Increasingly over the last year, the European Commission and national competition authorities (NCAs) have been closely scrutinising the food sector spurred by the concern of consumer harm as a result of increasing food prices and other unfair trading practices.
Set out below are some recent antitrust developments that have occurred in the last year in the food sector, which all mark a continued trend by EU regulators to ensure competition is operating effectively and in a fair way.
European Commission’s Task Force on the Food Sector – possible EU level enforcement action in 2013?
In January 2012, the European Commission set up an internal “Task Force” to oversee the food industry, which will operate for two years. It has been established within the European Commission unit responsible for antitrust and merger control in basic industries, manufacturing and agriculture. This is the second such task force. The first task force was established in May 2008 and ended in October 2009.
Although investigations and enforcement actions against illegal conduct in the food sector have mainly been at a national level (see later), with the European Commission acting in a coordinating role – Joaquin Almunia, the EU Competition Commissioner, recently indicated that he could not rule out that the results of the Task Force may lead to an EU-investigation. When speaking to MEPs in October 2012, he made it clear that the European Commission may launch its own antitrust investigations if there was a need for an EU-wide case.
No doubt, the European Commission will take into account the European Competition Network (ECN) Report on the food sector that was published in May 2012, which looked at competition law enforcement and market monitoring activities by the NCAs to see if there are any areas that the EU Member State regulators are unable to address adequately. Between 2003 to 2011, the report identified that ECN members had together carried out 180 antitrust investigations into the sector (50 of which were cartel cases and 60 of which are ongoing). The investigations focused on all levels of the supply chain, from primary producers to supermarkets.
European Commission’s Study on Choice and Innovation in the Food Sector
The European Commission’s Food Sector Task Force (and any likely EU level enforcement action) is also likely to be informed by the results arising from the most recent study that the European Commission is commissioning. On 11 December 2012, the European Commission announced that it will launch a study on concentration in retail food markets and the use of ownbrand products to assess whether choice and innovation are being hampered. The European Commission is asking expert researchers to submit proposals to a call for a tender, with a final report expected by the end of 2013.
The study will measure, for instance, the variety of products available to consumers on supermarket shelves, the offer of entirely new products or products with new ingredients as well as characteristics which allow for different use. It will also verify whether the significant levels of retail concentration reached in some local areas have led to a reduction of choice and innovation for consumers. The European Commission will evaluate the results and may put forward proposals to improve the functioning of the European food markets.
The UK’s Groceries Code Adjudicator is given Strengthened Fining Powers
On 4 December 2012, the Department of Business, Innovation and Skills (BIS) announced that the new Groceries Code Adjudicator will have a range of remedial measures at its disposal, including the power to levy fines against companies found to have been in breach of the Groceries Code of Practice (GSCOP).
The Adjudicator which has been established to oversee and enforce GSCOP (which governs the relations between the major UK supermarkets and their suppliers following the UK’s inquiry into supermarkets in 2008) is expected to be announced before the end of 2012. A set of guidelines on its approach to sanctions will also be published (within six months of the Groceries Adjudicator Bill coming into effect), which will then be approved by the Secretary of State.
The Groceries Adjudicator Bill, which went to a Second Reading in the House of Commons on 19 November 2012, did not provide the Adjudicator with fining powers but the Government announced on 4 December 2012 that the Bill would be amended to include such strengthened powers. To what extent such powers may be used going forward, remains to be seen.
Under the Groceries Adjudicator Bill, the Adjudicator will also be able to: arbitrate disputes between retailers and suppliers; investigate confidential complaints from direct and indirect suppliers, whether in the UK or overseas, and from third parties; and hold to account retailers who break the rules by “naming and shaming”.
GSCOP now applies to the ten grocery retailers with turnover in excess of £1 billion in the UK, instead of just the Big Four (Tesco, Morrisons, Sainsburys and Asda). GSCOP contains a number of provisions designed to protect suppliers from supermarkets using their market dominance to compete unfairly. The main requirements are that retailers must deal fairly and lawfully with their suppliers; not vary supply agreements retrospectively, except in circumstances beyond the retailer’s control which are clearly set out in the supply agreement; not put undue pressure on suppliers or charges them extortionate fees for stocking their products; and pay suppliers within a reasonable time.
Eight out of Nine UK Supermarkets sign up to OFT Pricing Principles
Eight out of the nine largest UK supermarkets – Tesco, Sainsbury’s, Waitrose, Aldi, Co-op, Lidl, Marks and Spencer and Morrisons – agreed on 30 November 2012 to abide by a new set of principles to govern special offers and promotions for food and drink. This was after an Office of Fair Trading (OFT) investigation launched in January 2012 concluded that the inconsistencies in the way consumer pricing laws were being interpreted and applied made it appropriate to establish a more consistent approach across the sector.
The four principles relate to the two specific forms of promotional activity that emerged as priorities in the OFT’s investigation into supermarket pricing: internal reference pricing (using a past reference price to indicate a current offer, such as “Half Price”) and pre-printed value claims (such as “Bigger Pack, Better Value”). Under the principals the eight supermarkets will no longer be able to market products at discount prices for longer than the period for which the “normal” price applied (unless they can justify why the extended discount price is not in fact a normal selling price). In addition, pre-printed value claims must be objectively accurate, and there should not be any cheaper way of buying the same value of an identical product in store.
Exchange of Information is Increasingly becoming a Stand-alone Violation
Exchanges of competitively sensitive information between competitors are deemed illegal under EU and national competition rules. However, typically, such exchanges have gone hand in hand with other illegal practices such as price fixing or market/customer allocation. Increasingly, information exchanges have been considered to constitute a separate infringement.
On 1 August 2012, the German Federal Cartel Office (FCO) fined confectionary manufacturer Haribo and some of its sales staff €2.4 million for illegally sharing competitively sensitive information with Mars during 2006 and 2007. They met during industry information discussion round tables and exchanged information on discounts, rebates and customer strategies. The FCO considered that this information influenced the conduct of the confectioners in their negotiations with retailers given the confidential nature of the information. This was a significant fine for a “stand-alone” offence. The fine was reduced, however, to reflect Haribo’s cooperation during the investigation. Proceedings were instigated on grounds of a leniency application filed by Mars, which escaped being fined. Ultimately, the matter terminated by way of a settlement.
This is the latest in a growing number of information exchange infringements that have been heavily sanctioned in the consumer sector. In Spain, in 2011, the competition authority also fined the National Perfumery and Cosmetics Association more than €900,000 for an alleged illegal exchange of information.
Companies should be careful when exchanging information with an actual or potential competitor. Recent European Court judgments and guidance set out in the European Commission’s Guidelines on co-operation between competitors indicate that a one-off exchange at a meeting with competitors may be sufficient for a violation of the competition rules – especially if it relates to future price and quantity information. Likewise, the unilateral disclosure of information can be problematic. There is a presumption that by receiving the information from a competitor, a firm accepts it and adapts its future conduct on the market (unless the firm clearly demonstrates that it has not relied on the information).
Competitors (actual or potential) need to be very vigilant about what information they discuss and how they react to such information.
Commission approves Südzucker’s acquisition of control over ED&F MAN subject to conditions
On 16 May 2012, the European Commission cleared the proposed acquisition of control by Südzucker (Germany), Europe’s largest sugar producer, over ED&F MAN (UK), the second largest sugar trader worldwide and a company also active in sugar production. The approval was granted at Phase II and was conditional upon the divestiture of ED&F MAN’s interests in the Brindisi refinery, the biggest and most modern production facility in Italy.
The European Commission’s investigation focused on the supply of refined sugar to food and beverage industrial processors in Italy where the proposed transaction would have eliminated current and potential competition between the parties and created a dominant player with a share in excess of 50%. In addition, due to the scarcity and high price of raw cane sugar, the parties agreed to transfer to the purchaser Brindisi’s longterm contracts which allowed the supply of raw cane sugar at competitive prices. These commitments ensured that the merged entity would face a viable and independent competitor in the Italian market.
The European Commission also found that the proposed transaction raised no competition concerns for the supply of raw cane sugar and molasses in the EU, the supply of refined sugar in Greece and the wholesale supply of refined sugar to retailers in Italy. The European Commission therefore cleared the merger on the basis of the commitments proposed.
The European Commission’s insights into the food sector through its review of large mergers and acquisitions will no doubt be important in how it frames the policy goals it wishes to achieve in the food sector through its Task Force and how inclined it is to initiate any inquiries or enforcement actions.
Significant Antitrust Enforcement Action at the National Level
As mentioned above, to date, most of the antitrust enforcement action across Europe in the food sector has been undertaken at the national level, where there has been a continued focus on all levels of the food supply chain. For example:
- In Austria, dawn raids were carried out on 28 February 2012 by the competition authority on companies in the food retail sector following suspicions of pricing agreements being made with suppliers and concerted market conduct with competitors.
- In Bulgaria, the competition authority conducted dawn raids at the offices of the Bulgarian Millers’ Association on 9 October 2012. The association is suspected of co-ordinating the fixing of wheat and flour prices.
- In Finland, questionnaires were sent out on 5 September 2012 to primary producers in the food chain to evaluate the competitive conditions in the markets for the production of meat, fish farming and greenhouse and outdoor cultivation. This is part of the competition authority’s sector enquiry into primary food production in Finland.
- In France, the competition authority announced on 13 March 2012 that it had decided to fine French and German flour producers a total of €242 million for conspiring to fix prices and production levels for flour sold in French supermarkets.
- In Greece, formal cartel objections were sent by the competition authority on 22 August 2012 to companies in the poultry sector, who are accused of price-fixing and market-sharing for over a decade.
- In Germany, the competition authority started the second phase of its inquiry into the national food sector on 12 June 2012, sending questionnaires to 200 food companies regarding the negotiating power of retailers and suppliers.
- In Hungary, the competition authority is investigating supermarkets and producers’ associations on suspicion of the price-fixing of watermelons and measures to protect domestic fruit from imports. This commenced on 31 August 2012.
- In Spain, the competition authority has been particularly active in 2012. For example, on 26 November 2012, it imposed fines on associations of fish and seafood conserve producers for coordinating the purchase of Galician mussels. On 24 July 2012, it launched a further formal investigation of several companies in the dairy industry on suspicions of illegal information exchange and market sharing for unprocessed cow’s milk. The Spanish regulator also published two reports on 8 November 2012 on matters linked to competition in the milk and olive oil sectors focusing on the collaboration protocols between associations representing the sectors, distributors and ministry in charge.
- The UK has conducted market investigations into the supermarkets sector and the supply of beer (see also the recent announcements on the Groceries Adjudicator and OFT’s pricing principles above).
In the light of the continued focus on the food and consumer sector by national competition authorities in the EU – the message to companies at all levels of the supply chain is loud and clear – the sector is a high priority for antitrust enforcement and compliance is not optional.
EU regulators will continue to closely monitor the activities of companies in the food/consumer sectors. As happened with the launch of the energy and pharmaceutical sector inquiries, the European Commission’s Task Force may well follow-up with unannounced inspections and the dispatch of requests for information.
Companies would be well advised to ensure that all employees are up to date on their antitrust training and that competition compliance materials are updated also accordingly.