Sascha Dethof September 22 2022 Federal Cartel Office allows competitors to cooperate on production in times of crisis Fieldfisher | Competition & Antitrust - Germany Sascha Dethof Competition & Antitrust IntroductionContent of cooperationInformation flowBackgroundCommentIntroductionOn 6 September 2022, the Federal Cartel Office announced that it is going to allow a planned cooperation between the four sugar companies producing in Germany. The Association of the Sugar Industry is also to be involved.The aim of the envisaged agreement is to secure the processing of sugar beet in the event of a gas supply emergency. Due to the current geopolitical situation, a limitation or capping of gas supply cannot be ruled out in the coming months. Despite efforts by the companies to switch production in the factories to other fuels, some factories are still running on natural gas. This could lead to production stoppages in the event of a gas supply shortage. To compensate for this, the companies want to help each other out with free production capacities.The president of the Federal Cartel Office, Andreas Mundt, stated that he would support initiatives for crisis management within the framework of competition law. The background to this, he said, was that a lack of gas supplies and subsequent production stoppages in the manufacture of sugar threatened to spoil large parts of the beet harvest. This is also a scenario that should be avoided from a consumer point of view, as excessive price peaks for the basic product sugar affect the entire value chain.Content of cooperationThe cooperation agreement is limited in time to the imminent sugar beet campaign and the subsequent settlement until June 2023. The agreement is subject to various conditions. It will only come into effect if governmental measures lead to cuts or caps in the gas supply and subsequent production stoppages. Under these circumstances, other companies with free production capacities can help out. The prerequisite is that all free production capacities within the company have been exhausted throughout Germany and Europe, provided this is economically possible due to transport costs.Information flowA decisive point within the cooperation is that the flow of information between the companies is reduced to the unavoidable minimum. Settlements are made bilaterally, confidentially and on the basis of production costs by an independent economic consultant. This is to avoid that concrete calculation rates or data are passed on to competitors. According to the Federal Cartel Office, the concrete production costs are thus also not traceable. Likewise, the agreement would not deprive any confidential information on customer relationships.The Federal Cartel Office decided not to initiate proceedings to examine the planned capacity cooperation.BackgroundCooperations between competitors that are active on the same level of the market, known as "horizontal agreements", are problematic from a competition law point of view. Although in principle there is freedom of contract for the companies, this freedom is restricted by law within the framework of competition law. Under narrow conditions, it is possible to be exempted from these restrictions. Such an exemption will be granted in the present case with the aim of crisis management.CommentThe current situation creates special challenges for companies. The Federal Cartel Office is prepared to allow cooperations between competitors, providing that certain safeguards are put in place, such as limiting the exchange of information to the necessary extent.For further information on this topic please contact Sascha Dethof at Fieldfisher by telephone (+49 211 950 749 0) or email ([email protected]). The Fieldfisher website can be accessed at www.fieldfisher.com.