Background

At home and abroad, antitrust enforcers have again taken aim at price-fixing in the food sector. In an era marked by the globalization of both the food supply and antitrust enforcement, recent actions emphasize that the cornerstone of both U.S. and international authorities is criminal antitrust enforcement.

Tomato Paste Stains SK Foods, Kraft, Frito-Lay and B&G Foods

Seldom are the parties to a criminal antitrust action more intertwined than SK Foods, a grower and processor of tomato paste, and its customers. According to the plea agreement, SK Foods used food brokers to pay bribes and kickbacks to purchasing managers at some of the best known consumer product companies and retailers: Kraft Foods, Frito-Lay, B&G Foods and Safeway. But the conspiracy didn’t stop there. SK Foods also engaged in price-fixing with other tomato paste suppliers, and violated the Food, Drug & Cosmetic Act by routinely falsifying lab results for its tomato paste products, including percentages of natural tomato soluble solids, mold count, and “organic” status.

The guilty plea was the result of coordinated enforcement by the DOJ Antitrust Division, Internal Revenue Service, Food and Drug Administration and FBI utilizing a full plate of investigative tools including wiretaps and search warrants. The press release is available at http://www.justice.gov/atr/public/press_releases/2012/281505.htm. The investigation began as an embezzlement inquiry at a SK Foods’ competitor. When the competitor’s employee was identified, he told investigators about the price-fixing scheme with SK Foods. The agencies jointly gathered evidence using wiretaps and search warrants at SK Foods’ office and the homes of SK executives. The participants to the bribes and many other SK Foods employees previously entered guilty pleas.

Israeli Bakeries Charged in Bread Price-Fixing Scheme

The Israeli Antitrust Authority has indicted Israel’s four largest bakery chains – Angel, Berman, Merkhavit and Davidovitch – for conspiring to create a cartel to divide the Israeli bread market. 103 BNA ATRR 288 (Aug. 31, 2012). According to the late summer indictment, senior executives met in coffee shops, convenience stores, and even at lawyers’ offices to divide the market for basic white, dark and Challah breads.

Franco-German Supermarket Flour Cartel

The French Competition Authority has released the first of several decisions by European competition authorities against a Franco-German consumer packaged flour cartel. Text of the authority’s decision is available in the French language on the authority’s website. The press release is posted in both English and French at http://www.autoritedelaconcurrence.fr/user/standard.php?id_rub=418&id_article=1823. Five French and eight German flour millers allocated markets in France, Germany, Belgium and the Netherlands. Millers entered into a “non-compete agreement” aimed at limiting their respective access to each other’s markets and at maintaining French and German packaged flour exports at predetermined levels.

Member companies had at least a dozen meetings between 2002 and 2004 before the cartel began to unwind in 2006 when a German miller left the undertaking. The investigations began in 2008 when one of the German flour millers applied for leniency in France.

The cartel was structured as a “joint venture” which served as an agent to market flour at prices and to geographic and customer markets set by the competing millers. Although joint ventures are legal and can lead to efficiency gains, in this instance the purpose was to fix prices and allocate customers. Germany’s Bundeskartellamt and the Belgium and Dutch competition authorizes are due to follow the French and announce penalties, as well.

Why this matters

First, these enforcement actions underline the fact that both domestic and international antitrust enforcement in the food sector is a priority. This is consistent with the belief that antitrust law should be used to enhance consumer welfare, especially with respect to products that are relevant to consumers’ everyday lives.

Second, each price-fixing investigation highlights that price fixers are villains who will be vigorously prosecuted. Government enforcement of price discrimination has been abandoned. Only a few mergers are challenged. But criminal convictions for price fixing can happen without proof that any price was fixed or that anyone was adversely affected.

Third, agreements among competitors raise a red flag and are closely scrutinized to ensure that they are not used to fix prices, allocate markets or otherwise act in a manner which could be characterized as being prohibited by the competition laws. Labeling an agreement as a “joint venture” or “collaboration” will not protect anticompetitive provisions in such agreements. Joint marketing can be fine; joint pricing or other provisions which divide geographic, product or customer markets will be viewed as prohibited market allocation.