Agricultural and food sector: position of farmers and buyer power of supermarkets

The agricultural and food sector has long been the punchbag of competition authorities in the Netherlands and abroad. The Netherlands Authority for Consumers and Markets  (“ACM”) has imposed fines on breaches of the cartel prohibition in the sweet pepper sector and the onion sector, for instance. It has also fined flour producers and has wrongly prohibited an acquisition in the rusk sector. In Germany, cartel fines have been imposed on producers of flour, beer and sausages. ACM remains alert, as apparent from its recent Vision on the flower bulb sector. The European Commission (the “Commission”) recently appears to have become aware of the weak position of farmers and small producers compared with the collective buyer power of supermarkets. The Commission is also busily investigating amendments to the Common Agricultural Policy (“CAP”). Similar steps have also been taken in the Netherlands. These and other recent developments relevant to the agriculture and food sector are addressed below.

Common Agricultural Policy: Europe

Three interesting developments can be identified:

  • In early 2017, DG Competition started an investigation regarding producer organisations (“PO’s”) in the olive oil, beef and veal and arable crops market. One of the pillars of the CAP is the Common organisation of the markets in agricultural products (“CMO”), which sets out specific exemptions for the collective sale by PO’s in those sectors. The main objective of the Commission’s investigation is to establish what effects these exemptions have had.
  • On 16 Augustus 2017, DG Agri published a market consultation as part of its initiative to improve the food supply chain. That initiative, accompanied by an initial impact assessment, aims to improve the position of farmers and small producers in the food supply chain. DG Agri reports that there is reason to believe that the added value in this chain is not evenly distributed throughout the chain, particularly due to the weaker negotiating position of smaller and therefore more vulnerable operators, including farmers and small producers, compared with their economically stronger and highly concentrated commercial partners. This consultation of DG Agri furthermore gauges the interest in applying specific exceptions that already apply in the sugar sector (such as value-sharing arrangements) in other sectors as well. The consultation period ends on 17 November 2017.
  • The judgment of the European Court of Justice (“ECJ”) in the endives case is now eagerly awaited. That judgment will have a major impact on the scope of the current exemption from the cartel prohibition for PO’s and association of PO’s (“APO’s”). The request for a preliminary ruling that the ECJ is assessing in this case follows an appeal filed against a cartel fine imposed by the French competition authority in the endives sector. The parties in question argue in their appeal that the agreements for which the fine was imposed were necessary in order to achieve the CMO’s objectives. In April 2017, Advocate-General Wahl found in that regard that in certain circumstances the competition rules do not apply to agreements within one PO or one APO. In Advocate-General Wahl’s opinion, however, agreements between several POs and APOs, and their agreements with third parties, do come under competition law, including the cartel prohibition.

The outcome of the investigations performed by DG Competition and DG Agri will be taken into account when the CAP is amended. It is not unlikely that the ECJ will pass judgment in the endives case before changes, if any, to the CAP are adopted and the Commission can take the judgement into account as well.

Common Agricultural Policy: the Netherlands

In light of the proposed changes to the CAP, State Secretary Van Dam sent a letter to the Lower House of Parliament on 3 July 2017. In that letter the Dutch government pleaded in favour of modernisation and simplification of the CAP. In July 2017, the Dutch government adopted new regulations for the implementation of the vegetable and fruit CMO. Its reason for doing so was the recent amendment to the European Regulations (no. 2017/891 and no. 2017/892 ). The Dutch implementing regulations were brought into line with the new European Regulations, also for the purpose of clarifying the conditions that PO’s must meet in order to qualify as such. Other important changes relate to the rules regarding sales outside the PO and limitations regarding the membership of PO’s.

Sustainability initiatives bill

Sustainable business practices are an important theme in the agricultural and food sector. In order to rapidly and successfully implement sustainability initiatives, agreements across the market may be desirable or even essential. A case in point is the so called Tomorrow's Chicken (kip van morgen) initiative, aimed at removing certain factory-farmed broilers (plofkip) from Dutch supermarkets. The relevant parties in the food supply chain drew up a minimum standard for that purpose by which they would abide. ACM considers that minimum standard in breach of the cartel prohibition. This example again demonstrated that ACM has difficulty fitting sustainability initiatives into the competition law framework. For that reason the Ministry of Economic Affairs presented the More Room for Sustainability Initiatives Bill (wetsvoorstel ruimte voor duurzaamheidsinitiatieven) on 19 May 2017. The bill provides market players with a procedure for presenting a sustainability initiative to the Minister. The Minister then makes an assessment of his own and, if he decides in favour of the initiative, may record it in the law. According to the Ministry of Economic Affairs, this removes a number of impediments to the conception and success of sustainability initiatives. In addition to competition law aspects, broader social interests also play a part in the assessment of the initiative. More information on the cartel prohibition and sustainability initiatives can be found in this blog.

Buyer power of supermarkets and resale price maintenance in the food sector

It is remarkable that DG Competition announced in May 2017 that it was investigating whether a purchasing alliance of a number of Belgian and French supermarkets was compatible with competition law. That development is in keeping with the impression that the Commission appears to be paying more attention to the market position of the parties where supermarkets jointly purchase their products. The German Bundeskartellamt (“BKa”) is meanwhile focusing on stimulating competition in the food supply chain, by again drawing attention to the prohibition against resale price maintenance (“RPM”) in the food supply sector. The BKa had previously fined German supermarkets for making agreements with producers on the resale prices of beer, chocolate and animal feed, among other things. On 12 July 2017 the BKa published guidelines for the assessment of the RPM in the food sector. The guidelines are relevant not only to the sale of products to German customers, such as supermarket chains; competition authorities in other EU Member States are also showing an interest in RPM. In sum, there are numerous developments regarding the application of the cartel prohibition (and the exceptions from that prohibition) to pricing policies and the distribution of the added value in the food chain.

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