EU Competition Policy and Common Agricultural Policy:
application of competition rules in agricultural sectors
Master Thesis
International and European Law:
European Competition Law and Regulation
University of Amsterdam
Author: Vaclav Novacek
Supervisor: Maria Weimer
Abstract
The focus of this thesis is the analysis of the interaction and conflict of the Common Agricultural Policy objectives (as specified within Article 39 TFEU) and the Competition policy of the European Union and assessment of how does the CMO Regulation address the EU competition rules. This translates into the analysis of the general and sector specific derogations of competition rules and setting the research question whether the current state of these exceptions. This analysis is particularly needed as the latest reform of the Common Agriculture Policy introduced an element of self-assessment so the farmers are now responsible for deciding whether their behaviour is exempted from competition rules or not.
Ultimately this assessment concludes that the objectives of the CAP take precedence over those in relation to competition policy. However, while the application of competition rules within agriculture may be limited it may not be excluded entirely. The analysis looks into the case law up to the recent Belgian endives case where CJEU needs to make a decision whether price fixing mechanisms could be exempted within the scope of agricultural derogations or not. The analysis also concludes that the general derogations seemed to be too complicated to be applied when the assessment was done by the Commission, in that respect the ordinary farmer will barely be able to follow these rules and make a proper sound self-assessment. While the new Guidelines appear as a step in the right direction, it may not be enough.
Table of contents
Table of contents ... 3
List of Abbreviations ... 4
1. Introduction and scope of thesis ... 5
2. Competition issues in food supply chain ... 6
2.1. Distinctive nature of agriculture ... 8
3. Legal framework ... 10
3.1. Competition policy ... 10
3.2. Common Agricultural Policy ... 12
3.3. Regulations 1184/2006 and 1308/2013 ... 13
3.4. General derogations within CMO Regulation ... 14
3.5. Crisis derogations ... 21
3.6. Sectoral derogations ... 22
3.7. General derogation of Article 101(3) TFEU ... 24
3.8. Belgian endive case ... 25
4. Conclusion ... 27
List of Abbreviations
CAP Common Agricultural Policy
CJEU Court of Justice of the European Union
CMO Common Market Organisation
CMO Regulation Regulation (EU) No. 1308/2013 of 17 December 2013 DG AGRI Directorate General for Agriculture and Rural Development
DG COMP Directorate General for Competition
EC European Commission
EU European Union
IPO Interbranch organisation
NCA National Competition Authority
PO Producer organisation
1. Introduction and scope of thesis
One of the key features of the Common Agriculture Policy (CAP) has been the protection of agricultural production due to the weak bargaining power of often atomised farmers. Consequently, the production and food supply could be in jeopardy if there was no way that would allow farmers a certain degree of cooperation.
On the other hand, EU competition policy strives for maximisation of social welfare through efficiencies which are gained through a healthy competition on the internal market. With that regard, cooperation of competitors is generally perceived as harmful to competition and forbidden.
Inevitably, aspects of these two policies have been in conflict as one allows a degree of cooperation of competitors in order to guarantee well-being of producers while the other generally forbids such behaviour in order to protect the competition on the market. These policies create a conflict that, while probably impossible to definitely resolve, needs to be addressed so the interaction between these policies can be evaluated. It should also be noted that while the Competition policy has a Union-wide dimension, the CAP is mainly motivated by interests of Member States and its label of a common policy is questionable.
The relationship of these two policies is further reflected on a system of derogations to competition rules in order to fulfil the CAP objectives and allow producers to cooperate. This system of exceptions is rather complex maze as some of the CAP objectives are not clearly defined while others appear in a contradictory way and what makes it a after the last reform it is the producer who has to assess if his actions fulfil the exception criteria (and in case of a proceeding also bear the burden of proof).
The Commission has set a new objective of simplifying the CAP in order to make the agricultural economy more competitive. The purpose of simplification is to ensure that policies, the mechanisms chosen to implement them, and the necessary legal framework are never more complex than is necessary to achieve the intended objectives effectively. At the same time, the Commission has provided detailed guidelines on application of sector specific competition derogations for producers of beef, veal, olive oil and arable crops which try to explain producers who are now responsible for the assessment of compliance with the derogations how to proceed with such assessment.
I would also like to point out that given the role of agriculture in the internal market and economies of the Member States, this thesis will inevitably contain social, economic and
political aspects. I would strive to keep the main arguments and assessments legal ones but I believe that trying to completely separate the legal issues from the aforementioned aspects would in this particular setting be a fool’s errand.
While taking the aforementioned problems into consideration, the research question of this thesis is as follows: How does the CMO Regulation address the EU Competition rules?
In order to answer this question, I would firstly like to briefly introduce the specifics of food supply chain and its competition related issues, followed by what makes the agriculture a special sector worth looking into and worth having a specific set of rules.
Secondly, I will assess the legal framework of both the EU competition policy and the Common Agricultural Policy (including the set of applicable derogations from competition law) and look into the conflicting objectives of these policies through case law of the CJEU.
Lastly, the concluding remarks will be provided which will summarize the outcomes of the research and try to address the stated issues.
In order to assess the stated problem and answer the research question, the traditional method of research of the internal perspective has been used. Therefore, to a major part this thesis has a very descriptive character. In some cases, I am also trying to look into why certain changes happened which leads to explanatory assessments. This also translates into the sources that were used while conducting research – European Union legislation, case law of the CJEU, decisions of the Commission and doctrine contained in legal textbooks and journals as well as materials published by the EU institutions.
2. Competition issues in food supply chain
This chapter aims to explain why there is not only a special treatment for agriculture as a whole due to its distinctive nature but also special sets of rules for various agricultural sectors as the food chains they are part of can be very different.
According to the survey conducted by DG COMP’s Food Task Force, there is not a single, homogeneous, and common food supply chain at European level. The degree of complexity of the food supply chains depends on the specific product and market characteristics.1
1
Philippe Chauve, Antonia Parera, and An Renckens, 'Agriculture, food and competition law: Moving the borders' (2014) 5(5) Journal of European Competition Law & Practice 304, 313
As far as the supply side of certain raw products is concerned, there is a close integration of production and processing (e.g. for milk or sugar) at local level and the product can be processed and sold through a rather short supply chain to retailers in national markets. However, other raw products (for instance fruit and vegetables), a large number of atomised producers sell locally to many wholesalers who then supply many local retailers, especially in south-eastern Europe. A completely different supply chain is for manufactured food (e.g. biscuits and cereal-based products), where large food manufacturers operate in many national markets but often organise their own distribution networks, own marketing and promotion activities along national borders and operate a more or less centralised production system which depends amongst other criteria on how expensive it is to transport the product and how necessary it is to adapt it to local markets.2
As far as the demand side is concerned, there are major differences between consumers of different Member States in terms of spending, price sensitivity and attachment to brands which leads to very different degrees of development of the private labels of retailers.3 Furthermore, consumers have a preference of shopping essentially at local stores.4
Due to these specifics of supply and demand, food markets are first defined by the level in the chain and remain predominantly national or regional in scope. In other words in terms of competition analysis, product markets are usually defined at each level in the chain and geographic markets are often national (e.g. wholesale supply of many raw and manufactured products) or local (e.g. retail sales to the end-consumer).5 In order to understand the competition issues arising in the food supply chains, it is worth assessing the market structure at each of the following levels: agricultural, wholesale, processing, manufacturing, and retail levels. Agricultural producers form the least concentrated level in the food supply chain. The most common situation across agricultural sectors in majority of Member States is that producers remain atomised or grouped in small cooperatives.6
Competition policy plays a key role in enabling and promoting cooperation between farmers themselves and other actors in the food supply chain as long as this cooperation
2 Ibid.
3 For more information on private labels and retail issues, see DG COMP’s
4 Philippe Chauve, Antonia Parera, and An Renckens, 'Agriculture, food and competition law: Moving
the borders' (2014) 5(5) Journal of European Competition Law & Practice 304, 313
5 Ibid.
6 Ibid., Jos Bijman and others, 'Support for farmers’ cooperatives' (European Commission 2012)
<http://ec.europa.eu/agriculture/sites/agriculture/files/external-studies/2012/support-farmers-coop/fulltext_en.pdf> accessed 16 April 2016
creates efficiencies and does not jeopardise the competition in the sector to the detriment of the consumer. Agreements that restrict the competition and lack any efficiencies in general fall within the scope of Article 101 TFEU. Nevertheless, according to the Commission, competition policy should not be perceived as an obstacle to cooperation between farmers but as a tool that could help farmers in improving their production and marketing structures and also improving their position in the supply chain, as long as a level-playing field where operators have equal access to the benefits of a liberalised market is ensured.7
For the purpose of this thesis I will limit the scope to competition policy related issues in agricultural markets. However, for the assessment of the whole food supply chain, it is essential to assess and understand the interactions between other levels of the market, namely wholesale, processing, manufacturing and retail; as mentioned above.
2.1. Distinctive nature of agriculture
Most governments of the industrialized world take the view that agriculture is not like other areas of economic activity. It is special and as such merits special treatment to encourage, assist and protect it. As noted by Nugent, five main arguments have been advanced in support of this view, the relative importance of which has varied over time.8
The first argument which used to have a much higher importance before the CAP reforms is based on the fact that agricultural prices are subject to considerable fluctuation if they are not subject to public intervention and regulation. That is largely because, even with modern farming techniques, agricultural supply is heavily dependent on the weather. There are two reasons this lack of price stability can be perceived as a disadvantage. First, if prices suddenly go up, inflation goes immediately up (given that food constitutes around 20% of the budget of the average EU citizen). Second, if prices fall too low, farmers may not be able to make an adequate living which would result in them being forced off the land. Those who would be able to stay in farming would probably still have major difficulties as a result of high debt loads on land and capital purchases.9
The second argument is that the EU would be potentially vulnerable to outside pressures because of reliance on imports for vital foodstuffs. In the early years of the EC,
7 European Commission, Directorate General for Competition, 'The interface between EU competition
policy and the CAP' [2010] <http://ec.europa.eu/competition/sectors/agriculture/working_paper_dairy.pdf> accessed 8 October 2016
8 Neill Nugent, The government and politics of the European Union: Seventh edition (7th edn, Palgrave
Macmillan 2010), p. 354
when the wounds of wartime were still not healed and shortages and the international trading climate was strained this argument played an important part in encouraging a drive for greater self-sufficiency.10 However, in the relatively calm international trading conditions we have today, and with many of the foodstuffs produced in the EU being in surplus, it is an argument that, though still heard, carries less relevance than it once used to.
The third argument states that because people must have food, insufficient domestic production means the gap between output and demand has to be met by imports, with potentially damaging consequences for the balance of payments. Moreover, since the elasticity of the demand for food is rather low - up to necessity levels (as long as income allows it, food will still be bought even if prices go up) the economic vulnerability of an importing state is high. While this argument of balanced payments used to be important in helping to underpin the CAP, it has not been so forceful since the early to mid-1970s when Community prices became significantly higher than world prices and Community production began to move significantly into surplus.11
The fourth argument is a social and an environmental one: it suggests that farmers should be encouraged to stay on the land. As idealistic as it may sound, with pleas that a populated countryside is something natural or the suggestion that management of the land is a desirable goal in itself. However, there are also arguments that land that is not managed often reverts to scrub which is inimical to bio-diversity, and that it is both undesirable and potentially dangerous to allow farm incomes to deteriorate to the point that poor farmers and agricultural workers are forced to move to the towns in search of employment that is often non-existent.12
The fifth argument is that agriculture deserves a treatment with particular care because it is intrinsically linked with food health and safety. A series of food scares in Europe since the mid-1990s - The BSE/CJD crisis in particular – has obliged decision-makers to take a broader view of what should be the content and priorities of agricultural policy.13
10 Ibid. 11 Ibid. p. 355 12 Ibid. 13 Ibid.
These arguments support the premise that agriculture needs a special legal regime even with regards to competition rules which and this was also confirmed by the CJEU in the Milk Marque case with regards to CAP objectives.14
3. Legal framework
The purpose of this chapter will be to describe the current system of relevant rules with regards to the relationship of the Common Agricultural Policy and EU Competition Policy. Focus will be on the recent development of the CAP which was embodied in the new CMO Regulation. This chapter will also elaborate on currently applicable derogations.
3.1. Competition policy
According to the Commission, the objective of the EU competition law is to ‘protect competition on the market as a means of enhancing consumer welfare and of ensuring an efficient allocation of resources.’15
EU competition law is contained within Part Three, Title VII, Chapter 1 of the TFEU, which consists of Articles 101 to 109. The scope of this thesis deals with a specific set of exceptions to competition rules applicable in agriculture. These exceptions allow certain behaviour or cooperation of competitors that would not be allowed otherwise as they would fall within the Articles 101 and 102 TFEU. For that reason, this chapter will limit the EU competition law provisions to Articles 101 and 102 TFEU but it should be noted that agriculture also has a specific set of rules in EU State Aid law.16
Article 101(1) TFEU belongs to rules applying to undertakings17 and prohibits restrictive agreements, decisions by associations of undertakings and concerted practices between undertakings in so far as they are capable of affecting trade between Member States. The agreements and practices concerned include those which:
14
Case 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] ECR
I-07975, as further assessed in the general derogations section of this thesis
15 Commission guidelines on the application of Article 81(3) of the Treaty, C101/97, para 13. 16
These specific rules include the agricultural de minimis Regulation, Agricultural Block Exemption Regelation ("ABER"), Community Guidelines for State aid in the agriculture and forestry sector, as well as achapter within the CMO Regulation dedicated to State aid
17 There is ample case law of CJEU (e.g. Case C-41/90 Klaus Höfner and Fritz Elser v Macrotron
GmbH [1991] ECR I-1979, Case C-180/98 Pavel Pavlov and Others v Stichting Pensioenfonds Medische Specialisten [2000] ECR I-6451, Case C-309/99 J.C.J. Wouters and Others v Algemene Raad van de Nederlandse Orde van Advocaten [2002] ECR I-1577, and Case C-475/99 Ambulanz Glöckner v Landkreis Südwestpfalz [2001] ECR I-8089) on the notion of undertaking but for the purpose of this thesis I will be using
the definition of an undertaking as an entity engaged in economic activity (i.e. offering goods or services on the market) regardless of its legal status or profitability.
a) directly or indirectly fix purchase or selling prices or any other trading conditions;
b) limit or control production, markets, technical development, or investment; c) share markets or sources of supply;
d) apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage;
e) make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.
The TFEU also provides for an exception to this rule as Article 101(3) TFEU states that the prohibition contained in Article 101(1) TFEU may be declared inapplicable in cases when agreements contribute to improving the production or distribution of goods or to promoting technical or economic progress. Nevertheless, such agreements must allow consumers a fair share of the resulting benefits, and must not impose restrictions which are not indispensable to the attainment of these objectives. Furthermore, such agreements must not enable the undertakings involved to eliminate competition in respect of a substantial part of the products concerned.18
It is also worth noting that while some of the practices listed in Article 101(1) TFEU may be justified on grounds of efficiencies gained for the attainment of the CAP objectives19, the price fixing mechanisms have been difficult to justify. It is now for the CJEU to decide on the justification of price fixing mechanisms in the recent Belgian endives case.20
While Article 101 deals with agreements, decisions and concerted practices of undertakings that are harmful to competition, Article 102 is concerned with unilateral conduct of undertakings with dominant position and whether their conduct is abusive. Such abuse may in particular consist in:
a) directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions;
b) limiting production, markets or technical development to the prejudice of consumers;
18 As long as they do not exclude competition and all of the CAP objectives are pursued. 19
See sections Common Agricultural Policy and General derogations of this thesis.
c) applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage;
d) making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts. As noted earlier, there is no single, homogeneous food supply chain in Europe and different sectors and Member States may have very different conditions. Abusive practices provide a threat in situations of highly unbalanced bargaining power. For instance in the sugar sector, there is usually one processor for thousands of producers and the threat of the processor to abuse his monopsonist position may be offset by the scope of allowed cooperation between producers.
3.2. Common Agricultural Policy
The CAP is one of the oldest common policies of the EU and has seen major changes in the past decades. Up to the 1970s and 1980s, the main focus of the CAP was in market and price support, and subsidies were granted to farmers proportionally to their production levels which resulted in massive overproduction of agricultural products in Europe. These support schemes resulted in so-called butter mountains, sugar hills and wine lakes which were alleviated through export subsidies and restitutions which in turn drew criticism from third countries and non-government organisations.21
However, it was essential to make the CAP a more sustainable policy which resulted in a series of reforms which meant that farm subsidies have been largely decoupled from production. This has been also reflected on the significantly decreasing expenditures of CAP which it entails for the European Union budget, although a support for farmers to alleviate the impact of the Russian embargo on certain agricultural products and of the difficult situation in the dairy and pigmeat sector has been granted as extraordinary measures.22 The CAP expenditures now also cover support for rural areas which does not affect exports.
21
Blockx J and Vandenberghe J, 'Rebalancing commercial relations along the food supply chain: The agricultural exemption from EU competition law after regulation 1308/2013' (2014) 10(2) European Competition Journal p.387.
22
European Union, 'EU budget for 2016' (Council of the European Union, 27 April 2016) <http://www.consilium.europa.eu/en/policies/eu-annual-budget/2016/> accessed 2 October 2016.
The CAP provisions are within Part Three, Title III of the TFEU (Articles 38-44). The most important articles for the purpose of this thesis are Article 39 which defines the CAP objectives and Article 42 which consider the relationship to EU competition policy.
As mentioned above, pursuant to Article 39 TFEU, the CAP objectives shall be: a) to increase agricultural productivity by promoting technical progress and by
ensuring the rational development of agricultural production and the optimum utilisation of the factors of production, in particular labour;
b) thus to ensure a fair standard of living for the agricultural community, in particular by increasing the individual earnings of persons engaged in agriculture;
c) to stabilise markets;
d) to assure the availability of supplies;
e) to ensure that supplies reach consumers at reasonable prices.
It is worth pointing out that letters b) (ensuring a fair standard of living for the agricultural community) and e) (ensuring reasonable prices for consumers) of Article 39 TFEU may be problematic to attain at once as the first would imply raising prices for the sake of the agricultural community while the latter suggest maintenance of reasonable prices.
Article 42(1) of the TFEU grants the Council and the European Parliament (the latter after the Treaty of Lisbon) the power to determine the extent to which EU rules on competition apply to the production and trade of agricultural products under the following terms:
“The provisions of the Chapter relating to rules on competition shall apply to production of and trade in agricultural products only to the extent determined by the European Parliament and the Council within the framework of Article 43(2) and in accordance with the procedure laid down therein, account being taken of the objectives set out in Article 39.”
In light of this provision, the following two Regulations adopted by the Council and governing the application of competition rules to the agriculture sector are currently in force.
3.3. Regulations 1184/2006 and 1308/2013
Council Regulation (EC) 1184/2006, of 24 July 2006, applying certain rules of competition to the production of, and trade in, agricultural products ("Regulation
1184/2006"). Regulation 1184/2006 applies to agricultural products listed in Annex I to the TFEU with the exception of the products covered by the Single CMO Regulation.23
The CMO Regulation is a complex piece of legislature, covering agricultural products that are listed in Annex I of the TFEU (except fishery and aquaculture products) and containing detailed provisions on market interventions, aid schemes for various sectors, producer organizations (POs), associations of POs and inter-branch organisations (IPOs), which may among other things collect and publish market data, forecast production and prices, coordinate how products are placed on the market, explore potential export markets, and seek ways to restrict the use of animal health or plant protection products.24
The CMO Regulation also addresses competition rules (and contains general, sector-specific and crisis-oriented derogations from them) and exceptional measures for market disturbances, animal diseases and health risks, sector-specific problems and severe market imbalances and crisis reserves.
Previous versions of the CMO Regulation also contained a derogation from competition rules for agreements that formed an integral part of a national market organisation. However, Regulation 1308/2013 established a common organisation for many agricultural products, so that most national market organisations lost their purpose and ceased to exist.
3.4. General derogations within CMO Regulation
It is important to point out that the general derogations within CMO Regulation (i.e. those within Article 209) have seen a fundamental change. Previously, it was the Commission who (after consulting the Member States and hearing the undertakings) had the sole power (subject to review by the CJEU) to determine in a form of a decision which agreements fulfil the criteria of general derogations and are therefore exempted from the framework of competition rules. However, the new CMO Regulation currently applies a principle of self-assessment so the undertakings themselves have to decide, whether their agreements do fulfil the criteria laid down in the CMO Regulation (for which they shall also bear the burden of proof should any national or Union proceedings take action).
23 European Commission, Directorate General for Competition, 'The interface between EU competition
policy and the CAP' [2010] <http://ec.europa.eu/competition/sectors/agriculture/working_paper_dairy.pdf> accessed 8 October 2016.
24 Modrall J, 'The battle between the European Union’s competition and agricultural policies' (Norton
Rose Fulbright, June 2016)
3.4.1. First general derogation
Article 209 (1) first subparagraph CMO Regulation states that Article 101 TFEU does not apply to agreements, decisions and practices which are necessary for the attainment of the CAP objectives25.
In order to potentially apply this exception, it should be noted that the Courts have followed a restrictive interpretation. Such approach therefore entails, that the objectives of the CAP are already generally ensured by the means provided for by the rules applicable to a common market organization. If a particular action of a single undertaking or an agreement between undertakings is not expressly included among these means, it is generally not deemed to be necessary for the attainment of the objectives of Article 39 TFEU. Such was the reasoning followed by the General Court, for instance, in the Joined Cases 70/92 and T-71/92, Florimex, 26 in which it endorsed the prior practice of the Commission in this regard:
"147. Until now, the Commission has never found that an agreement between the members of a cooperative which affects free access by non-members to agricultural producers' channels of distribution is necessary for attainment of the objectives set out in Article 39 of the Treaty.
148. Furthermore, the Commission's practice in earlier decisions has generally been to conclude that agreements not included amongst the means indicated by the regulation providing for a common organization in order to attain the objectives set out in Article 39 are not 'necessary' within the meaning of the first sentence of Article 2(1) of Regulation No 26, as observed by Advocate General Tesauro in his Opinion in Oude Luttikhuis, cited above (at p. I-4480)."
However, the Court has decided that in order for this exception to apply, an additional condition must be fulfilled which is that the agreement or action at issue must be necessary for the attainment of all the objectives of Article 39 TFEU. If that is not the case, the exception provided for by Article 209 would not be applicable. Therefore, the General Court established in the Joined Cases T-70/92 and T-71/92, Florimex, that:
"153. Finally, as the applicants have submitted, it is settled case-law that the first sentence of Article 2(1) of Regulation No 26 applies only if the agreement in question is
25 CAP objectives are listed within chapter “Common Agricultural Policy”. 26
Joint Cases T-70/92 and T-71/92 Florimex BV and Vereniging van Groothandelaren in
conducive to attainment of all the objectives of Article 39 (see Frubo v Commission, cited above, paragraphs 22 to 27, and Oude Luttikhuis, cited above, paragraph 25). It follows that the Commission's statement of reasons must show how the agreement at issue satisfies each of the objectives of Article 39. In the event of a conflict between those sometimes divergent objectives, the Commission's statement of reasons must, at the very least, show how it was able to reconcile them so as to enable the first sentence of Article 2(1) of Regulation No 26 to be applied."
This attempt to reconcile all the objectives of Article 39 TFEU is found for instance in the French beef case,27 where the Commission considered that a price fixing cartel between French farmers and slaughterhouse federations could only fulfil one of these objectives (ensuring a fair standard of living for farmers) but not the rest of the goals set down under the above provision. The reasoning of the Commission was endorsed by the General Court in the Joined Cases T-217/03 and T-245/03, FNCBV, 28 in which it stated that: "In the light of the foregoing, it must be found that the disputed agreement can be regarded as necessary only in relation to the objective of ensuring a fair standard of living for the agricultural community. On the other hand, the agreement is likely at least to jeopardise the setting of reasonable prices for supplies to consumers. Lastly, the agreement had no connection with, and was therefore all the more unnecessary for, the stabilisation of markets, ensuring the availability of supplies and increasing agricultural productivity. Therefore, in view of the case-law referred to in paragraph 199 above, the Court considers that the Commission did not err in finding that bringing those different objectives into balance did not justify the conclusion that the derogation provided for by the first sentence of Article 2(1) of Regulation No 26 was applicable in the present case."
From an economic point of view, it is not possible to achieve all the five objectives set out in Article 39 TFEU simultaneously, as "fair standards of living for the agricultural community" may conflict with "reasonable prices to consumers". However, the five objectives can be met if there are sufficient efficiencies or productivity gains that are passed onto consumers in the form of reasonable prices, while entailing higher farming incomes.29
27
French beef (Case COMP/C.38.279/F3) Commission Decision 2003/600/EC [2003] OJ L 209/12.
28 Joint Cases T-217/03 and T-245/03 FNCBV and Others v Commission [2006] ECR II-04987.
29 European Commission, Directorate General for Competition, 'The interface between EU competition
policy and the CAP' [2010] <http://ec.europa.eu/competition/sectors/agriculture/working_paper_dairy.pdf> accessed 8 October 2016.
As the Commission and the Courts have interpreted this exception under Article 209 CMO, it would seem difficult to apply it to arrangements concluded between farmers in the form of POs or other form of associations, in which price mechanisms were to be agreed. Such agreements may indeed respond to the need of ensuring a fair standard of living for farmers, but the rest of the objectives foreseen under Article 39 of the TFEU would also have to be met.30
3.4.2. Second and third general derogations
Article 209 (1) second subparagraph CMO Regulation allows agreements of farmers, farmers' associations, associations of such associations and recognised POs and APOs which concern the production or sale of agricultural products or the use of joint facilities for the storage, treatment or processing of agricultural products and which do not impair CAP objectives. Such agreements will not be declared compatible with Union rules, if they entail obligations to charge an identical price or exclude competition.
In the previous versions of the CMO Regulation, it could be considered that these requirements are a particular example of the previous paragraphs, but the CJEU has considered this and came to a conclusion that it has an independent meaning with respect to the two prior exceptions and therefore amounts to 3rd exception.31 The previous version of this paragraph also required the undertakings to belong to a single Member State but this requirement has been removed.
So in order to apply this exception, three cumulative conditions must be met:
1) The agreements must be concluded between farmers, farmers' associations or associations of farmers' associations.
2) The agreements must concern the production or sale of agricultural products (the terms used by the Preamble32 of the Single CMO Regulation in this regard are "joint production or marketing of agricultural products") or the use of joint facilities for the storage, treatment or processing of agricultural products, and under which there is no obligation to charge identical prices.
30 Ibid. 31
Joint Cases C-319/93, C-40/94 and C-224/94 Hendrik Evert Dijkstra v Friesland (Frico Domo)
Coöperatie BA and Cornelis van Roessel and others v De coöperatieve vereniging Zuivelcoöperatie Campina Melkunie VA and Willem de Bie and others v De Coöperatieve Zuivelcoöperatie Campina Melkunie BA [1995]
ECR I-04471, para 17.
3) The agreements may not exclude competition or jeopardize the objectives of the CAP.
However, so far this exception seems to have been of very minor application as the case law or Commission practice in which its potential application has been analysed is very limited. No particular decision or case has been found in this regard in which it has been fully accepted.33 Some of the underlying reasons taken into account in this regard have been the following:
The first reason would be that the agreement at issue involves not only farmers, farmers' associations or associations of farmers' associations but also third parties or trade
associations. If there are third parties (who do not fall into the categories of farmers, farmers'
associations or associations of farmers' associations) participating on the agreement at issue, the latter would not qualify for being exempted.34
This has been decided by the Commission in its Decision in the Meldoc case35: which was dealing with an analysis of a horizontal agreement between four dairy cooperatives and one private company introducing a quota system, consultations on prices and mechanisms to restrict imports from other Member States to the Netherlands. The Commission came to a conclusion that this exception could not be applicable to the agreement at issue to the extent that a private company (which was not an association of farmers) was also involved: "(55) (…) Since ML is a private company and not an association of farmers, it cannot be maintained that the Meldoc agreement is covered by the exception provided for in the second sentence of Article 2 (1)."
The Commission came to a similar conclusion in its Decision in the Milchförderungsfonds case.36
In this scenario, the Commission refused to recognise the exception for the arrangements at issue - management of a private fund aimed at promoting the quality and sales of milk and dairy products - had been implemented by several associations of farmers' trade associations which could not qualify as farmers'
33 European Commission, Directorate General for Competition, 'The interface between EU competition
policy and the CAP' [2010] <http://ec.europa.eu/competition/sectors/agriculture/working_paper_dairy.pdf> accessed 8 October 2016.
34 Ibid. 35
MELDOC (Case IV/31.204) Commission Decision 86/596/EEC [1986] OJ L 348/50.
associations37 as such: "(22) (…) The association formed by the German Farmers' Union and German Raiffeisen Association and their respective Land associations and the Central Association of Private Dairies to administer the MFF is an association of trade associations serving the common economic interests of its members. It is not, however, an association of farmers' associations within the meaning of the second sentence of Article 2 (1) which, like farmers' cooperatives, carry on behalf of their members common commercial activities in the field of the production or sale of agricultural products or he use of joint facilities for the storage, treatment or processing of agricultural products."
The second reason would be that the restriction of competition at issue - although coming from a decision of a farmers' association - is then included in a contract with a third party which becomes subject to such restriction.38 In its Decision in the Bloemenveilingen Aalsmeer case,39 the Commission has decided to reject the application of this exemption because when analysing the compatibility of certain auction rules and charges adopted by a cooperative society of plant and flower growers, it stated that: "152. The exception provided for in the second sentence of Article 2(1) applies only to agreements between farmers and/or their associations. Although the Auction Rules and the Scale of Charges are decisions of a farmers' association, the restriction of competition stems from the fact that wholesalers subject themselves to these provisions by contract and thus individual agreements come into being between a farmers' association and wholesalers."
The third argument would be that the practices including price fixing mechanisms as was the conclusion of the CJEU in the Case Oude Luttikhuis,40 in which it the Court stated that: "28. The third derogation is subject to three cumulative conditions. For the derogation to be applied, it must be confirmed, firstly, that the agreements in question concern cooperative associations belonging to a single Member State, secondly that they do not cover prices but concern rather the production or sale of agricultural products or the use of joint facilities for the storage, treatment or processing of such products, and thirdly that they do not exclude competition or jeopardize the objectives of the common agricultural policy."
37 European Commission, Directorate General for Competition, 'The interface between EU competition
policy and the CAP' [2010] <http://ec.europa.eu/competition/sectors/agriculture/working_paper_dairy.pdf> accessed 8 October 2016.
38
Ibid.
39 Bloemenveilingen Aalsmeer (Case IV/31.379) Commission Decision 88/491/EEC [1988] OJ L
262/27.
40
Case C-399/93 H. G. Oude Luttikhuis and Others v Verenigde Coöperatieve Melkindustrie Coberco
The Commission came to a similar conclusion in the aforementioned French beef case41 and for the very same reasons refused that the exception would be granted to an agreement between several federations of farmers and slaughterers including a minimum purchase price:
"137. (…) The exception at (c) is excluded twice over: the agreement involves parties other than farmers, namely the slaughterers' federations; and it does indeed impose an obligation to charge identical prices."
The partial conclusion which is based on the aforementioned decisions would be, that the relevance of the second subparagraph of Article 209 CMO to assess POs or other forms of associations between farmers seemed to be very limited. In many cases the agreements involved in practice farmers trade associations or third parties other than farmers, which would automatically exclude the application of the second subparagraph of Article 209 CMO (e.g. Meldoc and also French beef). In addition, if the agreement involves price fixing arrangements, the application of this derogation is excluded as was noted in Cases Oude Luttikhuis and French beef.
It is also necessary to note that the aforementioned decisions were dealing with a situation where the Commission granted the exceptions. This has however been changed and the current CMO Regulation requires farmers to self-assess and see for themselves whether their conduct would be exempted based on Article 209 CMO Regulation.
Also, the implication that the potential restriction of competition between farmers would be included in subsequent individual contracts concluded with 3rd parties would also give another reason not to apply this exemption.
In cases where the agreements between farmers would not meet the requirements laid down by Article 209 of the Single CMO Regulation there would still be a requirement to assess them within the framework of Article 101(1) TFEU in order to determine whether they are capable of restricting of competition and affecting trade between Member States. If such is the case, it would thus be necessary to analyse whether these agreements could still benefit from a block or individual exemption under Article 101(3) of the TFEU.
3.4.3. Agreements of recognised Interbranch organisations
Article 210 CMO Regulation exempts certain activities of recognised Interbranch organisations from the competition rules subject to a number of conditions.42 Such agreements are to be notified by the IBO to the European Commission, who within a period of two months after complete receipt of all details either informs the IBO that there are no objections or adopts a decision setting out its findings that the agreements are not compatible with Union rules.
3.5. Crisis derogations
Article 222 CMO Regulation enables the Commission to adopt implementing acts to the effect that Article 101 (1) TFEU is not to apply – for a period of up to 6 months - to agreements and decisions of recognised POs, APOs and Interbranch Organisations, provided that these agreements do not undermine the proper functioning of the internal market, strictly aim to stabilise the sector concerned.
These measures will only be allowed for the categories of market withdrawal, transformation and processing, storage by private operators, joint promotion, agreements on quality requirements, joint purchasing of inputs necessary to combat the spread of pests and diseases and temporary planning of production.
The significance of this Article lies in the fact that it goes beyond the standard exemption for producer organisations, associations of producer organisations and interbranch organisations because it allows measures which restrict competition such as market withdrawal during periods of market crisis. The Commission and Member States could previously finance the withdrawal of surpluses during a period of market disruption until a new market equilibrium was found.43 Currently, POs, their associations, and IBOs can do this without violating competition rules. However, the list of permitted activities still does not include collective bargaining or price-fixing activities.44
42
Article 210 (4) CMO Regulation states that agreements, decisions or concerted practices shall be declared incompatible with the Union rules if they may lead to the partitioning of markets within the Union, may affect the sound operation of the market organisation, may create distortions of competition which are not essential to achieving the objectives of the CAP pursued by the interbranch organisation activity, entail the fixing of prices or the fixing of quotas, may create discrimination or eliminate competition in respect of a substantial proportion of the products in question.
43 Alan Matthews, 'Competition issues in the single CMO regulation' (CAP Reform, 26 March 2014)
<http://capreform.eu/competition-issues-in-the-single-cmo-regulation/> accessed 3 March 2016.
44
Ibid., also following the Joint Cases T-217/03 and T-245/03 FNCBV and Others v Commission [2006] ECR II-04987.
The Commission can only introduce this suspension of the normal rules if it has already adopted measures to deal with a general market disturbance, if products have been bought into public intervention or if aids for private storage have been introduced. The suspension can only last for a six month period, renewable for one further period of six months.45
3.6. Sectoral derogations
3.6.1. Beef, veal, olives and arable crops
Following the 2013 CAP reform, the CMO Regulation introduced a set of efficiency based derogations from competition rules for the sale of olive oil, beef and veal, and arable crops. At the end of 2015, the Commission has published Guidelines on joint selling of olive oil, beef and veal, and arable crops with the goal of helping farmers assess whether they meet the criteria set in Articles 169, 170 and 171 of the CMO Regulation. The Guidelines aim to support European farmers by clarifying how they can, under certain conditions, cooperate to jointly sell olive oil, beef and veal, and arable crops without breaching EU competition rules. These markets are worth more than €80 billion annually.46
These Guidelines are about three efficiency-based derogations which allow producers of olive oil, beef and veal, and arable crops to jointly sell and set prices, volumes and other terms through recognised organisations47, if they fulfil certain conditions of Articles 169, 170 and 171 of the CMO Regulation. In particular:
such organisations have to make farmers significantly more efficient by providing them with supporting activities other than sales (e.g. storage, transport, distribution); and
the volumes marketed by a given organisation must not exceed certain thresholds (20% of the relevant market for olive oil and 15% of the national market for beef and veal, and arable crops).
The purpose of these new Guidelines is not only to help farmers to assess and comply with these requirements but they also aim to help competition authorities and judicial
45 Article 222(2) CMO Regulation. 46
European Commission, 'Antitrust: new commission guidelines on joint selling of olive oil, beef and veal, and arable crops' (2015) <http://europa.eu/rapid/press-release_IP-15-6187_en.htm> accessed 17 April 2016.
47
The joint selling activities need to be carried out by producer organisations or associations of producer organisations formally recognised by national authorities.
authorities in the Member States to apply the new rules. In particular, they provide a clear definition/indication of the type of activities that can create the significant efficiencies required to benefit from the derogation and give specific examples of situations in which such activities can create significant efficiencies; give guidance on how to calculate the volumes marketed by farmers' organisations and how to check that they do not exceed the thresholds, taking into account notably natural variations over time; explain how exceptional circumstances, e.g. a natural disaster, can be taken into account when calculating the volumes marketed by farmers’ organisations; and clarify the situations in which the national competition authorities and the Commission may apply the safeguard clause foreseen by the CMO Regulation. This safeguard clause allows competition authorities, in exceptional circumstances, to decide that joint sales of a farmers’ organisation should be either reassessed or should not take place if the overall market is negatively affected.48
In comparison to the general derogation, these specific derogations have a narrower scope, as they apply only to contract systems and related activities for olive oil, beef and veal and certain arable crops. They also only apply to the activities of POs. They do not apply to inter-branch organizations or other undertakings that may benefit from the general derogation. However, the conditions to apply the specific derogations may be easier to meet, and the assessment methods and notifications give POs greater certainty.
3.6.2. Milk
Following the difficulties on the milk market in 2009, the Commissioner for Agriculture and Rural Development, decided to establish a High Level Expert Group on Milk (HLG)49 with the purpose of discussing mid-term and long-term arrangements for the dairy sector given the expiry of dairy quotas on 1 April 2015. This establishment has led to the introduction of “Milk Package” in 2012 and has been incorporated in the revised CMO Regulation. The Milk Package was a very specific set as the characteristics of the diary sector are very different from other sectors (farmers are not easily able to switch production as with regards to crops), and diary went through an end of quota period and several crises. As these circumstances are not easily applicable to other agricultural sectors (perhaps sugar which is going through transition into post-quota system as well), it is not possible to address the Milk
48
European Commission, 'Antitrust: new commission guidelines on joint selling of olive oil, beef and veal, and arable crops' (2015) <http://europa.eu/rapid/press-release_IP-15-6187_en.htm> accessed 17 April 2016.
49
Report of the High Level Group on Milk, available at
Package in more detail due to the scope of this thesis. Milk has however had ample attention both in media and in academic writings.
3.6.3. Fruits and vegetables
According to Article 33 (3) (f) of CMO Regulation, market withdrawal of products by POs is allowed for cases of crisis prevention and management in the sector of fruits and vegetables.
3.7. General derogation of Article 101(3) TFEU
Practices that do not meet the conditions for exemption under the CMO Regulation, still may qualify for exemption under Article 101(3) TFEU. When agreements are imputed to undertakings from the agricultural or the food sector on the basis of Article 101(1), the applicability of the exemption of Article 101(3) has to be sought.50
Such has been the approach taken by the Commission which, in cases of conclusion that Article 209 CMO was not applicable, has also analyzed whether the agreement at issue may fall under the scope of application of Article 101(1) TFEU and in cases it would whether it could benefit from the exception provided for by Article 101(3) such was the approach taken in for example in Milchförderungsfonds and Meldoc cases. Similarly, the Court of Justice has concluded in DLG Case,51 that if the predecessor of CMO Regulation did not apply, it has ruled that Article 101 remained fully applicable.
Article 101(3) establishes applicability conditions wider than those of the CMO Regulation52, which are being interpreted in a very narrow fashion. On the basis of Article 101(3), the Commission may find that the conditions to apply the exception are met which in practice means that, the Commission and the CJEU check whether the agreements are necessary, if the consumer interest is preserved, and whether the agreement leaves sufficient competition.53
50 Article 101(3) TFEU has already been addressed within section 3.1 of this thesis.
51 Case C-250/92 Gøttrup-Klim e.a. Grovvareforeninger v Dansk Landbrugs Grovvareselskab
AmbA [1994] ECR I-05641.
52 which refers exclusively to CAP objectives mentioned in Article 39 TFEU.
53 Del Cont C, Bodiguel L, and Jannarelli A, 'EU Competition Framework: Specific Rules for the Food
Chain in the New CAP' (2012) <http://www.europarl.europa.eu/RegData/etudes/note/join/2012/474541/IPOL-AGRI_NT(2012)474541_EN.pdf> accessed 2016.
Certain practices such as price-fixing agreements and agreements limiting or controlling production are excluded from Article 101(3), as with the other exceptions.54 These agreements and practices have as their “object” the restriction of competition and as such their actual or potential effect on the competition is not being examined. This reasoning was followed in FNCBV55 and “Irish beef”56 cases and concludes that concerted practices aiming to reduce production capacity and to fix prices are understood without taking into account the agricultural context or the particular situation of economic crisis. The exemption of Article 101(3) is interpreted as restrictive as any agricultural exemption.57
3.8. Belgian endive case
The CJEU might shed some light on the conflicting policies with its decision on Belgian endive case which is expected sometime in 2017.
The Belgian endive case originated in practices adopted by French producers of Belgian endive between January 1998 and March 2012. At that time, two predecessors of the CMO Regulation were in effect. The practices in question included minimum price-setting mechanism and managing production volumes in order to maintain these prices by being able to withdraw endives from the market as a form of price support.58
The national competition authority of France imposed fines for violation of the EU competition rules, but the French Court of Appeal annulled the fine on the ground that EU competition rules did not apply to the price mechanisms implemented by the endive producers. However, the French Court of Appeal was unclear as with regard to these mechanisms and whether they were permitted under the general derogations set out in the previous versions of the CMO Regulation, under the specific derogations or under a national regime that was in effect at the time.59
54 Case C-123/83 Bureau national interprofessionnel du cognac v Guy Clair [1985] ECR 00391. 55 Joint Cases T-217/03 and T-245/03 FNCBV and Others v Commission [2006] ECR II-04987. 56
Case C-209/07 Competition Authority v Beef Industry Development Society Ltd and Barry Brothers
(Carrigmore) Meats Ltd. [2008] ECR I-08637.
57 Catherine Del Cont, Luc Bodiguel, and Antonio Jannarelli, 'EU Competition Framework: Specific
Rules for the Food Chain in the New CAP' (2012)
<http://www.europarl.europa.eu/RegData/etudes/note/join/2012/474541/IPOL-AGRI_NT(2012)474541_EN.pdf> accessed 2016.
58 Modrall J, 'The battle between the European Union’s competition and agricultural policies' (Norton
Rose Fulbright, June 2016)
<http://www.nortonrosefulbright.com/knowledge/publications/140631/the-battle-between-the-european-unions-competition-and-agricultural-policies> accessed 4 October 2016.
On appeal, the European Commission took the unusual step of intervening before the French Supreme Court to challenge the Court of Appeal’s approach.60
The ambiguity of the Court of Appeal decision led the Commission to review each of the possible grounds in detail. The Commission argued that the general derogations did not apply. In particular, the Commission stated that the price-setting mechanisms were not necessary to attain all of the CAP objectives within Article 39 TFEU and that these mechanisms related purely to price (and were in that sense a “by object” restriction). Also, the CMO Regulation’s predecessors required prior Commission approval for the general derogation to apply, and the producers had never sought or obtained the Commission’s approval. The Commission also argued that the predecessors of the specific derogations could not justify the price fixing mechanisms as those were not among the specific permitted conduct and producers could not extend the application of the specific derogations to other conduct by analogy. The Commission also argued that setting minimum prices clearly exceeds the legitimate authority of the association of producer organizations.61
The French Supreme Court requested a preliminary ruling62 and referred two questions, about the interaction between the EU competition rules and the CAP, to the CJEU. The French court asked whether agreements and concerted practices that would otherwise be illegal under Article 101(1) TFEU could be permitted if they are “linked to” the responsibilities of producer organizations under the common organization of the market in accordance with the CAP, even if they are not covered by any of the general derogations provided for in the predecessors of the CMO Regulation.
If the answer to the first question would be positive, the French Supreme Court asked whether producer organisations can fix minimum prices, coordinate on the quantities placed on the market or exchange strategic information, if these activities are aimed at the CAP objectives of stabilising producer prices and adjusting production to demand.
The European Commission and Member States are expected to argue strongly before the CJEU that the derogations to the EU’s competition rules set out in the CMO Regulation must be interpreted narrowly, and no exceptions from those competition rules outside the
60
Ibid.
61 Ibid.
62 Jan Blockx, 'Belgian endives on the frontline for price fixing by farmers' (Kluwer Competition Law
Blog, 15 December 2015)
derogations set out in the CMO Regulation should be recognized.63 The CJEU’s approach to these issues will create a precedent in this area. If the CJEU finds that the CAP’s objectives can override the EU competition rules, even outside the relatively narrow scope of the CMO Regulation, then the case may lead to a period of enhanced cooperation and coordination among EU agricultural producers.64
4. Conclusion
The current state of affairs between the EU Competition policy and the Common Agricultural Policy is that the objectives of the CAP take precedence over those in relation to competition policy. This does not mean that farmers would be allowed to cartelise as they will and the agricultural sectors would not affected by competition policy at all - according to the Court, the application of competition rules in the agricultural sector can be limited in a specific and targeted way but not excluded entirely.
The CMO Regulations have always foreseen exemptions from the competition rules in certain circumstances, however the Commission and the Court have expressed their views that some practices (such as price fixing mechanisms) have proven to be difficult to justify as they don’t seem to pass the necessity test for attainment of CAP objectives. In that regard, it remains to be seen how the CJEU decides on the Belgian Endives case and what further implications will it have for the future of this relation. My prediction is that the Court will follow the ‘safe path’ in the form of the opinion of the Commission and decide that price fixing mechanism present in the Belgian Endives case does not fall under the scope of agricultural derogations from competition rules, or else it could present an unwanted precedent that would induce a shift in interpretation of competition rule infringements.
It is a difficult task to assess the derogations altogether as some of the sector specific derogations come with a clear guidance which will help the producers assess whether they meet the criteria or not while others do not provide any such guidance. In that respect the new Guidelines on beef, veal, olives and arable crops should be welcome as a step in the right direction for hopefully more to come (guidelines on sugar would be appreciated in order to prevent a possible post-quota crisis). It is however necessary to note, that since the exceptions
63 Ibid.
64 Modrall J, 'The battle between the European Union’s competition and agricultural policies' (Norton
Rose Fulbright, June 2016)
covered by these Guidelines only apply to producer organisations, a single producer is left behind.
It should also be noted that unless the Commission and Court change their interpretation of the general derogations of CMO Regulation, they will continue to have a marginal use as the amount of criteria (some of which may appear conflicting) the agreements need to fulfil and more importantly, the undertakings and producer organisations need to self-assess is immense. In that regard, the concluding remark would be that the general derogations within the CMO Regulation are currently barely applicable as the agreements that are being targeted by them need to pass the ‘necessity’ test while proving that all CAP objectives are attained. In that regard, an update of CAP objectives accompanied by guidance for the self-assessing producers could become the trigger that would ‘make the general derogations great again’ (if they ever were).
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