Our gym starts competing at level 1, in Australia basically all gyms start competing at level 1 so really it becomes a requirement. You don't need to start competing until level 4, that is the first time you must compete to pass levels and move onto the next level. But you can't wait that long here, because if you do all the gymnasts that your gymnasts are competing against have already got 3-4 years of competition experience up their sleeve.
There are some disadvantages to starting so early. First of all many kids are burnt out of competition by level 5 and 6 as they have already done it for so many years. Also our lower level gymnasts must train more hours earlier on, again this can burn them out, or burn out their parents. Also it means a lot of time must be spent learning routines and perfecting routines, which could be spent on skill development.
However, on the whole I think it is a very positive thing to have them compete early, it builds their confidence and gives them goals to strive for, and most importantly they love it.