Following a referral from Ireland’s Supreme Court, the European Court of Justice (ECJ) has ruled that an agreement between Irish beef processors to reduce production capacity for beef and veal amounts to a restriction of competition. It is therefore incompatible with EC Treaty rules prohibiting agreements and restrictive business practices.
The Beef Industry Development Society (BIDS) was formed in 2002 by the ten principal processors of beef and veal in Ireland to rationalise the processing industry, following recommendations outlined in government reports. One of BIDS’ aims was to reduce the total capacity of the industry by 25 per cent, after a government market study found that overcapacity could lead to a decline in profitability. To achieve its objective, BIDS formed an arrangement by which certain members were to leave the processing industry, to decommission their processing plants and to respect a two-year non-compete clause. In return, they would be compensated by the remaining members of BIDS.
In its ruling, the ECJ did not expressly exclude that a reduction in overcapacity could result in economies of scale among processors staying in the industry. However, the defendants failed to prove under Article 81(3) of the EC Treaty that these positive effects outweighed the negative effects associated with reductions in capacity. The ECJ ruling is important because it confirms that agreements between competitors to restrict capacity or production represent serious restrictions of competition that very often harm consumers and are therefore serious breaches of the EU competition rules.