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The 3p Conundrum:
Why and how should competition law be used in response to
issues associated with the consumer welfare standard, focusing on
the agricultural sector?
Megan C F Morrison
megan.morrison@student.uva.nl
Student number-12386723
Masters track- European Competition Law and Regulation
Supervisor- Dr K. Cseres
26
thJuly 2019
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Abstract
The idea that non-economic interests such as “sustainability” and “fairness” should be given greater prominence when considering whether an agreement/concerted practice is
anticompetitive is growing in popularity: for instance, “fairness” in competition law has been widely lauded by the current Commissioner for Competition, Ms Vestager. This increasing prominence of non-economic interests is, arguably, long overdue. The emphasis on having low consumer prices has directly or indirectly led to uncompetitive market conditions, especially in the EU’s important agriculture sector.
Accordingly, this thesis will primarily be concerned with the EU’s agricultural market (with a particular focus on the UK), and will investigate whether the current competition regime addresses concerns over high market concentration, and power imbalances. To do so, in Chapter One, it shall first investigate why the application of the consumer welfare standard is being criticised in the EU, looking in particular at the ‘Dairy products: investigation into retail pricing practices’ case in the UK. It shall then move on to assess- in Chapter Two- whether concerns that the economics-oriented consumer welfare standard has led to high market concentrations, and power imbalances between different actors in the market are legitimate or not. In order to do so, it shall look at the UK and EU agricultural fields, albeit there shall be an emphasis on the UK’s dairy sector. This chapter shall also explore to what extent the recent reforms in this area have resolved such concerns of anticompetitive conditions. Finally, in Chapter Three, the thesis will submit how the laws in this area could be improved through reforming them, and bestowing greater freedoms upon farmers to establish agreements/concerted practices aimed at sustaining their industry, even if this leads to price increases for consumers.
The underlying argument of the thesis is as follows. While it is correct that EU competition law places the consumer at the heart of its decision-making, the consumer is often not the only weak party in a supply chain. To ensure continued and sustainable competition in crucial markets such as agricultural- for instance, to encourage new and young entrants into the agricultural industry- EU competition law should consider other actors, and either allow them more opportunities to enter into agreements aimed at sustaining their industries, or encourage support for such agreements.
This thesis shall primarily be a normative study. The central focus of this thesis will be to assess whether or not the current interpretation of the consumer welfare standard has resulted
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in anticompetitive practices in the agricultural field and, if so, what should be done to counter them.
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Table of contents
Introduction- p.5-6 Chapter One- p.7-15
1.1- The consumer welfare standard and its controversial nature- p.7-9 1.2- ‘Dairy Products: investigation into retail pricing practices’- p.9-11 1.3- Analysis of ‘Dairy Products’ case- p.11-14
1.4- Worries about market concentration and power imbalances- p.14-15 Chapter Two- p.16-28
2.1- Why the agricultural sector is special- p.16-17 2.2- How the agricultural sector is special- p.17-19 2.3- Issues in the UK dairy market- p.20-22
2.4- Reforms in the agricultural sector- p.22-27 Chapter Three- p.29-37
3.1- Suggestions for reform- p.29-30
3.2- Expand the ‘Milk Package’ exception- p.30-34
3.3- Change the current approach to Article 101(3) TFEU- p.34-36 Conclusion- p.38
Bibliography- p.39-53 Appendices- p.54
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Introduction
There is a growing debate about whether competition rules should be used to reorient economic relationships between different actors in a supply chain by allowing for
agreements/concerted practices which are aimed at securing non-economic goals such as “sustainability” or “fairness”, even if such schemes lead to price increases. Proponents of this idea are fuelled by a number of concerns such as increased market concentration in certain sectors, and worries over abuses associated with power imbalances. Theirs is not an
uncontroversial opinion. It counters the current interpretation of EU competition rules since the EU Commission- in recent times- has focused on the economics-based consumer welfare standard during its decision-making, with an emphasis on ensuring low prices for consumers. The controversy surrounding moving away from a strict interpretation of the consumer welfare standard can be especially seen in the agricultural industry. It would, instinctively, seem to be against consumers’ interests to allow for agreements which lead to higher prices. Indeed, “food prices are a sensitive issue”1
, with around 13% of the average EU household budget being spent on groceries (as well as non-alcoholic beverages.)2 There is an important public interest in ensuring basic goods remain inexpensive.
Conversely, there are growing criticisms that the pursuit of low consumer prices has led to sustainability issues within the food sector and that this will have, in the long-term, a negative effect on consumers: for example, the race by supermarkets to acquire farmers’ produce at lower prices could deter innovation in agricultural markets due to perceived low returns. This is the “conundrum” referred to in the title of this thesis: how to balance the sustainability of the food industry with the need to ensure EU households have access to cheap agricultural produce.
This thesis shall seek to explore whether or not the consumer welfare standard has led to unfair/potentially unsustainable competitive conditions while also undermining
agreements/concerted practices aimed at correcting these. It shall explore the EU agricultural sectors- in particular the UK’s- to assess the extent to which the current status quo takes into account non-economic interests, and if there is a need for reform. It ought to be noted that the
1 OECD ‘Policy Roundtables: Competition Issues in the Food Chain Industry’ (OECD, May 2013)
<https://www.oecd.org/daf/competition/CompetitionIssuesintheFoodChainIndustry.pdf> (accessed 14 June 2019) p.10
2 European Commission ‘Background on the EU food supply chain: an important economic sector’ (European Commission, July 2019) <http://ec.europa.eu/competition/sectors/agriculture/overview_en.html> (accessed 22 July 2019)
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thesis revolves around considering how to strengthen the position of farmers in the market, and not how to address unfair trade practices on the part of supermarkets and processors.3 The thesis shall be divided into three parts. Chapter One shall discuss the current
interpretation and application of the consumer welfare standard in UK and EU decision-making, and will also highlight which of the main issues associated with this standard shall be investigated in this thesis. Chapter Two will then analyse worries over high market concentration and power imbalances to assess whether or not these are justified through looking at the UK dairy sector. This chapter shall also discuss the “special status” of
agriculture in the EU competition law sphere and will end by critiquing the recent reforms in this area to establish whether they adequately address the noted concerns in the sector. Finally, Chapter Three will then discuss and submit how the laws in this area could be reformed to better allow for non-economic interests to be considered in the Commission’s and national competition authorities’ decision-making.
3 For information of this, see: DIRECTIVE (EU) 2019/633 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 17 April 2019 on unfair trading practices in business-to-business relationships in the agricultural and food supply chain [2019] OJ L 111
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Chapter One
The desire for non-economic interests to receive greater prominence in the decision-making of competition authorities can be seen to have largely been motivated by the apparent negative repercussions of the consumer welfare standard being the paramount consideration in the application of EU competition law.
This chapter shall therefore seek to do three things: to explain what the consumer welfare standard is and why it has proven controversial; to analyse- through looking at the ‘Dairy products: investigation’ case- why the consumer welfare standard is proving problematic in practice and, finally, which worries associated with this standard shall be considered in this thesis.
1.1. The controversial consumer welfare standard
The consumer welfare standard has not proven to be an easy concept to define, despite its prominence in EU competition law.4 For the purposes of this thesis, however, consumer welfare is defined as the “individual benefits derived from the consumption of goods and services”5
, with an emphasis on low consumer prices. This standard essentially means that the economic priorities of consumers are at the centre of competition authorities’ decision-making. Indeed, some proponents of this standard argue that its use in decision-making means EU competition law should “only outlaw”6
undertakings’ activities if they have an adverse effect on consumer prices. A strict interpretation of the consumer welfare standard, as such, can be seen to restrict the relevant considerations when assessing a purported anticompetitive agreement/concerted practice to those which can be deemed as consumers’ economic interests.
The reason why this standard is so influential in competition law decision-making is because the Commission has adopted it as its primary consideration when making decisions about EU competition rules.7 Its adoption came about as a result of the “economisation” of
4 Barak Y. Orbach ‘THE ANTITRUST CONSUMER WELFARE PARADOX’ [2011] Journal of Competition Law and Economics, Vol. 7(1), p.137. Indeed, it has even been suggested that the ambiguities surrounding the proper parameters of this phrase mean that it should now be set-aside- see ‘ANTITRUST’, Orbach p.164 5
OECD ‘Glossary of statistical terms’ (OECD, March 2002)
<https://stats.oecd.org/glossary/detail.asp?ID=3177> (accessed 20 June 2019)
6 Ann C. Witt ‘The European Court of Justice and the More Economic Approach to EU Competition Law—Is the Tide Turning?’ [2019] The Antitrust Bulletin, Vol.64(2), p.208
7 Neelie Kroes ‘European Competition Policy – Delivering Better Markets and Better Choices’ (European Commission, September 2005) <http://europa.eu/rapid/press-release_SPEECH-05-512_en.htm> (accessed 19 June 2019)
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EU competition law during the 1990s.8 Through “economisation”, EU competition law was perceived to revolve around securing consumer welfare, with economic efficiencies being an important focus.9 Non-economic interests such as fairness, by contrast, became less
relevant.10 Pivotally, this standard is not employed solely by the Commission. The “process of modernisation” has meant that numerous NCAs- such as the UK’s Competition and Markets Authority (CMA) - follow the decision-making processes and policies of the Commission closely when making decisions at national level, and in cases involving EU law.11 One consequence of the “modernisation” process, for example, is that the NCAs “often consult and cite”12
the soft law of the Commission when they tackle cases involving EU competition rules. An emphasis on economics is a distinguishing feature of the Commission’s work, with this approach having been adopted by a number of NCAs, at the cost of non-economic interests like sustainability being downgraded in considerations involving Article 101 of the Treaty on the Functioning of European Union (TFEU).
However, despite its current prominence in competition law both at EU and national level, the standard is not without its flaws or critics: for instance, it is alleged that consumer welfare standard is based on unsound theory. The academic Glick, for example, has strongly
criticised the economics Judge Bock used to create the consumer welfare standard.13 Meanwhile, it has been argued that the standard’s foundations may not be as scientifically sound as purported, with it being submitted that it mixes up consumer surplus with producer welfare.14
In light of this, it should also be pointed out that “economics is a social science, not a natural science.”15
The economics-focussed approach of consumer welfare does not
necessarily mean all its decisions will be correct. The rules of arithmetic dictate that one plus one always equals two; however economics is incapable of setting out such clear rules or outcomes for all situations. It is not a standard capable of producing infallible decisions. Additionally, its place within this legal area has been the subject of much controversy, with the Court of Justice of the European Union (CJEU) not fully embracing it as the primary goal
8 ‘Rethinking’, Gerbrandy p.130 9 Ibid. p.130
10 ‘The European Court of Justice’ Witt, p.178 11
‘Rethinking’ Gerbrandy p.130
12 ‘The European Court of Justice’ Witt, p.176 13 ‘The unsound’, Glick p.493
14 Albert Allen Foer and Arthur Durst ‘The Multiple Goals of Antitrust’ [2018] The Antitrust Bulletin, Vol.63(4), p.503
15
Albert Foer ‘On the Inefficiencies of Efficiency as the Single-minded Goal of Antitrust’ [2015] The Antitrust Bulletin, Vol.60(2), p.116
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of EU competition law.16 This is reflected in the GlaxoSmithKline case, where an
efficiencies-only approach was not accepted by the CJEU.17 Furthermore, the Article 101 Guidelines18 fails to mention “either consumer welfare or economic efficiency.”19 The Commission’s approach to it has not been universally accepted. Accordingly, although the consumer welfare standard has achieved prominence in EU competition law, the importance placed upon it has been subject to criticism. It is not a perfect standard and, as such, is open to review.
Pivotally, the main focus of this thesis is on how this standard has potentially led to negative repercussions such as large imbalances of powers between actors in a supply chain through the Commission’s- and NCAs’- strict interpretation of it. This chapter shall therefore serve to investigate why the application of the consumer welfare standard has received criticism.
To do so, it shall employ the UK’s ’Dairy products’ case to demonstrate how the consumer welfare standard affects the decision-making of both national competition authorities (with a particular focus on the UK) and the Commission. It will then analyse why there are issues with the strict consumer welfare approach spearheaded by the Commission and the worries which it is said to give rise to which are most relevant to this thesis.
1.2 ‘Dairy products: investigation into retail pricing practices’20
In 2007, the Office of Fair Trading (OFT) issued a statement of objections that a number of supermarkets and cheese processors had infringed competition law by coordinating increases in prices for particular products in 2002 and/or 2003.21 The products affected were as
follows: cheddar and British territory cheese and milk.22 As a result of the increases in prices, a pint of milk cost shoppers an extra 3p, a quarter of a pound of butter an additional 15p and,
16 ‘Addressing’, Gerbrandy p.771 17
C-501/06 GlaxoSmithKline Services and Others v Commission and Others [2009] ECLI:EU:C:2009:610 18 COMMUNICATION FROM THE COMMISSION Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal co-operation agreements [2012] (2011/C 11/01) 19 T. C. Hodge, “Compatible or conflicting: the promotion of a high level of employment and the consumer welfare standard under Article 101”, (2012), 3 William and Mary Business Law Review, 85
20 Office of Fair Trading ‘Decision of the OFT: Dairy Retail Price Initiatives (Case CE/3094-03)’ (Office of Fair Trading, July 2011)
< https://webarchive.nationalarchives.gov.uk/20140403003913/http://www.oft.gov.uk/shared_oft/ca-and-cartels/dairy-decision.pdf> (accessed 19 June 2019) (henceforth referred to as ‘Decision’)
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Decision, para 25-27 22 Decision, p.8
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a half-pound of cheese 15p more.23 The price-fixing provoked furore amongst the British public, with it being reported that it resulted in the undertakings involved obtaining an extra £260 million from UK consumers via these additional price rises.24 In 2011, the OFT found three infringements had taken place and- as a consequence- fined the undertakings involved £49.51 million in total.25
Accordingly, at first, this case appears to be a clear and reprehensible price-fixing scenario. What was interesting about the case, however, is that a majority of the participants claimed that they had not pursued the increases in prices for their own gain, but to benefit British farmers.26 It is important, therefore, to consider the context in which the price increases took place.
In 2002 to 2003, there were a number of protests by British farmers concerning the low farm gate prices they were receiving for their produce.27 British farmers began to lobby “processors and retailers” to “subside an increase in farm gate prices.”28
It was a farming lobby group- Farmers for Action- who pushed for an initiative to increase milk prices.29 The concerted practice, accordingly, could be seen to have originated from non-economic
motivations, and this was recognised by the OFT.30 However, the OFT remarked “co-ordination of retail prices is anti-competitive regardless of whether the motivation is to pass
the proceeds up the supply chain (emphasis added).”31 It reached this conclusion despite the
increasing public debate about the weak position of farmers in the UK. In 2001, for example, the former Prime Minister Blair remarked that farmers were in an “arm lock” 32
with supermarkets. There were, arguably, legitimate concerns about the sustainability of British
23 Valerie Elliot, ‘Tesco prepares to fight charges of collusion in price fixing scandal’ (The Times, December 2007) < https://www.thetimes.co.uk/article/tesco-prepares-to-fight-charges-of-collusion-in-price-fixing-scandal-0d2nlmszz56> (accessed 19 June 2019)
24 BBC News, ‘Supermarkets admit milk price fix’ (BBC News, December 2007) <http://news.bbc.co.uk/2/hi/business/7132108.stm> (accessed 19 June 2019)
25 Decision, Annexe A 26
Decision, p.85-86
27 BBC News ‘Farmers protest over milk prices’ (BBC News, October 2003)
<http://news.bbc.co.uk/2/hi/uk_news/england/southern_counties/3196434.stm> (accessed 19 June 2019)
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Decision, p.81 29 Decision, p.81
30 Decision, p.86. The OFT also mentioned the difficultly in establishing whether or not farm gate prices had actually risen, and if the extra revenue was passed onto farmers- see p.87
31
Decision, p.88.
32 Anne Tallontire and Bill Vorley ‘Achieving fairness in trading between supermarkets and their agrifood supply chains’ (UK Food Group Briefing: September 2005)
<https://www.researchgate.net/profile/William_Vorley/publication/270285198_Achieving_Fairness_in_Trading _between_Supermarkets_and_their_Agrofood_Supply_Chains/links/54a6f0f60cf257a6360ab37b/Achieving-Fairness-in-Trading-between-Supermarkets-and-their-Agrofood-Supply-Chains.pdf> (accessed 14 June 2019) p.3
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milk farmers at the time of the concerted practices but these were not given due consideration by the OFT.
Instead, the OFT stated it would only take this “motivation” into account- alongside the pressure placed on the undertakings involved by the farmers33- when considering the
financial penalty to be bestowed upon each of the undertakings.34 This does suggest that the competition authority “turn(ed) a blind eye to some pressing societal concerns”35
when it made its decision. The OFT was primarily focussed on the fact that concerted practice had resulted in a price increase for consumers. It followed a strict interpretation of the consumer welfare standard.
Additionally, the concerted practice was found not to benefit from an “individual exemption” permitted by section 9 under the Competition Act 1998.36
Section 9 is essentially the mirror image of Article 101(3) of the TFEU.
1.3 Analysis of ‘Dairy products’ case
This case is demonstrative of the idea that the UK competition authority- now the CMA- takes an economics-oriented approach when deciding cases involving potential
anticompetitive agreements, and that consumer welfare in the guise of low prices is its main consideration.37 It ought to be noted that this case is reflective of a trend, and is not a
standalone case- for instance, see the informal opinion ‘Rural broadband wayleave rates.’38 In the ’Dairy products’ case, the OFT found that the concerted practices by these undertakings pushed up consumer prices. Ergo, it was a competition law infringement, with little weight being given to the non-economic reasons why the concerted practices arguably took place. As summarised by the academics Smith and Thanassoulis: “motives are not relevant to the legal question.”39
Crucially, it ought to be noted that this approach could serve to curb interest in setting up sustainability initiatives. Article 101 TFEU (and Section 2(1) of the Competition
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Decision, p.88-90 34 Decision, p.88
35 Anna Gerbrandy ‘Rethinking Competition Law within the European Economic Constitution’ [2019] Journal of Common Market Studies, Vol. 57(1) p.131
36 Decision, p.319
37 O. Brook ‘Struggling With Article 101(3) TFEU: Diverging Approaches of The Commission, EU Courts, And Five Competition Authorities’ [2019] Common Market Law Review, Vol. 56 (1) p.141-142. Importantly, this issue- that sustainability considerations are not being properly assessed under the consumer welfare standard- is not just limited to the UK. It reflects the current state of play amongst a number of national competition authorities (NCAs) across the EU.
38 Office of Fair Trading ‘RURAL BROADBAND WAYLEAVE RATES’ (The National Archives, April 2014) <https://webarchive.nationalarchives.gov.uk/20140402165731/http://oft.gov.uk/shared_oft/SFOs/wayleave.pdf> (accessed 24 July 2019), para 8.12
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Act 1998) is capable of capturing a high number of agreements/concerted practices, with there being a limited number of exemptions.40 Importantly, a sustainability initiative is not held to a more lenient standard than other agreements/concerted practices. If the conditions of Article 101 TFEU/ the Member State’s competition law provision are met, it will generally be subject to the strict consumer welfare standard, with high fines awaiting undertakings that are found to breach competition rules. Altruistic motives are not strong defences.
Moreover, as shown by the case, supermarkets have a “strong aversion to deviating from each other in terms of retail price.”41
They are unlikely to independently provide an increased rate for actors such as farmers in exchange for their goods if this will result in their products being more expensive than their competitors. Alongside this, they may also not seek to find an agreement with their fellow competitors due to the “risk of fines”42
and the practical difficulties in getting authorisation for their agreements/concerted practices from competition authorities.43 The widely publicized fine imposed following the ‘Dairy Products’ case, for example, could serve as a warning to undertakings. Competition law could be thereby be seen as undermining the popularity of sustainability agreements, and making it less appealing for undertakings to cooperate on sustainability initiatives which, in turn, will lower their
frequency.
Alongside curtailing independent action by actors, this economics-based approach to competition rules appears to have acted as “blinkers” for competition authorities. Arguably, relevant albeit non-economic considerations are not receiving enough attention. This can be illustrated by the UK’s grocery sector. While it is certainly true that consumers benefit from supermarkets providing them with inexpensive, safer and reliable food delivery, the fixation on consumer prices demonstrated by the UK competition authority could be seen to ignore other interests consumers may have, such as the sustainability of the food chain. 44 This is not a trivial issue. The sustainability of the certain agricultural markets is an increasingly
legitimate concern: for instance, in 1995 there were 35,000 dairy farmers in the UK while, in
40 For instance, see COMMUNICATION FROM THE COMMISSION Notice on agreements of minor
importance which do not appreciably restrict competition under Article 101(1) of the Treaty on the Functioning of the European Union (De Minimis Notice) [2014] (2014/C 291/01)
41 Howard Smith and John Thanassoulis ‘Prices, profits, and pass-through of costs along a supermarket supply chain: bargaining and competition’ [2015] Oxford Review Of Economic Policy, Vol. 31(1), p.172-173 42
Agricultural Markets Task Force ‘Improving Market Outcomes: Enhancing the Position of Farmers in the Food Chain’ (European Commission, November 2016)
<https://ec.europa.eu/agriculture/sites/agriculture/files/agri-markets-task-force/improving-markets-outcomes_en.pdf> (accessed 14 June 2019) p.42
43 ‘Achieving’, Tallontine and Vorley p.15; see also Decision, para 84 44
David Burch; Geoffrey Lawrence and Libby Hattersley ‘Watchdogs and ombudsmen: monitoring the abuse of supermarket power’ [2013] Agriculture and Human Values, Vol.30(2), p.268
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2013, there were around 13,000.45 The exodus has been blamed on rising production costs, and the low prices supermarkets pay for milk.46 An argument could be made that competition law’s prioritisation of low consumer prices and arguably inadequate consideration of non-economic factors when analysing potential anticompetitive agreements/ concerted practices can be held partly accountable for the issues affecting the UK’s dairy industry.
With the above factors in mind, the restricted interpretation of the consumer welfare standard adopted by the Commission and the CMA does raise an important question: does it truly benefit consumers to have lower prices, if it means that there are increasingly fewer suppliers? Indeed, it has been condemned as defying “common sense to contend that it would be welfare improving to lower prices by a small amount at the cost”47
of important non-economic benefits. Additionally, it is submitted that consumers themselves may value sustainability agreements, with there being growing indications that consumers are not just interested in prices.48 If consumers were only interested in prices, for example, there would be no Fairtrade chocolate.
Moreover, as summarised by Foer and Durst, competition law “is not simply about end-user consumers.”49
There are others within the competitive process whose rights are and should be protected under competition law to ensure sustainable and fair competition within markets. Consumers are not the only weak parties in a number of supply chains. Competition rules are meant to protect the competitive process, not consumers. As such, on the grounds of fairness and to ensure sustainability, “atomistic sellers”50
should be protected to a similar extent as final consumers by bestowing more consideration of their interests in decision-making. It is in the interest of, and it is the interest of, consumers that weaker actors in the market have their interests given a higher standing in the decision-making process of competition authorities.
Therefore, the application of the consumer welfare standard in UK, and EU, could be seen as curtailing the scope of relevant factors when determining if an agreement/concerted
45 Jon Henley ‘The Battle for the soul of British milk’ (The Guardian, October 2014)
<https://www.theguardian.com/uk-news/2014/oct/02/-sp-battle-soul-british-milk> (accessed 19 June 2019) 46
Editorial ‘The Guardian view on milk prices: dairy farmers are being driven out of business. The groceries regulator should find out why’ (The Guardian, January 2015)
<https://www.theguardian.com/commentisfree/2015/jan/12/dairy-farmers-milk-prices-eu> (accessed 19 June 2019)
47
Mark Glick ‘The Unsound Theory Behind the Consumer (and Total) Welfare Goal in Antitrust’ [2018] The Antitrust Bulletin, Vol.63(4), p.482
48 Sara Abdollah Dehdashti ‘B2B unfair trade practices and EU competition law’ [2018] European Competition Journal, Vol.14(2-3), p.309
49 ‘The Multiple’ Foer and Durst, p.498 50
W. S. Grimes ‘Buyer power and retail gatekeeper power: Protecting competition and the atomistic seller’ [2004] Antitrust Law Journal, Vol.72(2), p.570
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practice is anticompetitive or not. This is an issue since “economists are supposed to assist lawyers”51
and not the final decision-makers. While the consumer welfare standard has resulted in greater analysis of economic efficiencies which, in turn, has allowed for more rigorous examinations of anticompetitive agreements this may not be advantageous to all consumers. This interpretation of the standard perhaps reduces “consumers” into mere “customers” by limiting their interests down to mere desires for low market prices and wider choices between different products. Some consumers, for instance, want to know that the workers who make their products earn a fair living wage. An economics-only approach cannot adequately take into consideration these wants or motivations. It falls to the
Commission and NCAs to consider wider consumer interests and not simply strictly abide by the economic analysis of an agreement. However, the current interpretation of the consumer welfare standard means that this does not often occur.
Therefore, as seen by the case study and the analysis of it, the focus on consumer prices has meant that there is growing concern that “competition law actually hinders, or is perceived to hinder, sustainability initiatives.”52
It is reputed to do this in two ways: by curtailing the desire to establish sustainability agreements or by meaning that it is difficult to meet the four conditions under Article 101(3) of the TFEU/section 9 of the Competition Act 1998.53
Economisation and modernisation are purported to have made the Commission and NCAs too inflexible in their decision-making. The next question is, of course, what are the negative repercussions of this perceived inflexibility? This shall be briefly discussed in the final section of this chapter.
1.4 Worries about market concentration and power imbalances
The primary negative repercussions of the Commission’s and NCA’s inflexibility which shall be discussed in this thesis are as follows: firstly, high concentration levels in particular
markets and, secondly, power imbalances are being created in certain markets.54 These issues disadvantage consumers in two ways. Firstly, they reduce price competition since there are fewer competitors and secondly, the sustainability of the market in the future could be jeopardised as those already in the market may leave it, and new entrants are discouraged from joining.
51 ‘B2B’, Dehdashti p.309 52 ‘Solving’, Gerbrandy p.543
53 This shall be further elaborated on in Chapter Three. 54
There are others, like concerns over buyer power, but they are not discussed here due to the restrictions of the word count.
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These repercussions can be especially seen in the agricultural sector, which has experienced a high level of both vertical and horizontal concentration in recent times.55 Some academics have described this as a “supermarket revolution”56
, signifying that there are fewer actors to whom farmers can sell their products and that supermarkets are in a position to demand lower prices from farmers.57 This could affect the future of the industry, for example, through discouraging investment. It ought to be noted that concerns about market concentration and power imbalances in the agricultural sector will be evaluated to a far greater extent in the following chapter to demonstrate that these are legitimate concerns.
What is relevant to note, however, at this juncture is that academics have pointed to the lack of action in preventing these issues from arising in different markets as signalling that, in focussing on consumer prices, the priorities of national competition authorities have not addressed the “real anticompetitive dangers of the high level of concentration and vertical integration.”58 The passivity of competition authorities in the face of such worries has been lambasted.59 This could be because the effects of the high concentration may not affect end consumers so, from their viewpoint, the agreement/concerted practice is not anticompetitive. Regardless of the motivations for their inactivity, the concerns about high market
concentration and power imbalances could indicate that the current application of the consumer welfare standard- both in the UK and EU- is not fit for purpose. The economics-based approach has, it is submitted, helped to create anticompetitive conditions.
Summary
To conclude, the consumer welfare standard is central to the decision-making of both the Commission and NCAs such as the CMA, albeit there are a number of critiques of it. Its application in practice, for instance, has led to a number of worries. The qualms which shall be discussed in this thesis revolve around the idea that it has led to high market
concentrations and power imbalances.
The next chapter shall explore whether these concerns are justified in practice, and how EU competition law serves to correct these concerns. To do so, the thesis will evaluate the EU’s- and UK’s in particular- agricultural sector.
55
Valeria Sodano and Fabio Verneau ‘Competition Policy and Food Sector in the European Union’ [2014] Journal of International Food & Agribusiness Marketing, Vol.26(3), p.155
56 ‘Increasing concentration’ Sexton and Xia p.233 57 ‘Food and power’ Kelloway and Miller p.5 58 ‘Competition policy’, Sodano and Veneau p.162 59
Paul W. Dobson; Michael Waterson and Stephen W. Davies ‘The Patterns and Implications of Increasing Concentration in European Food Retailing’ [2003] Journal of Agricultural Economics, Vol.54(1), p.118
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Chapter Two
Using the agricultural sector this chapter shall evaluate how competition law currently
accommodates non-economic interests. The aim of this chapter is to discuss the application of competition law in the dairy industry, through looking at the UK milk sector especially, and the extent to which it can be said to have addressed issues arising from the strict application of the consumer welfare standard. It will discuss whether or not the current law goes far enough to address such concerns.
This chapter shall state why the agricultural sector in particular is being analysed in this thesis; it shall explore sustainability issues within the UK’s dairy market to assess if these are legitimate concerns and, finally, it shall analyse the recent reforms in this sector to investigate if they successfully counter some of the issues associated with the consumer welfare
standard.
2.1 Why the agricultural sector is special
This thesis is focusing on the position of farmers to explore the issues introduced in Chapter One due to the special place agriculture has within the competition rules of many nations: it is “a special sector of the economy.”60
One reason for this is because farming is perceived to be crucial to the continuation of one’s society.61
There is a need to ensure basic food security to prevent social disorder, as demonstrated repeatedly by history- for instance, recall the bread riots in Russia in February 1917. To ensure that the services and goods associated with farming are provided to citizens and that there are enough individuals within it to sustain the agriculture sector- farming remains a labour intensive enterprise62- the interests of farmers are given greater protections than actors in other markets in the legal system.63 This is reflected in the EU: it is a peculiarity within the EU legal system that farmers’ welfare is enshrined and
60 Arie Reich ‘The Agricultural Exemption in Antitrust Law: A Comparative Look at the Political Economy of Market Regulation’ (Bar-Ilan University Public Law and Legal Theory Working Paper No. 06-7, November 2006)
<https://www.researchgate.net/profile/Arie_Reich/publication/228174620_The_Agricultural_Exemption_in_An titrust_Law_A_Comparative_Look_at_the_Political_Economy_of_Market_Regulation/links/5470fcde0cf24af34 0c3b909/The-Agricultural-Exemption-in-Antitrust-Law-A-Comparative-Look-at-the-Political-Economy-of-Market-Regulation.pdf> (accessed 14 June 2019) p.1
61 S. A. Schneider, ‘A Reconsideration of Agricultural Law: A Call for the Law of Food, Farming, and
Sustainability’ (SSRN, 5 May 2013) <https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1446131> (accessed 12 July 2019) p.937
62
Ibid. p.947 63 Ibid. p.938
17
purportedly protected by law.64 As such, arguably, there is a greater focus on considering and achieving non-economic interests than in other sectors. This can be seen in the fact that there are derogations from competition law which do not apply elsewhere.65 Through agriculture, accordingly, it is possible to obtain an understanding of how competition law allows for non-economic interests to be considered in situations where greater attentions are afforded to them.
Furthermore, as a secondary motivation, the thesis is focussing on agriculture since- as shall be demonstrated later- it is also a highly concentrated sector, with a number of power
imbalances. The conditions of the market reflect the issues associated with the application of the consumer welfare standard noted in Chapter One.
In the next section, it shall now be discussed in greater detail how the interests of farmers are protected under EU competition law.
2.2 How the agricultural sector is special
Agriculture has been given a unique position within the EU legal order, which has allowed it to maintain a notable distance from the normal application of EU competition rules. The special place which it occupies within the EU legal framework is set down by Articles 38 to 44 of the TFEU, and explicitly stated by Article 42 of the TFEU. Article 42 of the TFEU provides that competition law “shall apply to production of and trade in agricultural products only to the extent determined by the European Parliament and the Council.” This essentially means that the EU legislature possesses a high level of discretion when deciding the extent to which competition rules shall be applicable to the EU agricultural sector.66 Conversely, when exercising this discretion, there is a requirement on the EU legislature that it takes into consideration the Common Agricultural Policy (CAP) objectives found in Article 39 of the TFEU.67
These objectives encompass laudable aims, which demonstrate the importance of agriculture within the EU, and include broader aims than just low consumer prices and economic efficiencies. However, they are not easily applied. From the offset, for instance, there appears to be irreconcilable goals within the Article 39 due to the objectives concerning
64 Consolidated versions of the Treaty on European Union and the Treaty on the Functioning of the European Union [2007] 2012/C 326/01, Article 39(b) (subsequently ‘TFEU’)
65 See ‘TFEU’, Article 42 66 ‘Agriculture’, Robertson p.293 67
‘TFEU’, Article 42; the objectives of Article 39 of the ‘TFEU’ can be located in the Appendices, under Figure A
18
“a fair standard of living” and “reasonable prices” for consumers.68
Lawmakers do not have a straightforward checklist of objectives to meet when legislating in this area.
Additionally, there is a level of uncertainty as to what the CAP objectives actually entail. This can be seen in the CAP’s second objective. Although it implies that greater prominence should be bestowed upon the concerns of farmers, it is ambiguous and subjective. What is, for instance, a fair standard of living for farmers, and does it differ between Member States? This idea- the lack of clarification concerning the objectives- shall be discussed later in this thesis. However, what is relevant to note here is that the inclusion of the second objective strengthens the argument that “exclusive focus on consumers…cannot be the only
yardstick”69
when assessing agreements/concerted practices among farmers. The influence of the strict consumer welfare standard seems to have been curbed in this field.
Moving on from the complex application of the CAP objectives, the broader debate surrounding these and competition rules shall be discussed. Pivotally, there has been debate concerning the “primacy of the objectives of the CAP over those of competition policy.”70
Importantly, the latest reforms in this sector- as demonstrated by the ‘Omnibus Regulation’, which shall be discussed later- seems to indicate that agriculture trumps competition due to the exceptions from competition rules bestowed in different agricultural markets.71 In the Endives case, the CJEU supported this by holding that the objectives of Article 39 are paramount to the aims of competition rules.72 The primacy of agriculture demonstrates that competition law is applied more restrictively in this area than in others. This approach can also be seen in the decision in Germany v Council, where the Court held that the objectives of competition were secondary to those of competition.73 There is an emphasis on protecting non-economic interests in EU agriculture, with this receiving judicial approval.
However, it is essential to note, contra wise, that the apparent current supremacy of agriculture over competition rules, “does not mean that CAP is a competition-free zone.”74 There is a place for competition law in agriculture. This has judicial approval. In Milk
68 Jan Blockx and Jan Vandenberghe ‘Rebalancing Commercial Relations Along the Food Supply Chain: The Agricultural Exemption from EU Competition Law After Regulation 1308/2013’ [2014] European Competition Journal, Vol.10(2), p.390
69 ‘Improving market’ report p.41 70 Ibid. p.41
71
‘Agriculture’, Robertson p.294
72 Case C-671/15 Président de l’Autorité de la concurrence v Association des producteurs vendeurs d’endives (APVE) and Others Request for a preliminary ruling from the Cour de cassation (France) [2017]
ECLI:EU:C:2017:860
73 Case C-280/93 Federal Republic of Germany v Council of the European Union [1994] ECLI:EU:C:1994:367, paras 59 and 60
19
Marque Ltd case, for instance, it was held that national competition law not deprived of all its effect in a national agricultural sector.75 Indeed, it has been suggested that the application of competition rules is beneficial to the agricultural sector.76 Competition rules still apply in this area. The exceptions have been precisely defined: if an agreement/concerted practice does not benefit from the limited derogations from competition rules in agriculture and falls under Article 101(1) TFEU, then the problematic Article 101(3) TFEU comes into play and the controversial consumer welfare standard is utilised.
It is also acknowledged that there is a political reluctance to place agriculture too far outside EU competition law. In particular, the Heads of the European Competition Authorities published a Resolution condemning removing agricultural agreements and concerted practices from the orbit of EU competition rules.77 This unwillingness could be because competition authorities understandably do not want to replace a cartel by
supermarkets with a cartel by farmers. The current political environment seems to indicate that the idea of placing agriculture too far outside competition rules is not favoured, or widely supported. Conversely, it should be noted that the ‘Improving market’ report adopted a strong stance for addressing concerns about the weak position of farmers. This can be seen in
remarks such as “The Commission should unambiguously exempt joint planning and joint selling from competition law.”78
There are EU entities which support more agricultural exemptions being made to EU competition rules.
In light of this, despite the apparent priority bestowed upon the CAP objectives, the agricultural exemptions in competition law have been explicitly restricted. The Court has held Article 42 TFEU limits but does not prevent the normal application of competition law in the agricultural sector.79 Instead, the current state of play in this area seems to be that competition rules do not apply “only insofar as is necessary to achieve the CAP objectives and to protect the farmers.”80
Being an agricultural undertaking is not a trump card against the application of competition rules.
75 C-137/00 The Queen v The Competition Commission, Secretary of State for Trade and Industry and The Director General of Fair Trading, ex parte Milk Marque Ltd and National Farmers' Union [2003] ECLI:EU:C:2003:429
76
Heads of the European Competition Authorities ‘The Reform of the Common Agricultural Policy (Resolution)’ (European Commission, December 2012)
<http://ec.europa.eu/competition/sectors/agriculture/resolution_nca_en.pdf> (accessed 14 June 2019) p.1 77 ‘Resolution by Heads’ p.2
78 ‘Improving market’ report p.8 79
‘Rebalancing’, Blockx and Vandenberghe p.391 80 ‘Agriculture exemption’, Reich p.14
20
2.3 Issues in UK dairy market
Having elaborated on how agriculture possesses a special status in the EU legal order, it shall now be analysed if the issues referred to in Chapter One are based in reality- i.e. does the application of the ‘consumer welfare’ standard result in high concentration and power imbalances, despite the increased focus on farmers’ welfare? The dairy market- in particular the UK’s milk market- shall be used to assess this.
Firstly, it ought to be noted that dairy farmers do not benefit from having a produce which possesses a distinct reputation.81 Arguably, the only distinctive “brand” which can be
attached to milk is a nationality certificate. It is thus easier for supermarkets to demand a low price for it from producers.82 Also, the nature of milk and its production places restrictions on farmers. Dairy farmers have high sunk costs, primarily due to “the perishable nature”83
of their produce. They cannot afford to tarry too long to strike a deal with supermarkets. This tilts negotiations in favour of the supermarkets.
Alongside the problems associated with selling a generic good, the position of UK farmers has also been weakened by liberalisation. In the UK, before liberalisation, dairy farmers were guaranteed a minimum price for their produce through the Milk Marketing Board.84 Now, following its dissolution, UK farmers instead “act as price takers”85
with supermarkets dominating their transactions.
Additionally, when looking at the UK, farmers have found that milk is often sold “as a “loss leader”86
in supermarket price wars. This benefits consumers, but it has helped create the situation where the farm gate price falls below production costs.87 Furthermore, with the rise of discount shops in the UK such as Lidl and Aldi, there is evidence that this price competition has increased.88 Price wars are likely to remain a feature of the UK’s grocery sector. Moreover, it may soon not just be traditional retailers which farmers must contend with. The position of farmers could also be threatened by the rise of grocery e-commerce. While e-commerce could provide opportunities for farmers- for instance, through offering cheap advertising opportunities- it also could introduce new actors who will not seek to increase the farm gate price. Amazon, for example, has begun to introduce private label
81 ‘The patterns’, Dobson et al p.123 82 ‘The supermarket’, Fels p.101 83
‘Buyer’, Grimes p.567
84 The National Archives ‘Records of the Milk Marketing Board’ (The National Archives) <https://discovery.nationalarchives.gov.uk/details/r/C179> (accessed 19 June 2019) 85 ‘Improving Market’ report p.709
86 ‘Farmers’, Cardwell p.56 87
‘The Battle’ Henley 88 ‘The challenges’ Grant p.12
21
grocery brands.89 These will seek to compete with supermarkets, which will intensify the price wars. This could further decrease dairy farmers’ negotiation positions, and thereby the sustainability of the industry.
Along with highlighting the weak position of farmers in the supply chain, the UK can also serve as an example that there are “severe imbalances of market power in agrifood”90
due to high market concentration levels. Four supermarkets (Tesco, Asda, Sainsbury’s and
Morrisons), control the UK’s grocery market, with combined market shares of over 70%.91 Their market power gives them the ability to dictate prices to farmers, and the terms of their contracts. By contrast, UK dairy farmers tend to be “sole traders”92
and have herds of around 125 cattle.93 The between these two groups is remarkably stark. Through possessing a high market share, a small number of supermarkets are able to use their superior position to obtain lower prices from small-scale producers, especially as they control UK farmers’ access to a majority of customers.
Therefore, a combination of power imbalances, and increased market concertation has resulted in “lower prices at the farm gate”94
over the past decades. This could, in turn, give rise to sustainability issues since this means that farmers lose valuable revenue, and risk going bankrupt. Decreased revenue also means that farmers may not be able to invest in new innovations, while new entrants are dissuaded from joining the market.95 Crucially, this fall in innovation does not just affect dairy markets: it has been noticed across “most (agricultural) product categories.”96
These are costs which will ultimately affect consumers as well. The lack of new entrants into the UK agricultural sector could give rise to worries over the future of this sector.97 The median age of UK farmers is 59.98 Without proper incentives to enter the
89 Jessica Dumont ‘Amazon launches private label milk’ (GROCERYDIVE, February 2019)
<https://www.grocerydive.com/news/amazon-launches-private-label-milk/548941/> (accessed 19 June 2019) 90 ‘Achieving’ Tallontine and Vorley p.17
91
Mark Sweney ‘Sainsbury’s falls behind Asda to become UK's third biggest supermarket chain’ (The Guardian, April 2019) <https://www.theguardian.com/business/2019/apr/02/sainsburys-asda-uk-supermarket-aldi-lidl> (accessed 19 June 2019)
92 House of Commons Environment, Food and Rural Affairs Committee ‘Dairy prices: Fifth Report of Session 2014-15’ (House of Commons, January 2015)
<https://publications.parliament.uk/pa/cm201415/cmselect/cmenvfru/817/817.pdf> (accessed 14 June 2019) p.24
93 Editorial ‘The Guardian view on milk prices: dairy farmers are being driven out of business. The groceries regulator should find out why’ (The Guardian, January 2015)
<https://www.theguardian.com/commentisfree/2015/jan/12/dairy-farmers-milk-prices-eu> (accessed 19 June 2019)
94 ‘The supermarket’, Fels p.101 95 ‘Increasing’, Sexton and Xia p.233
96 ‘European food’, Chauve and Renckens p.524 97
Wyn Grant ‘The challenges Facing UK Farmers From Brexit’ [2016] EuroChoices, Vol.15(2), p.12 98 ‘The challenges’, Grant p.12
22
market, will there be enough young farmers to replace those who will retire in the near future? Lower prices for the consumer of the present may translate into problems for future consumers.
Accordingly, this brief illustration of the market conditions for UK dairy farmers demonstrates that there are justified concerns about market concentration and power imbalances, despite agriculture’s “special status”. The next section shall comment on the reforms which have been introduced to tackle these issues.
2.4 Reforms in the EU agricultural sector
The legal rules and measures which shall be assessed in this section will concern EU laws since the TFEU governs the application of EU and UK competition law in the agricultural sector.99 Due to the constraints of this thesis, it will be the reforms concerning producer organisations (POs) and associated producer organisations (APOs) which will be discussed. For the purposes of this thesis, the definitions of these two entities will be the ones adopted by the ‘Study on Producer Organisations.’100
The reason for limiting the focus to POs/APOs is because it is clear that the EU favours POs (as seen by the recent study into them101) to counter some of the challenges faced by farmers.102 One reason for this could be because collective action is necessary in this sector, with most farmers being small-scale sole traders.103 Collaborations between individual farmers “can (help) mitigate the effects of monopoly and oligopoly and advance the interests (of farmers)”104
through “levelling the playing field.”105
POs are perceived as a credible vehicle through which the interests of farmers can be protected in markets where there is an imbalance of powers.106 The EU is therefore expanding the powers of POs in the agricultural sector.
99 Aidan Robertson ‘Agriculture and competition law: some recent developments’ [2018] European Competition Law Review, Vol.39(7), p.293
100 Ecorys and Wageningen Economic Research ‘Study on Producer Organisations and their activities in the olive oil, beef and veal and arable crops sectors’ report (European Commission, April 2018)
<http://ec.europa.eu/competition/publications/reports/kd0218732enn.pdf> (19 June 2019), IV; see Appendices, Figure B, for the full definitions
101
Kristine Van Herck ‘Assessing generated Producer Organisations efficiencies by agricultural Producer Organisations’ (European Commission, June 2014)
<http://ec.europa.eu/competition/publications/agricultural_producers_organisations_en.pdf> (accessed 14 June 2019)
102
‘Rebalancing’ Blockx and Vandenberghe, p.389
103 Commission on Agriculture and Rural Development ‘Opinion of the Commission on Agriculture and Rural Development on the Annual Report on Competition Policy’ (European Parliament, November 2018)
<http://www.europarl.europa.eu/doceo/document/A-8-2018-0474_EN.html#title3> (accessed 14 June 2019), 2 104 ‘Cooperative’, Vaheesan and Schneider p.1
105
Ibid. p.61
23
Finally, as one last comment when addressing the reforms, it is important to remember that there has been a shift in EU policy towards agriculture over the decades. There has been a trend away from public intervention, which has left farmers more vulnerable to changes in the market: this has been labelled a “move from price to income support.”107
The wider EU liberalisation movement has meant market forces have a much larger role to play in EU agriculture (as noted earlier through the mention of the dissolution of the UK’s Milk
Marketing Board.) In stepping back from direct intervention issues within the food chain such as power imbalances are drawing more attention. The recent reforms are indicative of the idea that the EU legislature desires to correct them.108
These reforms- alongside the important Endives case109- shall now be discussed, and critiqued below:
Reforms
Council Regulation 1308/2013110, ‘Common Market Organisation (CMO) Regulation’
The reforms introduced by this regulation mean that the consumer welfare standard is not the only relevant consideration when evaluating efficiencies associated with the activities of POs in assessments to determine if they be exempted from the normal application of competition rules. It is now additionally required that such efficiencies “contribute to the fulfilment of the five CAP objectives.”111
There is a responsibility placed upon competition authorities to ensure that they do not only assess the efficiencies of POs’ activities through the lens of low consumer prices.
It is important to note that elements of the CMO Regulation have been repealed by the ‘Omnibus Regulation’. Albeit, these provisions still apply if the PO’s operations took place before 1st January 2018.
European Parliament and Council Regulation (EU) 2017/2393112, ‘Omnibus Regulation’
107 Beatriz Velázquez and Bruno Buffaria, ‘About farmers’ bargaining power within the new CAP’ [2017] Agricultural and Food Economics, Vol.5(1) p.1-2
108 ‘Balancing consumer welfare’ Abrenica p.454 109
‘Endives’ judgement
110 Regulation (EU) No 1308/2013 of the European Parliament and of the Council of 17 December 2013 establishing a common organisation of the markets in agricultural products and repealing Council Regulations (EEC) No 922/72, (EEC) No 234/79, (EC) No 1037/2001 and (EC) No 1234/2007 [2013] OJ L 347
111 ‘Agriculture’, Chauve et al p.311 112
Regulation (EU) 2017/2393 of the European Parliament and of the Council of 13 December 2017 [2017]OJ L 350
24
This regulation made a series of amendments to the ‘CMO Regulation.’ For the purpose of this thesis the most important amendment was made to Article 152.
Article 4(10)(b) of the ‘Omnibus Regulation’ amended Article 152 of the ‘CMO Regulation’ to allow for an exception from EU competition rules to be applicable for recognised POs and APOs within every agricultural sector, provided that these bodies carry out at least one of the activities listed in the amended article. This amendment means that the derogation from competition law no longer exclusively applies to olive oil, beef and veal and arable crop POs and APOs as under the CMO Regulation.113 The ‘Omnibus Regulation’ thereby demonstrates the importance which the EU has placed on POs, and signals its intention to foster their growth.
Moreover, under Article 4(20)(a) of the ‘Omnibus Regulation’, Article 209 of the CMO was amended. This new amendment means recognised POs/APOs across different
agricultural areas can carry out named activities provided that the CAP objectives are not infringed, without falling under Article 101(1) TFEU. However, it is importantly to note that this reform does not represent a “general and explicit derogation from the prohibition on cartels enshrined in Article 101(1) TFEU.”114
Not all activities fall under this derogation. Additionally, in the FNCBV case, the Court ruled that all the CAP objectives need to be met for Article 209 to be applied.115 Since this is a significant hurdle, this requirement does severely limit the circumstances in which Article 209 may be successfully utilised. For instance, an agreement aimed to promote young people entering the carrot market may not be able to benefit from this derogation from normal competition rules if it would result in
increased prices for consumers (since this would go against fifth CAP objective). In such cases, the normal rules of competition law would apply.
Accordingly, the ‘Omnibus Regulation’ has not had the impact which it might otherwise have had: it has even been critiqued as “dormant.”116 The ‘Improving Market Outcomes’ report suggests that, to ensure that it does “not remain a dead letter”117
changes ought to be made to it.
113
‘Rebalancing’, Blockx and Vandenberghe p.398 114 Ibid. p.41
115 Joined cases T-217/03 and T-245/03 Fédération nationale de la coopération bétail et viande (FNCBV) (
T-217/03) and Fédération nationale des syndicats d'exploitants agricoles (FNSEA) and Others (T-245/03) v Commission of the European Communities [2006] ECLI:EU:T:2006:391, para 199
116
‘Improving market’ report p.8 117 Ibid p.43
25
One clarification which is urgently needed, for instance, is to what extent Article 209 applies to agreements which do not cover prices.118 Joint selling is permitted, but not an “obligation to charge an identical price.”119
It is submitted that it would be difficult for farmers to jointly sell, while making it explicitly clear they are not fixing prices so that they each receive the identical price for their produce.120 The report contends that this lack of clarity is further exacerbated by the fact that exemptions under the ‘Omnibus Regulation’ “relies on self-assessment”121
since, without an assurance that they would not be fined under EU competition rules, farmers would be unwilling to risk setting up such a PO.122 As noted by the ‘Improving Markets Outcome’ report, few farmers could afford to pay a fine
associated with breaching EU competition rules.123 There is also a very real risk of competition authorities taking action against perceived anticompetitive practices in the agricultural sector, which means farmers could perceive there to be a real risk of falling foul of competition rules.124 The lack of clarity about their limitations renders POs less attractive.
Given that the dairy industry has been given particular focus in this thesis, the unique “Milk Package” will be briefly summarised.
Regulation (EU) No. 261/2012125, also dubbed the “Milk Package”
This regulation’s primary aim was to “strengthen the position of dairy producers in the dairy value chain.”126
One amendment which is of particular note was made to Article 126c(2)(b). Under this new amendment, a recognised PO may negotiate “whether or not the price negotiated is the same as regards the joint production of some or all of the farmer members.”127
Price-fixing cartels amongst milk farmers are permitted under this reform, provided that the PO in question does not exceed certain size restrictions. 128 It allows for what has long been regarded as one of the great evils of competition law.
Importantly, this change to the dairy sector competition rules could be seen as arising out of public interest goals, with the major impetus behind its introduction being the collapse of
118 ‘Improving market’ report p.59 119 Ibid. p.59
120
Ibid. p.8
121 ‘Agriculture’, Chauve et al p.311 122 ‘Improving market’ report p.60 123 Ibid. p.42
124
‘Policy Roundtables’ OECD p.119
125 REGULATION (EU) No 261/2012 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 14 March 2012 amending Council Regulation (EC) No 1234/2007 as regards contractual relations in the milk and milk products sector [2012] OJ L 94/38
126 ‘Analyses’ report Wijnands et al p.11 127
Milk Package Regulation, Article 126c(2)(b) 128 ‘Agriculture’ Chauve et al p.310
26
milk prices in 2008/9.129 Non-economic goals were relevant to changing of the application of competition rules. The ability of recognised dairy POs to fix prices in particular
circumstances has not been extended to other agricultural fields.
This Regulation has also helped create a level of uncertainty as to the application of competition rules in agriculture since various laws apply to different sectors of the agricultural field. 130 Such discrepancies are not wholly logical.131 They could be seen as primarily political: if bread crumbs instead of milk had been flung at the European Parliament, would price-fixing now be allowed in that sector?132 By way of illustration, farmers in all sectors are affected by “uncontrollable elements, especially weather and diseases”,133
which undermine their bargaining positions. The preferential treatment given to dairy farmers is, accordingly, perhaps unjustified.
Finally, through having a “patchwork”134 of rules in which there is no universal exception to competition rules which apply equally to every agricultural sector legal certainty is undermined as the rules will not be interpreted in the same way by the different NCAs. Admittedly, the Endives case has clarified the laws surrounding POs to a certain extent. Conversely, the continued uncertainty surrounding the competition laws applicable to POs/APOs is all the more objectionable considering the emphasis which the EU has placed on promoting them to correct market imbalances.
Endives judgement
This case has played an important part in clarifying the rules on POs and so shall be briefly summarised here. In this case, a preliminary reference was made to the CJEU to illuminate the circumstances in which practices pursued by POs/APOs in accordance with the CAP fall outside normal competition rules.
In its judgement, the CJEU clarified that, be exempted from normal competition rules, the PO or APO must be recognised135; the agreement/ concerted practice must take place
129 Milk Package Regulation, para 2 130 ‘Improving market’ report p.40 131 Ibid. p.9
132
BBC News ‘Protesting farmers spray European Parliament with milk’ (BBC News, November 2012) <https://www.bbc.com/news/world-europe-20508075> (accessed 20 June 2019)
133 ‘Improving market’ report p.12
134 Jay Modrall ‘EU Competition Policy in the agriculture sector’ (Norton Rose Fulbright, December 2017) <https://www.nortonrosefulbright.com/en/knowledge/publications/d4859ac2/eu-competition-policy-in-the-agriculture-sector> (accessed 14 June 2019)
27
between members of the same PO or APO136 and it cannot involve price-fixing.137 The CJEU also stressed that the PO/APO’s activities must be “strictly necessary” in pursuit of one of the objectives bestowed upon it.138 These objectives can be found at Article 152(3) of the CMO Regulation. Therefore, while there are strict conditions to be met, the CJEU ruled that certain practices/activities pursued by recognised POs or APOs to fulfil CAP objectives can be exempt from Article 101.
Importantly this case highlights a major drawback of the reforms. “One missing piece” in the new reforms “is the definition of a specific legislative form for the recognition of a producer organisation.”139
Following the Endives judgement recognition as such an entity is especially essential to benefit from the exemption from competition rules. However, instead of there being an EU-wide definition, it is up to Member States to define POs/APOs within their territory.140 This was not changed by the Endives judgement. It has thus been suggested that the Endives case means that if a state withdraws its recognition of a PO, this could be “even more catastrophic a prospect that it already was.”141
If recognition is withdrawn, Endives has clearly stated that the PO will fall foul to the repercussions of infringing EU and/or national competition rules. This case has rendered recognition of a PO as a crucial element in allowing for derogations from Article 101 TFEU. Therefore, given the importance of being a recognised PO; to ensure similar POs are treated equally across MSs and to
provide clarity for farmers, the recognition of POs should be more strictly regulated in light of Endives.
Summary
The EU places a great emphasis on the idea that farmers should act collectively, with the new reforms expanding the circumstances in which farmers can do so. However, these reforms have not taken place to the same extent in each agricultural field. The fragmented exemptions towards POs across the agricultural sector have undermined the success of the reforms, and have not encouraged proactive activity on the part of farmers on a large scale to counter power imbalances. It also remains the case that exceptions from competition rules in
agriculture are treated restrictively, with a number of uncertainties concerning the new rules which have limiting their effect.
136
Endives judgement, para 57 137 Ibid, para 66
138 Ibid, para 49
139 ‘About farmers’, Velázquez and Buffaria p.9 140 ‘Agriculture’, Robertson, p.296
141
28
Accordingly, the EU’s push for POs/APOs to help balance power dynamics in the agricultural sector and counter buyer power has not been wholly successful. The current situation still disadvantages farmers. The next chapter shall discuss how further changes could be made to the EU competition law system to counter issues in the agricultural industry.
