Brussels, 24/05/2012 (Agence Europe) - On Thursday 24 May, the European Competition Network (ECN) published a report showing energetic application farmers, suppliers and consumers alike. The ECN report shows that the food sector has been a priority of competition authorities in Europe over the last few years. Competition authorities have enhanced their activity in the sector in the recent context of rising food prices, volatile commodity markets and perceived concerns about the functioning of the overall food supply chain. The ECN consists of the European Commission and the competition authorities of the 27 member states.
From 2004 to 2011, the EU27 competition authorities looked into more than 180 antitrust cases, scrutinised close to 1,300 mergers and carried out more than 100 investigations and other monitoring of the food industry.
The report reveals that the European competition authorities have carried out a high number of market monitoring activities, which show how food markets actually work. Some of the monitoring concluded that competition generally works well in food markets to the benefit of consumers. Other investigations found unfavourable market developments, such as price increases, which can be explained by structural or cyclical factors not necessarily linked to the existence of restrictions of competition by market players. These factors include fluctuations in worldwide commodity markets, increased input costs for farm products, global demand and supply developments, changes in availability of stock, energy and labour costs, and the seasonal production of certain food products. Competition authorities identified a number of instances of anti-competitive behaviour which distort markets in the form of cartels fixing prices or allocating markets between competitors (about half of all cases) and to a lesser extent in the form of vertical restraints, i.e. arrangements between players at different levels of the production and supply chain - usually restrictions on the freedom to set prices - and abuse of dominant positions, such as exclusivity obligations.
The antitrust cases investigated by the European competition authorities cover a wide range of products and activities. The European competition authorities analysed all levels of the supply chain, investigating infringements or alleged infringements by producers, processors, manufacturers, wholesalers and retailers: the largest number of cases concerned processing/manufacturing and retail. The largest number of cases concerned cereal-based products, retail sales of groceries, and milk and dairy, followed by fruit and vegetables and meat, poultry and eggs.
Half of the total number of individual cases pursued by the competition authorities focused on horizontal agreements among competitors, with the authorities issuing sanctions against more than 50 cartels involving price fixing, market and customer allocation and the exchange of sensitive business information. They are investigating more than 30 further potential cartels at present. The remaining infringements include vertical restrictions, such as resale price maintenance - i.e. a food manufacturer setting the minimum price at which a retailer has to sell its products - and abuse of dominant positions, such as exclusivity obligations or imposing minimum purchasing quantities.
Some 82 of the approximately 1,300 mergers scrutinised by the European competition authorities raised concerns. These concerns materialised in particular in the retail sector, which accounts for 33% of all mergers and 31% of all mergers subject to concern. Other problematic industries include dairy and meat, which account respectively for 9% and 10% of all mergers and 17% and 12% of all mergers with concerns. The competition authorities ultimately cleared most of the 82 mergers which raised concerns, subject to commitments from the merging parties. The competition authorities prohibited 8 mergers raising serious competition concerns vis-à-vis pastry, cheese, meat, beverages and confectionery products.
The market monitoring investigations carried out by the competition authorities identified structural or regulatory factors which may have a negative impact on the overall functioning and competitiveness of the food sector, such as the fragmented and atomistic structure of farmers in some member states, the existence of unnecessary intermediary stages in the supply chain or the existence of regulatory entry barriers to retail markets.
Some European competition authorities have assessed the position of farmers in the value chain and highlighted in particular the fragmented and atomised structures of agriculture primary production in their member states as a negative element which undermines the development and growth of the agriculture sector.
Should competition rules be softened to reinforce the position of small farmers? The European competition authorities have firmly rejected calls for exceptions to competition rules (for instance, by allowing price-fixing or output restrictions) as a solution to reinforce the bargaining position of small-scale farmers vis-à-vis other larger players active in the chain. They say such exceptions would be a self-defeating solution in the long term because they would not create efficiencies in the supply chain and they would be detrimental to consumers and other players of the supply chain.
The competition authorities feel that the problems faced by small-scale farmers in some member states should rather be addressed by encouraging a pro-competitive restructuring and consolidation of the agriculture sector through the forms of cooperation allowed under competition and CAP rules, for instance by pooling some activities (e.g. production, storage or marketing of products) in a proportionate way and integrating part of the value in the chain (e.g. processing or retail sales).
Many competition authorities have identified conflicts concerning allegedly unfair trading practices in situations where an imbalance of bargaining power exists between the parties in the supply chain. These competition authorities found that these practices fall in most cases outside the remit of competition law because they could not identify harm to consumers in those cases. A few authorities have proposed to address this problem through laws on unfair trading practices or codes of good practices with effective enforcement mechanisms. A few other authorities have also expressed concerns about the potential anti-competitive effects that some of these practices may have in the long term, as they could ultimately negatively affect the competitive process in the supply chain or consumer welfare by reducing investment and innovation and limiting consumer choice.
Retail is one of the levels where there is concentration in the food sector as demonstrated by the cases presented in the report. Competition authorities have found out that the high concentration of retail markets, in particular at local level, is often coupled with the existence of significant entry barriers to such markets. These barriers mainly result from public regulatory constraints, such as restrictive zoning/planning laws and administrative authorisations that are required for the opening or extension of retail outlets. A few competition authorities have found that these barriers can also result from private arrangements, such as control mechanisms over retail land sites or other contractual arrangements limiting the freedom of independent retailers to affiliate with or switch between competing retail networks. Competition authorities have clearly called for the removal of these barriers in order to increase competition and facilitate the entry of new operators in retail markets.
The food sector will remain a high priority for European competition authorities, as confirmed by the fact that they are currently investigating about 60 further antitrust cases and carrying out further monitoring actions. (LC/transl.fl)