula in the public health sector during the years 2013 to 2019. The inquiry assessed whether the procurement process adopted by the Central Procurement and Supplies Unit (CPSU) is distorting competition in the secondary markets.
On April 28, 2021, the office published a preliminary report outlining the findings of the inquiry. It concluded that the procurement process adopted by the CPSU at Mater Dei Hospital is distorting competition in the secondary markets by providing an unfair advantage to the winning bidder. This is due to a number of factors:
a. Due to internal policies, CPSU limits ‘from birth infant formula’ provided at Mater Dei Hospital to only one brand, hence restricting consumer choice. The fact that parents of newborn babies are only exposed to one brand without being offered any choice gives the impression that the brand offered at Mater Dei Hospital is the best. Given the high degree of consumer brand loyalty in the sector, this provides the winning bidder with a competitive advantage in secondary markets;
The office invites interested third parties to submit their views and feedback on this inquiry by May 31
b. Restrictions on advertising and promotions for ‘from birth infant formula’ products are further solidifying the market position of the winning bidder; and
c. The lengthy duration of the contract awarded exacerbates the distortion of competition in secondary markets.
There is clear market evidence showing a direct positive relationship between the tendering process and the market position gained by the winning bidder. The office considers that such a relationship is mainly attributable to the above factors.
In accordance with article 11A(3) of the competition act, the office invites interested third parties to submit their views and feedback on this inquiry by May 31 before publishing the final report.
Following the consultation period, should the office hold that there are no conditions of effective competition in this sector of the economy, it will announce specific recommendations to the CPSU to better its procurement process for the well-functioning of secondary markets. The preliminary report of this sector inquiry may be accessed from the website below.
This information has been provided by Gilmour Camilleri, director communications, energy, transport and financial services, Office for Competition, MCCAA.
This article is for information purposes only and cannot be seen as a substitute to the preliminary report which can be accessed from the website below.
Odette Vella, Director, Information and Research Directorate