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European Commission Initiates Guidance on Antitrust Rules in the Agricultural Sector

30 March 2015
The enforcement of antitrust rules in the agricultural sector has been a taboo in Brussels for decades – and for good reason. Spending on the so-called Common Agricultural Policy (CAP) represented the vast majority of the EU budget until the beginning of the 21st century and the agricultural sector could consequently hardly be seen as open to the principles of the market economy. But things have slowly started to change with the creation of the World Trade Organisation and the reduction of farm subsidies in recent years.

Legally speaking, the EU Treaty allows for the exemption of the agricultural sector from the EU competition rules and consecutive CAP reforms have always restricted the application of antitrust rules in the sector. Although price fixing and abuse of dominance were clearly prohibited, the specificities of the agricultural sector were thought to warrant special treatment, so that the influence of the European Commission's Directorate General for Competition was always limited in this area.

However, in recent years, DG Competition has become more outspoken about the role of antitrust rules in the agricultural sector. And under the latest CAP reform, which became effective 1 January 2014 with the entry into force of Regulation 1308/2013, the Commission is now expected to issue guidelines on the application of the competition rules in the agricultural sector.

The very first of these guidelines were issued – still in draft form and for public consultation – on 15 January 2015. The draft guidelines aim to clarify when joint selling by producers in the olive oil, beef and veal and arable crops sectors is likely to generate significant efficiencies and is therefore considered to be lawful. The draft guidelines explicitly list a number of activities which are considered to be efficiency enhancing. If one of these activities is applied to the majority of the products which are jointly commercialised by the producers, the integration resulting from it, makes the joint selling by the producer organisation lawful. What activities are deemed to be efficiency enhancing depends on the sector concerned but they include, for example, joint processing, joint packaging, joint quality control, joint transportation, joint storage, joint procurement of inputs and joint management of waste. If a production organisation organises one of these activities for the majority of products jointly commercialised by its members, this joint commercialisation will be considered to be lawful, assuming certain market share thresholds foreseen in Regulation 1308/2013 are fulfilled.

The draft guidelines contain a very detailed assessment of how the above-mentioned activities could be efficiency enhancing and therefore warrant the joint commercialisation by the producers. However, since it is based on a case by case assessment, other types of activities could also be efficiency enhancing and, consequently, make joint selling lawful. The draft guidelines mention in particular that investments by a production organisation in efficiency enhancing activities may allow for joint selling even if these investments take some time to materialise and therefore to be applied to the products in question.

Although the draft guidelines technically only apply to the olive oil, beef and veal and arable crops sectors and technically concern the application of an exemption from the ordinary competition rules, it can be expected that they will be of wider relevance. Indeed, the analysis conducted in the draft guidelines is not unlike part of an efficiency analysis under Article 101(3) TFEU, which under certain circumstances authorizes efficiency enhancing agreements even if they restrict competition. If joint packaging of olive oil may under certain circumstances justify joint selling by the olive oil producers because it is efficiency enhancing, it is difficult to see why joint packaging of milk would not allow joint selling by dairy farmers, obviously taking into account the differences in the way the two markets operate. The guidelines could therefore be an inspiration for joint selling in other agricultural sectors – and possibly even beyond that.

The Commission is requesting feedback from stakeholders on the draft guidelines by 5 May 2015.

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