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Brussels, 24 May 2012

Antitrust: European Competition Network reports shows competition enforcement across the EU benefits all parts of the food sector - frequently asked questions

Why is this report published now?

The ECN report on the food sector responds to requests by Members of the European Parliament for explanations about the actions taken by Competition Authorities in the food sector and ultimately to the Commission's Communication of 28 October 2009 on a better functioning food supply chain. The Communication called for a common approach among competition authorities within the ECN to better detect endemic problems specific to food markets and promptly coordinate future actions. The Commission established a High Level Forum for a Better Functioning Food Supply Chain to follow-up the implementation of the different policy initiatives of this Communication of October 2009, where the report will be discussed.

The report provides detailed information and findings on how competition works in the food sector on the basis of the most recent activities carried out by the European competition authorities in this sector. It is therefore also intended to positively contribute to the ongoing discussions on the improvement of the food supply chain and the reform of the Common Agriculture Policy.

What is the ECN?

The ECN (European Competition Network) consists of the European Commission and the competition authorities of the 27 Member States. It was established during the modernisation reform of the EU antitrust rules as a forum for discussion and cooperation of Member States competition authorities in cases where Articles 101 and 102 of the Treaty are applied. The ECN ensures an efficient division of work and an effective and consistent application of EU competition rules. More information about ECN and its activities can be found at the Europa website:

How has the report been produced?

The ECN report on food has been prepared in close cooperation and coordination between the services of the Commission (DG Competition) and the competition authorities of the EU Member States and Norway. This joint work has been conducted within the framework of a working group, namely the ECN Food Subgroup.

What are the main findings of the report?

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.

In the period 2004-2011 competition authorities in the EU have indeed investigated more than 180 antitrust cases, scrutinised close to 1.300 mergers and carried out more than 100 sector inquiries and other monitoring actions of food markets. While they had already been active in the food sector prior to the emergence of the food price crisis in 2007, the European competition authorities have stepped up their antitrust and monitoring activities from that year onwards and answered many specific complaints about the functioning of the sector.

Food prices have being rising over the last years in Europe. Is competition indeed working in the food sector?

The report reveals that the European competition authorities have carried out a high number of market monitoring actions, such as sector inquiries, which have revealed how food markets work. Some of these monitoring actions have concluded that competition generally works well in food markets to the benefit of consumers. Other investigations have also 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 for instance fluctuations on worldwide commodity markets, increases of input costs for agriculture products, global demand and supply developments, availability of stocks, energy and labour costs, or the seasonal production of certain food products. Finally competition authorities have identified a number of instances of anti-competitive behaviour which distorted markets essentially 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 distribution chain - usually restrictions on the freedom to set prices - and on abuses of dominant positions, such as exclusivity obligations.

Which food sectors have been investigated the most by the competition authorities? Have they also focussed on any particular levels of the chain?

The antitrust cases investigated by the European competition authorities cover a wide range of products and activities. The European competition authorities have analysed all levels of the supply chain by investigating infringements or alleged infringements by producers, processors, manufacturers, wholesalers and retailers: the largest number of cases concerned the processing/manufacturing and retail levels. With respect to specific food sectors, the largest number of cases concerned cereal-based products, retail sales of groceries, and milk and dairy, followed by fruits and vegetables and meat, poultry and eggs.

What types of anticompetitive practices have the competition authorities investigated the most?

Half of the total number of individual cases pursued by the competition authorities focused on horizontal agreements among competitors, meaning in practice that authorities have sanctioned 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 abuses of dominant positions, such as exclusivity obligations or imposing minimum purchasing quantities.

How many mergers in the food sector have been found problematic and in which specific sectors?

Among the approximately 1.300 mergers scrutinised by the European competition authorities, 82 raised concerns. These concerns materialised in particular in the retail sector, which represented 33% of all mergers and 31% of all mergers with concerns. Other problematic sectors include the dairy and meat sectors, which represented respectively 9% and 10% of all mergers and 17% and 12% of all mergers with concerns. The competition authorities have ultimately cleared most of the 82 mergers which raised concerns, but only subject to commitments from the merging parties. The competition authorities have also prohibited 8 mergers raising serious competition concerns in the sectors of pastry, cheese, meat, beverages and confectionary products. These interventions demonstrate that concentration in some markets cannot increase further without the risk of impeding effective competition, and the European competition authorities will continue to use the tools at their disposal to prevent this risk from materialising.

Have the competition authorities identified structural problems with a negative impact on food markets?

Yes. The market monitoring investigations carried out by the competition authorities have 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. When such has been the case, competition authorities have issued policy recommendations and provided stakeholders and public authorities with guidance on the most suitable regulatory tools to address these factors as detailed further below.

Small farmers claim that they are being squeezed and cannot even cover their production costs. Is this one of the problems identified by the competition authorities?

Indeed 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. To tackle this problem, these European competition authorities have called for the pro-competitive restructuring and consolidation of the agriculture sector, through the creation of cooperatives and other efficiency-enhancing forms of cooperation among producers. These mechanisms would allow producers to become more competitive as well as reinforce their bargaining position in the chain. Competition authorities have also advocated the rationalisation of the rest of the supply chain by removing unnecessary intermediary stages, which add complexity, rigidity and extra costs to final consumer prices.

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 an alleged solution to reinforce the bargaining position of small-scale farmers vis-à-vis other larger players active in the chain. These 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 consider 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 stakeholders also complain about unfair trading practices imposed by large markets players along the chain. What have competition authorities done to address these practices?

Many competition authorities have also 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 anticompetitive 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.

The retail sector is reported to be dominated by a small group of large players in most Member States. Have competition authorities proposed measures to tackle such situations?

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 remoal of these barriers in order to increase competition and facilitate the entry of new operators in retail markets.

What's next? Will the food sector continue being a priority for the competition authorities?

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.

As in the past, competition authorities will continue to coordinate their actions through the European Competition Network (ECN) and will develop further this cooperation in the future.

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