ECJ Clarifies Agriculture Exclusion of EU Competition Rules: Endive Producers Must Turn Over a New Leaf
Under certain strict conditions, agricultural producers can coordinate their pricing and quantities without risk of falling foul of the EU competition rules. However, the European Court of Justice (ECJ) has recently confirmed that not all practices by agricultural producer organisations and their associations are automatically excluded from the application of those rules: "The common organisations of the markets in agricultural products are not a competition-free zone''.
The EU's common agricultural policy (CAP) takes precedence over its competition objectives, and certain behaviour and practices which might otherwise be considered as anticompetitive are excluded from the scope of the EU competition rules.1 But, in responding to questions asked by France's highest court, the ECJ held that producers of endives (a vegetable also known as chicon) had gone too far and that "the scope of those exclusions is to be construed strictly". Producers cannot set minimum prices but, within state-recognised producer organisations, can exchange information and coordinate quantities and prices.
The exclusion of EU competition law for agricultural producer organisations
In the fruit and vegetables sector, a producer organisation (PO) or association of producer organisations (APO) must be officially recognised by a Member State and attributed responsibility for at least one of these three objectives:
- Ensuring that production is planned and adjusted to demand, particularly in terms of quality and quantity.
- Concentrating supply and placing on the market the products produced by its members.
- Optimising production costs and stabilising producer prices.
Practices of POs and APOs which are "necessary" to achieving these objectives are not subject to the EU competition rules.
What did the endive companies do?
The French competition authority imposed a fine of almost EUR 4 million on various POs, APOs and other entities involved in producing and marketing endives. It considered that they had been involved in a "complex and continuous cartel" enabling them to collectively fix a minimum producer price and maintain minimum sale prices for well over a decade. The penalised entities argued that their behaviour fell outside the scope of EU competition law. On appeal, France's highest court asked the ECJ to clarify the position, asking in essence whether practices where POs, APOs and professional organisations (i) collectively fix minimum sales prices, (ii) agree on quantities placed on the market or (iii) exchange strategic information can escape the EU competition rules.
The ECJ's judgment
The ECJ first provided a useful summary of the complicated legal framework governing the relationship between competition law and the operation of agricultural POs and APOs.
Who can benefit from the exclusion?
The ECJ clarified that the inapplicability of the competition rules can only apply where the practice or behavior:
- is carried out by a PO, APO or interbranch organisation (i.e. an entity recognised by a Member State as regards the common organisation of the market concerned); and
- takes place within a single PO or APO (i.e. between producers that are members of the same PO or APO recognised by a Member State).
What behaviour by POs or APOs can benefit from the exclusion?
Only practices that are "strictly necessary" for the pursuit of one or more of the objectives assigned to the PO or APO concerned may be exempt from the EU competition rules. In particular, the ECJ noted that the following are likely to fall within the derogation if carried out within a single PO or APO:
- Exchanges of strategic information made for the purposes of one or more of the assigned objectives and limited to information that is strictly necessary.
- Coordination with regard to the quantities of agricultural products put on the market.
- Coordination of pricing policy of individual agricultural producers (in particular where the PO or APO has been assigned by its members the responsibility for marketing all its products).
So, when does the exclusion not apply?
It follows from the above that the EU competition rules will apply to:
- Practices of industry associations or industry groups that are not recognised by a Member State as POs or APOs.
- Practices established between a number of POs and APOs (i.e. not within a single PO or APO).
- Practices that go beyond what is strictly necessary for achieving the objectives of a PO or APO. Importantly, the ECJ held that the collective fixing of minimum sale prices within a PO or APO will not be considered to be proportionate/necessary if it does not allow producers that sell their own products to sell them at a price below those fixed minimum prices. The court considered that this would have the effect of reducing the already low level of competition in the markets for agricultural products.
The fact that competition law applies does not mean that the behaviour in question is necessarily anticompetitive, but simply that it can be assessed under the EU competition rules.
In the French endive sector, agreements took place between POs and APOs and with organisations that were not recognized as POs or APOs - the agricultural exclusion was therefore not applicable.
The ECJ has set out a clear framework for the application of EU competition law to cooperation within and by agricultural POs and APOs, and this clarity is welcome. In order to coordinate on prices and quantities and to exchange strategic information without the restrictions of competition law, producers must do so within a PO or APO. The ECJ's judgment may encourage producers not to operate individually, but to group together in order to make coordination easier and to strengthen their position against supermarket chains in particular. This will please France's President Macron, who has called for stronger producer organisations,2but other Member States may not take the same approach. The power to recognise, or not, an organisation as a PO or APO rests with individual Member States, and differences in approach could lead to disparity of producer strength and bargaining position across the EU.
However, a look at the broader picture clearly shows that competition authorities across the EU recognise the food and agricultural sectors as priority areas. In 2012, the European Competition Network produced a report on enforcement and market monitoring activities in the food sector across the EU. It identified various structural and regulatory factors that may have a negative impact on the functioning and competitiveness of the food sector, such as the "fragmented and atomistic structure of farmers in some Member States, the existence of unnecessary intermediary stages in the supply chain or the existence of regulatory entry barriers to retail markets".3
The European Commission has also looked in detail at the sector, producing a communication in 2008 on competition in the food supply chain which identified as key priorities (1) promoting sustainable and market-based relationships between stakeholders; (2) increasing transparency to encourage competition and improve resilience to price volatility; and (3) fostering integration and competitiveness across Member States.4 The Commission built on this work with its 2014 study on the retail food sector, which aimed to measure how choice had evolved over the last decade for consumers. Further information from the European Commission on the relationship between EU competition law and the agriculture and food sectors can be found here.
While policy discussions continue, this recent ECJ judgment is a timely and useful reminder that the EU competition rules currently apply broadly to the agricultural sector and that any exclusions will be interpreted restrictively. This case comes off the back of significant recent enforcement action in the agricultural sector. The European Commission has imposed heavy fines in recent years for cartel behaviour on companies in agricultural sectors including canned mushrooms (fines totaling EUR 37 million in 2014 and 2016), shrimp (fines of EUR 28 million in 2013) and bananas (fines totaling EUR 69 million in 2008 and 2011).5
1 Established in Article 42 TFEU and set out in secondary legislation (in particular Regulation (EU) No. 1308/2013).
3 FAQs on the ECN's Report on competition law enforcement and market monitoring activities by European competition authorities in the food sector (2012) - available at http://ec.europa.eu/competition/ecn/documents.html#reports.
4 Available at http://ec.europa.eu/competition/sectors/agriculture/documents_en.html.
5 See http://ec.europa.eu/competition/cartels/cases/cases.html.