White Salt (Hansard, 25 June 1986)

§ Mr. Howard

The report is published today.

The commission found that the market shares of Imperial Chemical Industries plc and British Salt Ltd., a wholly owned subsidiary of Staveley Industries plc, constitute a monopoly situation in relation to the supply of white salt. The commission also found that the lack of price competition in the United Kingdom and the pricing of white salt in the United Kingdom market are attributable to this monopoly situation and operate against the public interest.

The commission has concluded that British Salt has chosen to follow the price increases of ICI, despite significant cost differences between the two companies which favour British Salt as the lower cost producer. Although the commission did not consider that the procedure for determining prices amounted to collusion, in its view it has resulted in a restraint of competition and 171W domestic price increases made by the two companies being greater than they would have been with effective competition.

The commission found evidence of significant existing barriers to entry in the market, and discovered several factors suggesting, when taken together, that new entry on a significant scale was unlikely: notably the advantages conferred by economies of scale, the length of time needed to develop boreholes, existing mineral rights and the present degree of excess capacity which favour the established producers. The commission, however, finds no evidence to suggest that the companies have excluded potential competitors through uncompetitive practices.

As there appears to be little likelihood of the adverse effect on prices being remedied by new entrants or competition from imports, the commission has recommended a system of price control intended to break the link between the price increases of British Salt and ICI's costs, but without depriving either company of the incentive to improve efficiency.

The commission recommends that prices should be controlled by reference to increases in a weighted index of production costs. However, the commission considers that it would be both impracticable and unnecessary to exercise direct control of both companies' prices either by a single composite index or by a separate index for each company. The application of price controls to British Salt alone—as the commission recommends — would effectively ensure that no competitor can raise prices beyond the levels charged by British Salt without jeopardising its market share.

I accept the findings and recommendations of the commissions report. I am consequently asking the Director General of Fair Trading to consult British Salt and Staveley Industries with a view to obtaining from them undertakings designed to limit the prices of white salt sold in the United Kingdom by British Salt in accordance with the principles and suggested input cost index set out in the commission's report.