The European Commission is soon to adopt a protectionist approach to the agricultural production sector in relation to European competition law

Introduction

The European Commission (the “Commission”) is aiming to introduce a new regulation (COM (2011) 626) alongside the Common Agricultural Policy 2013 which aims to “strengthen the offer and the role of farmers’ associations and interbranch organisations and to clarify the competition rules”. The new regulation could have a particular impact upon farmers and farmers’ associations and interbranch organisations by increasing their power in the supply chain.

Competition between primary producers and the retail level of the supply chain, particularly in the dairy industry, has been a controversial topic in recent times. Whilst the primary producers view the dominance of supermarkets as harmful to the industry in terms of price squeezing, the supermarkets argue fierce competition at the retail level means they have no choice but to reduce costs. The Commission believes the basic agricultural production sector deserves a protected status because of its “structural characteristics”, most notably the lack of correlation between price and demand. Due to this ‘special’ characteristic of the primary producer market, the Commission believes the sector deserves special carve outs from competition law to match the intricacies of the sector. In a recent note entitled “EU Competition Framework: Specific Rules for the Food Chain in the new CAP” by the Agriculture and Rural Development Committee (“the Agri Committee”), the Directorate-General for Agriculture and Rural Development (“DG Agri”)  called for “specific legal answers, distinct from those given to other economic sectors”.

The Report

The Draft Report, detailing the forthcoming changes, was authored by Michel Dantin, from the Agri Committee. The report states that it is hoped the new rules will increase concentration in the production sector which, compared with other parts of the supply chain, lack large entities. The report also calls for a “paradigm shift” in the way in which competition law is enforced against primary producers, from one where competition law is applied no differently to other sectors to a situation where food production is held to be special in terms of competition law. The report also states that “from now on… agriculture must to some extent constitute an exception to competition law, which has to reflect the need to concentrate supply and strengthen the power that farmers can wield in the market”. This considerable change to competition policy would not be viewed favourably among the retail level of the supply chain who face the pressures of the price sensitive consumer. Dantin acknowledges the competition problems the new proposals may cause and states “the idea that farmers should band together must not translate into cartels that would distract producers from the efforts which they must continue to make as regards competitiveness”.

Views on the proposals

The methods implemented when adopting a protectionist approach to a particular sector, come into direct conflict with European competition law and the fundamental principles of the European Union, such as the free movement of goods. This conflict has created two opposing views on the adoption of the legislation. On the one side there is DG Comp (the Directorate General for Competition. At a recent speech to the European Parliament, Philippe Chauve, member of DG Comp, openly opposed the suggested changes to competition policy. Chauve stated that DG Comp “does not want to create such exceptions, which would allow the first level of the supply chain to decide on the price and quantity that it supplies to the rest of the chain”. The comments underscore a concern that food producers could wield too much power in the supply chain leading to unfair consequences further downstream. It is clear that DG Comp does not accept the contention that primary producers in Europe merit some kind of “protected status”.

On the other side of the argument DG Agri believes the new regulations will allow farmers to “break free from economic dependence” and obtain a more “decent standard of living”.

At a national level there is also rigorous debate. There appears to be a general acceptance that something needs to be done to bolster the position of primary producers in the supply chain, but there is no consensus on how that objective should be achieved.  At a recent meeting of the European Council for Agriculture and Fisheries, delegations  thought more work was needed at the technical level with regard to the approach to producer organisations holding a dominant position on the market.

Comment

A robust competition law framework is essential to reduce economic inefficiencies and reduce harm to the consumer. Whilst most agree it is important for producers to earn a fair living and not to be unfairly treated by a larger entity, it is vital that derogations from competition law are not created without having first considered the consequences. It seems that there is still some way to go on this debate, and battle lines within the Commission have been drawn.