Agri-food: Unfair Commercial Practices Act curbs purchasing power; more opportunities for sustainability agreements

Competition law and the agri-food sector do not always go together well. ACM has fined various companies in the agri-food sector in the past, e.g. in the sweet pepper, onion sets and onion sectors, for violating the cartel prohibition. Sustainability initiatives such as Kip van Morgen also failed when they ran into a negative ACM ruling based on the cartel prohibition. ACM has paid no specific attention in recent decades to the excessive purchasing power of retailers. But the relationship between competition law and the agri-food sector is changing rapidly. Developments such as Paris Agreement, the Urgenda rulings and the Glasgow Climate Pact necessitate (sector-wide) cooperation in the food supply chain in order to fast-track certain climate and sustainability objectives. Will competition law go with the flow? The (excessive) purchasing power of retailers in this sector is also increasingly the focus of attention. What effect will the new legislation, such as the Wet oneerlijke handelspraktijken landbouw- en voedselvoorzieningsketen (Unfair Commercial Practices in the Agricultural and Food Supply Chain Act – the “UCP Act”), have in this regard? The answers to these questions, the trends in competition law in the agri-food sector, and the assessment of sustainability initiatives are addressed below.

The UCP Act: will ACM take enforcement action?

The UCP Act entered into force on 1 November 2021. The UPC Act aims to strengthen the position of farmers, market gardeners and fishermen in relation to larger buyers, such as purchasing groups. ACM is in charge of enforcing the UCP Act. If buyers fail to comply with the UCP Act, food suppliers may file an (anonymous) report with ACM. ACM may impose an order subject to a penalty or a fine on a buyer (such as a retailer) that is guilty of violating the UCP Act.

The UCP Act contains two lists of unfair commercial practices (UCPs). The black list is a list of UCPs that are considered unlawful by definition. The UCPs on the grey list are conditionally unlawful. In other words, such practices are permitted only if they have been clearly and unambiguously agreed in advance in writing between the supplier in question and the buyer. More information can be found in this article and this blog. Since 1 November 2021, the UCP Act applies to all new agreements between suppliers and buyers that fall within the scope of the UCP Act. All agreements entered into before 1 November 2021 must be brought in line with the UCP Act by 15 April 2022 at the latest. Market parties therefore still have some time to amend their existing contracts where necessary. ACM is informing market parties about the UCP Act and its enforcement. The question whether the Act will be a success greatly depends on ACM’s approach. See in this regard: Will ACM use the Unfair Commercial Practices in the Agricultural and Food Supply Act to tackle the purchasing power of retailers?

Where enforcement of the UCP Act comes down to sector expertise, ACM has not been idle in recent years. In 2017, ACM was instructed in the Coalition Agreement to investigate and, where necessary, tackle unfair commercial practices and distorted market power in the food supply chain. ACM has therefore been conducting a survey for over two years now in the form of the Agro-Nutri Monitors. ACM published its (second) Agro-Nutri Monitor 2021 in November. More information can be found in this blog. We previously also wrote about the Agro-Nutri Monitor 2020. ACM reported in November 2021 that its survey had shown that the main obstacle to more sustainable agriculture is the higher price of sustainable products. According to ACM, many consumers are unwilling to pay for such products if a cheaper, regularly produced alternative is available.

New UCP Act disputes committee

With the introduction of the UCP Act, a new disputes committee is being set up in the Netherlands. The committee will be in charge of resolving disputes between suppliers and customers relating to the UCP Act. For the supplier, the disputes committee should serve as a low-threshold alternative to civil proceedings or the filing of a complaint with ACM. The question is whether the disputes committee will have the desired effect. During a pilot within the framework of the Fair Practice Code, not a single complaint was received from a supplier. The possibility for suppliers to complain anonymously, promised in the draft regulations for the disputes committee, is inadequate according to suppliers: a supplier can submit an anonymous complaint only via an authorised representative, and the supplier must first file a complaint with the buyer itself. The legislature will have to clarify this issue in the final regulations.

More scope for sector-wide sustainability initiatives

It has been debated for years that competition law is too often a Waterloo for sustainability initiatives: see here, here, here and here. Market-wide agreements are usually highly desirable or even essential in order to stimulate sustainability. In practice, sustainability initiatives often appear or prove to be difficult to fit into the competition-law framework. Sustainability initiatives that the ACM (or the NMa) has assessed against the cartel prohibition in the past are a mixed bag. ACM blocked most agreements on limiting catches and making shrimp fishing more sustainable. The Kip van Morgen initiative referred to above, also failed ACM’s test. That did not apply to an agreement to reduce the use of antibiotics in livestock farming (the Den Bosch Agreement) and sector-wide agreements to replace the castration of piglets without anaesthesia with anaesthetised castration.

The question whether sustainability initiatives are consistent with the cartel prohibition set out in Article 6 of the Mededingingswet (Dutch Competition Act) and Article 101 TFEU is usually answered on the basis of the exception ground in Article 6(3) of the Dutch Competition Act or Article 101(3) TFEU. That exception ground is also referred to as the efficiency defence. In recent years, it has become clear that ACM strictly assesses the efficiency defence in sustainability initiatives. That was the case with shrimp fishery, but also with Kip van Morgen. In sum, ACM accepts the efficiency defence only if the welfare of consumers is demonstrably increased. One of the reasons for ACM’s critical approach is probably its desire to prevent what is known as the greenwashing of cartel agreements.

At the same time, there is a risk of legitimate cooperation to achieve sustainability goals not getting off the ground either, or less quickly, because competition law is considered too great an obstacle. There has been a remarkable development in this regard. In many cases it is now easier to quickly demonstrate that sustainability initiatives in the agri-food sector are consistent with the cartel prohibition. The application of competition law to the agri-food sector is regulated in Regulation 1308/2013 (the “CMO Regulation”). The CMO Regulation also regulates practices that are excluded from the application of the cartel prohibition. Since December 2021, the statutory framework for the assessment of sustainability initiatives in the agri-food sector has changed at the European level. The exceptions to the cartel prohibition in the CMO Regulation have been expanded. Article 210a was added to the CMO Regulation on the basis of Regulation 2021/2117. That article provides:

Vertical and horizontal initiatives for sustainability

Article 101(1) TFEU shall not apply to agreements, decisions and concerted practices of producers of agricultural products that relate to the production of or trade in agricultural products and that aim to apply a sustainability standard higher than mandated by Union or national law, provided that those agreements, decisions and concerted practices only impose restrictions of competition that are indispensable to the attainment of that standard.

Under Article 210a of the CMO Regulation, sustainability initiatives are now exempt from the cartel prohibition in all EU Member States, subject to certain conditions. This applies to both horizontal initiatives and agreements (between competitors) and vertical initiatives and agreements (between different links in the chain). Initiatives that are eligible for the exception must be aimed at:

  • Environmental objectives, including climate change mitigation and adaptation, the sustainable use and protection of landscapes, water and soil, the transition to a circular economy, including the reduction of food waste, pollution prevention and control, and the protection and restoration of biodiversity and ecosystems;
  • The production of agricultural products in ways that reduce the use of pesticides and manage risks resulting from such use, or that reduce the danger of antimicrobial resistance in agricultural production; and
  • Animal health and animal welfare.

Under Article 210a of the CMO Regulation, it is no longer necessary to first put forward an efficiency defence in order to declare certain sustainability initiatives consistent with the cartel prohibition: because certain cases are exempted from the cartel prohibition under Article 210a of the CMO Regulation, benchmarking against the criteria of Article 6(3) of the Dutch Competition Act/Article 101(3) TFEU (the efficiency defence) is no longer necessary in those cases. This will save the parties involved a great deal of time and money. The Commission will publish guidelines explaining the conditions of Article 210a of the CMO Regulation by 8 December 2023. The Commission has invited market participants in the agri-food sector to share their experiences with the Commission. Stakeholders have until 23 May 2022 to do so.

Examples from Germany

In Germany, a number of sustainability initiatives were recently assessed under the cartel prohibition. The German Competition Authority (“Bka”), for instance, recently approved two sustainability initiatives, although it did consider another initiative to be in violation of the cartel prohibition.

Bananas and minimum wages

On 18 January 2022, the Bka ruled that there were no competition law objections to an initiative in which German retailers set common standards for wages in the banana sector. According to the Bka, it is important in this regard that (i) no sensitive competitive information is exchanged and (ii) no compulsory minimum prices or are introduced.

Animal welfare

That same day the Bka decided that the Tierwohl initiative, in which four large German supermarkets agreed to introduce an animal welfare supplement for pigs and poultry, was not in violation of the cartel prohibition. The supplement is linked to criteria relating to the conditions in which the animals are kept by the Tierwohl participants. It serves as a reward for pig and poultry farmers that improve these conditions. Although the supplement is factored into the price that consumers pay for the meat, the Bka has so far tolerated the initiative, in light of the pioneering nature of the initiative. The Bka did, however, state in its decision that more room must be given to competitors in the future, because animal welfare is increasingly a factor that consumers take into account.

Dairy price supplements

One week later it became apparent that not all price supplements presented as sustainability initiatives are consistent with the cartel prohibition. In late January, the Bka ruled that a system of price supplements for dairy products was in breach of the cartel prohibition. The price supplements served to compensate for what Agrardialog Milch considered the unprofitable price of raw milk. The supplement was to become part of a new financial model aimed at increasing and stabilising the price of raw milk across the sector. According to the Bka, these price supplements are not permissible at present, because sustainability standards do not play a role in this new financial model. Moreover, the model allegedly does not provide for “specific criteria for the production of raw milk, taking sustainability aspects into account”. This is where the Tierwohl initiative, which does contain specific sustainability criteria, differs from Agrardialog Milch’s raw milk price supplement.

Remarkably, the Bka has not (yet) assessed the above three initiatives directly against Article 210a of the CMO Regulation. This appears to be a missed opportunity, since that article had already entered into force by the time the Bka took its decisions. In its Tierwohl decision, the Bka did, however, announce that it would assess the initiative against Article 210a of the CMO Regulation in future.

Will competition authorities provide guidance?

We can imagine that competition authorities (including ACM) will be willing and able in future to provide guidance to companies on sustainability initiatives and the application of Article 210a of the CMO Regulation; all the more so because they too are aware that it will most likely be months, if not more than a year, before the Commission publishes its guidance on Regulation 2021/2117, whereas the climate crisis is definitely a hot topic. And ACM cannot really refuse such requests for guidance: it has repeatedly stated that it encourages sustainability initiatives and wishes to support companies in that respect. In its draft Sustainability Initiatives Guidelines, ACM noted that it “supports companies in their assessment of sustainability agreements”. Be that as it may, Article 210a of the CMO Regulation creates a new scope to quickly exempt sector-wide sustainability agreements (that apply in all EU Member States) from the cartel prohibition. That is in any event good news for the achievement of climate objectives, among other things.

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