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EU Competition Policy in the Agriculture Sector

On November 14, the European Court of Justice (ECJ) issued a preliminary ruling in a case involving the relationship between EU and French competition rules and EU agricultural policy (Belgian Endives).  The request for a preliminary ruling arose from an appeal against fines imposed by the French Competition Authority on French endive producing organisations.  While the ruling supports the French Competition Authority in a number of respects on the facts of the case, the ECJ agreed with the producers that conduct necessary to achieving authorized objectives of a recognised producer organisation (PO) or association of POs (APO) is exempt from EU antitrust rules even if the conduct is not covered by an express exemption.

EU legislation provides a number of specific exemptions from EU antitrust rules to allow farmers to cooperate in ways that might otherwise be prohibited, but those exemptions are subject to strict conditions.  Under Belgian Endives, members of POs and APOs can rely on a broader implied exemption without satisfying the conditions that would otherwise apply.  This broad, principle-based approach is a significant departure, making Belgian Endives the most significant judgment in this complex area since the ECJ’s 2003 judgment in Milk Marque.

The Belgian Endives ruling comes at a sensitive time for the EU agricultural sector.  Continuing economic pressure on farmers has recently led the Commission, Council and Parliament to look at ways of expanding the existing antitrust exemptions and taking other steps to counter imbalances in information and negotiating power.  In August 2017, the Commission launched a consultation on improving the food supply chain, including by expanding an existing exemption for so-called “value sharing agreements.” The Commission’s 2018 work programme envisages proposed legislative changes in early 2018.  Meanwhile, however, the European Council and Parliament are not waiting; in October 2017 they agreed in the context of their annual budget negotiations to revise the existing agricultural antitrust exemptions.  In the long term, however, the most significant development expanding EU farmers’ ability to increase their bargaining power by cooperating with one another may prove to be the Belgian Endives judgment.

Background

EU competition law in the agricultural sector is a complex patchwork of general EU competition rules and highly technical sector-specific rules.  Article 42 of the Treaty on the Functioning of the European Union (TFEU) provides that EU competition rules apply to the production of and trade in agricultural products only to the extent determined by EU regulations adopted under the common agricultural policy (CAP).  These regulations do extend EU competition rules to the agriculture sector, but they also provide for certain exemptions for POs, APOs and so-called “interbranch organisations,” self-organised, vertically integrated entities created by different branches of the agri-food chain, including producers and at least one partner from another part of the supply chain, e.g. manufacturers, processors, trade and retailers.

The current legal framework is set out in Regulation 1308/2013 (the CMO Regulation), which replaced Regulation 1234/2007, the main subject of Belgian Endives.  Article 206 CMO Regulation provides that EU competition rules apply to all agreements, decisions and practices relating to the production of, or trade in, agricultural products, subject to certain derogations.  These include general derogations that largely reproduced exemptions in Regulation 1234/2007 and prior regulations, as well as a number of sector-specific derogations introduced by the CMO Regulation to enhance farmers’ bargaining power.

The general derogations are set out in Articles 209 and 210 CMO Regulation (previously Articles 176 and 176a of Regulation 1234/2007).  Article 209(1) exempts  (i) agreements, decisions and practices “necessary for the attainment of the objectives” of the CAP and (ii) agreements, decisions and practices of farmers, farmers’ associations, or associations of such associations, or recognized producer organisations or associations of producer organisations, unless the agreement, decision or practice entails an obligation to charge an “identical price” or “excludes competition.”  

Article 210(1) CMO Regulation provides that Article 101(1) TFEU shall not apply to agreements, decisions and concerted practices of recognized interbranch organizations with the object of carrying out permitted activities.  Article 210(2) CMO Regulation provides that the derogation for interbranch organizations only applies where the relevant agreement, decision or practice has been notified to the Commission and the Commission has not found that it is incompatible with Union rules within two months.  Sector-specific rules include a derogation allowing value-sharing agreements in the sugar beet sector and joint sales in the olive oil, beef and veal products and certain arable crops sectors.

The CMO Regulation’s antitrust exemptions are highly technical, and they have been narrowly interpreted by the Commission and the European Courts.  The CMO Regulation also eliminated a prior system of notification to the Commission, creating legal uncertainty by requiring POs and APOs (but not interbranch organisations) to rely on their own assessment of whether a proposed agreement complied with one of the available exemptions.

Belgian Endives

The decision that gave rise to the Belgian Endives judgment was the French Competition Authority’s decision of March 6, 2012 fining a large number of organizations involved in the cultivation and sale of Belgian endives for participation in a complex and continuous cartel consisting of (i) an agreement on the price of endives through different mechanisms — such as disseminating a minimum price on a weekly basis, setting a “cours pivot” (central rate), establishing a trading exchange, setting a “prix cliquet” (reserve price) and misusing the withdrawal price mechanism; (ii) collusion on the quantities of endives placed on the market; and (iii) a system for the exchange of strategic information used for the purpose of price maintenance, with the aim of collectively fixing a minimum producer price for endives.  According to the decision, this conduct allowed producers and several professional POs to maintain minimum sale prices between 1998 and 2012.

The producers argued that their conduct should be regarded as necessary for the attainment of the CAP’s objectives, even though the express derogations in Regulation 1234/2007 did not apply.  The producers appealed to the  Cour d’appel de Paris, which found for the producers. The French Competition Authority, supported by the EU Commission, appealed to the Cour de Cassation.  The Cour de Cassation requested an ECJ ruling  on whether conduct otherwise caught by Article 101 TFEU can be exempted if it is linked to responsibilities assigned to national agricultural organisations, even if the conduct was not specifically covered by an antitrust exemption; and if so, whether collectively fixing minimum prices, concerting on quantities placed on the market or exchanging strategic information could be exempted if they aim at achieving the EU policy objectives of stabilising producer prices and adjusting production to demand.

The ECJ interpreted the CAP exemptions from EU antitrust rules more broadly than in past judgments, The ECJ noted that a PO or APO may have recourse to certain forms of coordination and concertation to achieve the objectives of 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; and optimising production costs and stabilising producer prices.  According to the ECJ, practices necessary to achieve one or more of those objectives must also be exempt from Article 101(1) TFEU.

On the other hand, the ECJ noted that the scope of the regulation’s antitrust exemptions is to be construed strictly, citing Milk Marque for the proposition that “the common organisations of the markets in agricultural products are not a competition-free zone . ..  On the contrary, the maintenance of effective competition on the markets for agricultural products is one of the objectives of the common agricultural policy and of the common organisation of the markets”.  In accordance with the principle of proportionality, moreover, the practices in question may not go beyond what is strictly necessary to achieve objectives assigned to the PO or APO at issue under the rules governing the common organisation of the market concerned.

The ECJ proceeded to discuss whether POs, APOs and professional organisations’ practices of intervening in the endive sector to collectively fix minimum sale prices, concert on the quantities placed on the market and exchange strategic information are exempt from Article 101(1) TFEU.  The ECJ noted that Member States are required to recognise POs and APOs that specifically take responsibility for one of the objectives defined by CAP regulations.  To be considered exempt from EU competition rules on the basis that it is necessary to achieve one or more CAP objectives, the ECJ said, a practice must have been implemented by an entity that is actually entitled to do so under the applicable CAP rules.  An entity not recognised by a Member State as responsible for these objectives cannot benefit from exemption from Article 101(1) TFEU.  That was likely to be the case for a number of professional organisations covered by the French Competition Authority’s decision, which did not appear to be recognised POs or APOs.

To be exempted, moreover, any such practices must remain within a single PO or APO.  Indeed, the responsibilities for production planning, concentrating supply and placing on the market, optimising production costs and stabilising producer prices, which may be assigned to a PO or an APO, may relate solely to the production and marketing of that PO’s or APO’s members.  Accordingly, agreements or concerted practices between POs or APOs go beyond what is necessary in order to fulfil those responsibilities and could not be exempt from Article 101(1) TFEU.

Concerning practices between their members,  recognised POs and APOs must be responsible specifically for at least one of the recognised objectives.  The ECJ noted that the objectives of ensuring that production is planned and adjusted to demand, concentrating supply and placing on the market the products produced by members, and stabilising producer prices necessarily entail the exchange of strategic information between individual members of the PO or APO concerned. Therefore, exchanges of strategic information between producers within the same PO or APO are liable to be proportionate if they are made for purposes of an objective assigned to that PO or APO and limited to information that is strictly necessary.

The objective of stabilising producer prices to ensure a fair standard of living may justify coordination between producers in the same PO or APO with regard to the quantities of products put on the market.  The objective of concentrating supply to strengthen the position of producers may also justify coordination of pricing policies, particularly where the PO or APO concerned has been assigned the responsibility for marketing all its members’ products.

By contrast, the collective fixing of minimum sale prices within a PO or an APO may not be considered necessary to fulfil the responsibilities assigned to them. Where it does not allow producers selling their own products themselves to sell at a price below those minimum prices, the ECJ said, this practice is not proportionate to the objectives of stabilising prices and concentrating supply, since it has the effect of further reducing the already low level of competition in the markets for agricultural products resulting from the formation of POs and APOs to concentrate supply.

Political Initiatives

As mentioned, separately from the Belgian Endives case, the EU Commission, Council and Parliament have all been looking at ways to expand the existing antitrust exemptions, as they were interpreted before Belgian Endives.  In its fall 2017 consultation, the Commission asked for input on whether the possibility to enter into value-sharing agreements in the sugar sector can also be of interest to farmers in other sectors.  Although the consultation only closed on November 17, the Commission’s 2018 work programme foresees that the Commission will propose legislation in this area in the first quarter.

Without waiting for the Commission’s proposals, however, the Council and the Parliament agreed to make a number of changes to the CMO Regulation to broaden the agricultural antitrust exemptions.  According to the compromise text, value sharing agreements will be allowed in sectors other than sugar and establishing standard value-sharing clauses will be added to the list of permitted objectives for POs, APOs and interbranch organisations. Similarly, the exemptions for planning production, optimising production costs, placing on the market and negotiating contracts for the supply of agricultural products in the olive oil, beef and veal and certain arable crops sectors will be eliminated.  Instead, the permitted activities of POs and APOs will be revised to include the possibility to carry out production planning, cost optimisation, placing members' products on the market and conducting contractual negotiations, and references to these objectives added to the general derogations for POs, APOs and interbranch organisations in Articles 209 and 210 CMO Regulation. 

Otherwise, however, the current limitations to the Article 209 antitrust exemption will continue to apply.  For example, the Article 209(1) exemption will still not apply to “agreements, decisions and concerted practices which entail an obligation to charge an identical price or by which competition is excluded.”  This broad exclusion may create uncertainty about whether the exemption applies to a proposed agreement, decision or practice.   However, without reinstating the notification requirement under Regulation 1234/2007, farmers, farmers’ associations, associations of such associations, POs and APOs will have the right to request the Commission’s opinion on the application of Article 209 to their agreements, decisions and concerted practices, and the Commission will have to reply within four months.  This change will give organisations seeking to rely on Article 209 a mechanism to obtain greater legal certainty.

Conclusion

The disparity in the number and size of EU farmers and their customers has long created tensions between the objectives of the CAP and EU competition policy.  For decades, CAP regulations have provided for derogations from EU competition rules to allow farmers to cooperate through POs, APOs and interbranch organisations in ways that might otherwise fall afoul of EU competition rules.  These derogations, however, are highly technical and have been interpreted so narrowly that the Commission’s Agricultural Task Force described them as “dormant.”

Belgian Endives should go a long way towards “reviving” these exemptions.  Rather than addressing the express antitrust exemptions in the CAP regulations, the ECJ held that conduct that is necessary and proportionate to the authorised objectives of a recognised PO or APO is automatically exempt from EU competition rules, regardless of whether the criteria in the predecessor of Article 209 CMO Regulation were satisfied.  This implied exemption extends even to exchanges of strategic information, coordination on the quantities of products placed on the market and coordination of pricing policy (though apparently not minimum prices to be charged by farmers marketing their own products).

The broad, principles-based approach of Belgian Endives may prove more helpful to farmers than the forthcoming amendments to the CAP’s antitrust exemptions, which will remain subject to detailed conditions.  However, Belgian Endives may raise questions about the need for and application of Article 209 CMO Regulation.

On the other hand, the ECJ’s approach applies only to activities of farmers within recognised POs and APOs, not to more complex vertical cooperation agreements among farmers and different parts of the value chain.  Article 210 CMO Regulation allows for cooperation among farmers and downstream participants in the supply chain, but it applies only to recognized interbranch organizations and to agreements that have been notified to (and not prohibited by) the Commission.  The exemption for value-sharing agreements outside the sugar-beet sector will apply only to agreements negotiated through POs or APOs with individual buyers, not more complex agreements including other downstream levels of the value chain.  Notably, neither the existing derogations for POs, APOs and interbranch organisations or the soon-to-be-extended derogations for joint selling activities cover cooperation by farmers vis-à-vis upstream participants in the value chain, such as suppliers of seeds and pesticides.

In summary, in Belgian Endives, the ECJ applied a broad, principles-based test with the potential to expand the scope of permitted cooperation in the EU’s agricultural sector.  Nonetheless, the ECJ’s approach would not exempt a broad range of activities between or among more than one PO or APO, or cooperation between different parts of the value chain.  Meanwhile, upcoming changes to the CMO Regulation will expand a number of specific derogations without apparently eliminating their complexity.  As a result, the relationship between EU competition policy and the CAP will continue to be fraught, and complex, for the foreseeable future.

Jay Modrall

Jay Modrall is a partner specialising in antitrust and competition at Norton Rose Fulbright’s Brussels office.

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