On 15 Jan 2013, the European Competition Network (“ECN”), including the Directorate General for Competition (“DG Comp”) and heads of the European Competition Authorities (“NCAs”), released a document detailing strong opposition to the proposed exceptions to competition law currently being taken through the European Parliament (“EP”). Specifically, the competition law carve outs are being proposed for the benefit of primary producers alongside the Common Agricultural Policy (“CAP”). According to the relevant committee within the Directorate General for Agriculture and Rural Development (“the Agri Committee”), the new legislation will “strengthen the offer and role of farmers associations and interbranch organisations” within the production chain. The timetable for approval and implementation of the CAP is very short. The negotiations between the Agri Committee and the EP are ongoing, but consensus on approval of the CAP is optimistically aimed to be achieved by the end of 2013, with the legislation coming in to force as early as January 2014.

Background

Concerns have been raised by EU Member States and the European Parliament for a considerable period in relation to the lack of influence primary producers wield in the supply chain in Europe. In contrast, increasing concentration at the retail level has, according to some, decreased the bargaining power of primary producers. The EP and the Agri Committee believe the new carve outs from competition laws will allow the primary producers to counter dominance at the retail level and “break free from economic dependence”. The report detailing the proposed changes to competition law called for a “paradigm shift” in the way in which competition law was enforced against primary producers, to a situation whereby the primary production sector would be deemed special and would “constitute an exception to competition law”.

The opinion of NCAs and DG Comp

The ECN, in the document released, make clear their strong opposition to creating competition loopholes for primary producers. The document begins by the ECN “reaffirming their conviction that enforcement of competition rules helps to ensure a productive, strong and effective agricultural sector”. The NCAs and DG Comp see no need for the agricultural sector to be held as “an exception to competition law” and consider the rules imposed by the “TFEU and their national equivalents to be appropriate instruments in all sectors, including agriculture”. In addition to ensuring an efficient supply chain the ECN state that competition law also acts as a barrier of protection for primary producers.  The report provides examples of this protection such as “sanctioning processors who were agreeing among themselves on the (lower) prices that they would pay farmers”; and action was also taken against “suppliers of inputs (e.g seeds) who were imposing unfair conditions on the purchase of those inputs”. The report concludes that competition law is not harmful to primary producers and has in fact “benefited farmers”.

The NCAs and DG Comp believe that creating derogations from competition law will cause harm to consumers by creating artificial inefficiencies in the supply chain.  According to the ECN document, competition rules “promote supply at reasonable prices for the consumers”, and imposing derogations will “hinder gains in productivity, increasing the instability of markets and raising prices for consumers”. The competition authorities are concerned that increasing prices will occur at a particularly bad time for consumers who are being “squeezed across the EU” in terms of income.  Another significant feature of the proposed system, according to the report, is a negative effect on the international competitiveness of the EU food sector. The view held by the ECN is that “such exclusion(s) would slow down the much-desired adaptation of the sector which is facing significant competition from producers outside Europe”.

The NCAs’ and DG Comp’s Alternative to Competition carve outs

The NCAs and DG Comp both make clear that the answer to increasing the presence of primary producers in the supply chain should not lie in large scale dis-application of competition rules. The ECN provide support for the revised “Regulation of the Single Common Market Organisation” produced in October 2011. The purpose of the revised regulation is to promote an efficient adaptation of the agricultural sector which, according the ECN, should remain the focus of CAP reform. The ECN view the CAP reform as essential to ensure that the European agricultural sector is able to “compete directly with farmers from all over the world”.

The alternative suggestion proposed by NCAs and DG Comp is for primary producers to better exploit options already available such as forming cooperatives or other similar business structures. The report states that “farmers should be encouraged to form entities or organisations to create efficiencies in order to respond to market challenges in a pro-competitive way”. The competition authorities are therefore encouraging the primary producer to increase scale by using the options already available.

To reinforce their view that alternative business structures are available, the ECN states it “stand(s) ready to give further guidance on how the competition rules apply to the agricultural sector”. The authorities hope to be able to demonstrate how the application of competition rules can provide benefits to the agricultural sector and, importantly, how farmers can create organisations which can be set up in compliance with competition laws. It is clear that the NCAs and DG Comp appreciate that the primary producer level of the supply chain requires bolstering; it is simply that they do not recognise the need for derogations from competition law in order to achieve this.

Comment

When the Agri Committee first annocuned its intention to propose exceptions for the primary producer sector, Philippe Chauve, member of DG Comp, stated DG Comp “does not want to create exceptions to competition law” as such exceptions would “allow the first level of the supply to decide on the price and the quantity that it supplies to the rest of the chain”. The main argument by the competition authorities therefore is that derogations from competition law will lead to unfair consequences for consumers further downstream. The document does provide some examples of how competition law can provide benefits to the primary producers, but it is clear that the main concern in relation to derogations is that these could increase prices for consumers. DG Comp, as a result of pressure from EU member states and the EP, has conducted numerous studies in relation to the alleged dominance of retailers and the effects of this on other parts of the supply chain. However, in a statement released in October 2012, the Food task-force, set up to investigate the concerns raised, stated it had not found any competition concerns.

Part of DG Comp’s reluctance to introduce competition law derogations for primary producers may therefore be because of a lack of evidence demonstrating issues in the supply chain. The alternative solution being promoted by DG Comp and other authorities, for primary producers to alter their corporate structures in order to increase scale and presence in the food chain, is by no means revolutionary. Farmers have had the ability to enter into cooperative structures for a considerable time. Whilst some assistance by the competition authorities in providing knowledge of alternative structures available to farmers may help, it is not yet clear whether this approach will provide a catalyst for significant change in the balance of power in the supply chain, or be taken into consideration by the EP.