On May 5, 2015 the Italian Competition Authority (ICA) decided to launch a sector enquiry on the dairy sector.

As recently reported by the President of the ICA in its annual hearing at the Senate on May 13, 2015 the decision to launch the sector inquiry was taken after the filing of a complaint by Coldiretti Nazionale and Codacons at the beginning of 2015. The two associations complained that the prices paid to the farmers for the purchase of farm gate milk by purchasers of national raw milk is in contrast with Article 62 of Law Decree No 1 of January 24, 2012 (Article 62) and with Article 4 lett. c) of Ministry Decree No. 199 of November 23, 2012. In the complaint the associations asked to the ICA alternatively to ascertain whether those operators abused of their economic or bargaining power against farmers or to launch a sector enquiry on the criteria of prices formation in the dairy chain.

Background

The dairy sector has faced important changes due to the end of the EU milk quota regime, with effect from March 31, 2015.

Associations of farmers have started complaining a lack of connection between the trend of consumer prices of dairy products and the prices paid to farmers for the purchase of raw milk, which have dramatically decreased in recent months. This is also in contrast with the increasing trend of production costs. The added value of the dairy supply chain seems therefore to be focused on the downstream sectors of processing raw milk and distributing dairy finished products.

In order to strengthen the position of dairy producers in the dairy supply chain, help market stabilization after the end of milk quota regime and reinforce the transparency in the dairy sector, the EU has adopted Regulation No. 261/2012 (so-called milk package), entered in force on April 2, 2013.

With similar goals, on May 5, 2015, the Italian Government adopted the law decree for the promotion of the agricultural sectors in crisis (including the dairy sector), which provides for specific measures to protect the milk chain.

The subject of the sector enquiry

The ICA's sector enquiry will be focused on the following aspects:

  • the contractual dynamics with which the conditions of purchase and sale of dairy products are determined
  • the mechanisms of price transmission along the dairy chain
  • the relevance, if any, of the conducts adopted by the market players in the negotiation of the purchase conditions under competition law and pursuant to Article 62
  • the actual level of competition among market players active in the various vertically related markets in the dairy chain. 

What to do

The companies active on the chain of dairy products are likely to receive request for information on their policies by the ICA.

We recommend all companies who have already received or will receive any request for information from the ICA in relation to the sector enquiry under scrutiny to promptly ask for advices to competition law experts in order to assess the scope and contents of the replies and their implications.

In addition, we invite all market players active in the dairy chain to carry out antitrust audits in order to assess their compliance with competition law. Indeed, it is likely that after the completion of the sector enquiry, if it finds out any possible competition law infringement, the ICA could open investigations. For instance, this recently happened after the sector enquiry in in the modern channel.