English - Or. French DIRECTORATE FOR FINANCIAL AND ENTERPRISE AFFAIRS COMPETITION COMMITTEE ROUNDTABLE ON COMPETITION ISSUES IN FOOD CHAIN INDUSTRY

Transcription

1 For Official Use DAF/COMP/WD(2013)94 DAF/COMP/WD(2013)94 For Official Use Organisation de Coopération et de Développement Économiques Organisation for Economic Co-operation and Development 09-Oct-2013 English - Or. French DIRECTORATE FOR FINANCIAL AND ENTERPRISE AFFAIRS COMPETITION COMMITTEE ROUNDTABLE ON COMPETITION ISSUES IN FOOD CHAIN INDUSTRY -- Note by France -- This note is submitted by France to the Competition Committee FOR DISCUSSION under Item XII at its forthcoming meeting to be held on October English - Or. French JT Complete document available on OLIS in its original format This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area.

2 ROUNDTABLE ON COMPETITION ISSUES IN FOOD CHAIN INDUSTRY -- Note by France Recent Developments in the Food Chain Industry 1. The Food Chain Industry, which includes agriculture and livestock rearing, food-processing industries and retail distribution, occupies a major place in the French economy and its competitiveness has a direct impact on consumer well-being, in terms of price, as well as in terms of choice and quality, since it represents about 13% of household budgets. Consequently, it is a subject to which particular attention is paid by the Autorité de la concurrence, which devoted an entire study to the subject of this sector in its annual report for Agriculture and livestock rearing accounts for 966,300 permanent jobs, representing 3.4% of the active population. French agriculture is the leader in the European Union in terms of its unsubsidised production of agricultural produce, which amounted to 71.4 billion euros in The sector is typified by structural constraints that affect the industry, mainly due to the storage and transport of perishable items and the existence of fixed production cycles and sales on a per product basis as well as constraints that are specific to the French economy, especially the fragmentation of certain products such as milk and cattle-rearing, despite a move to regroup into cooperatives and combine cooperatives. Furthermore, the sector suffers from major variations depending on the world economic climate, linked to the volatility of input costs. 4. The food-chain industry, i.e. food processing accounts for 70% of the value of agricultural production and is thus the principal outlet for some 500,000 farming operations. It is France s leading industry, consisting of 10,000 enterprises. 5. It is characterised by a relatively high degree of concentration: about 95% of turnover and added value in the food chain industry is generated by barely 30% of these companies. Thus, although the French food industry consists of up to 90% of small and medium-sized enterprises and 70% of very small enterprises employing fewer than 20 people, it also contains large groups on a global scale (such as Danone, Lactalis, Pernod-Ricard and Bongrain) and vertically integrated cooperative groupings that are present at all stages of production and processing (in particular Terrena and In Vivo), some of which are of global size. 6. Large-scale retailing constitutes another vital outlet for the agricultural markets, accounting for more than two-thirds of food product purchases for households. 7. The Autorité de la concurrence stated in a notice concerning affiliation contracts 2 that the large general retail food outlets (hypermarkets, supermarkets and deep discount stores) covered more than two Notice no. 10-A-26 of 7 December 2010 covering affiliation contracts for independent shops and ways of acquiring businesses in the food retailing sector 2

3 thirds of the food products market. In 2012, the six main retailers that mainly sold food, all of French origin (Auchan, Carrefour, Casino, E. Leclerc, ITM Entreprises and Système U), accounted for nearly 90% of market share. 8. The application of competition law to the agricultural sector takes account of the economic efficiency connected with certain forms of cooperation. Combined with the law on restrictive practices, it is designed to support the reinforcement of negotiating power by those involved when dealing with major retailers and is liable to provide greater choice in the long term with respect to product ranges, prices and quality (see point I). With respect to the major retailing outlets, the Autorité de la concurrence has nevertheless tried to ensure that the degree of concentration in the marketplace does not lead to competition distortions (see point II). 2. From food production to processing: competition law is designed to stimulate competition and incorporate economic efficiency 9. Competition law applies to the agricultural sector (see point 1.1) and generally permits cooperation and concentration operations between producers so as to make them more efficient (see point 1.2). French restrictive practices law also plays an essential role in that it regulates the relationship between producers and distributors and thus contributes to one of the aspects of consumer well-being in the long term, namely the variety of products and differentiation in terms of price and quality (see point 1.3). 2.1 The agricultural sector: a sector subject to competition law 10. At a European level, article 42 of the Treaty on the Functioning of the European Union (TFEU) provides that competition law applies in compliance with the objectives of the Common Agricultural Policy as defined in article 39 of the TFEU 3. In France, the French legislator did not exclude agriculture from the field of application of competition law as defined in articles L and L of the Code of Commerce prohibiting cartels and abuses of a dominant position. It outlined exemptions linked to technical progress in sub-paragraph 2 of Title I of article L of this same code. This provision especially identifies subject to all the conditions of technical progress, analogous to article 101 paragraph 3 TFEU having been fulfilled practices that could consist in organising, with respect to agricultural products or those of agricultural origin, under the same brand or logo, volumes and production quality as well as commercial policy, including arranging a common selling price The Autorité de la concurrence and the DGCCRF ensure that the rules of competition in the food chain sector are respected and this applies mainly to cartels, agreements or restrictive practices. In this context, the Autorité de la concurrence, in response to a complaint or when informed by the Ministry for 3 4 Article 39 of the TFEU, to which article 42 refers lists the objects of the Common Agricultural Policy, namely increasing productivity (a), ensuring a fair standard of living for the farming population (b), stabilising markets (c), guaranteeing security of supply (d) and ensuring reasonable prices for consumers (e). See also, in particular, Council s article 175 of the (EC) Council regulation no. 361/2008 dated 14 April 2008, OJ L 121 of 7 May 2008 and Council Regulation no. 2 dated 4 April 1962 concerning the application of certain competition rules to the production and trade in agricultural products, OJ 30 of 20 April 1962, p. 993/62, deleted and replaced by (EC) Council Regulation no. 1184/2006 of 24 July 2006, OJL 214 of 4 August 2006, p. 7. This provision, introduced through a law passed in 1996 concerning loyalty and balance in commercial relationships (Law no of 1 July 1996.) is aimed in particular at quality marks (labels, appellations of origin, geographical indications, etc.). At the time, the authorities wanted competition to be maintained by small independent enterprises and not solely by large companies who alone would be capable of dealing with international competition or conquering markets if small and medium-sized enterprises (SMEs) were unable to form groups. 3

4 the Economy (DGCCRF), has been led on several occasions to impose sanctions on such practices. In such a case, the Autorité performs a concrete analysis of the practices in question, their effect on competition, the context in which they occur and any possible justification in respect thereof. Each case thus requires the application of rules of competition based on a circumstantial examination of the facts and economic data of the case. 12. With specific respect to the agricultural production stage, the Autorité de la concurrence has on several occasions reiterated the prohibition on cartels between independent economic operators, without a transfer of ownership, the aim of which is to fix prices, share customers or markets or even restrict production 5 and that these constitute restrictions of purpose. 13. In its consultative activities 6, the Autorité de la concurrence has reiterated the merits from an economic point of view of this prohibition, which been adopted by European and French legislators. 14. In fact, the Autorité de la concurrence considers that agreements on prices or quantities are ineffective in an integrated market, such as the Single market, since there is nothing to prevent purchasers processors or retailers from allowing French agricultural products to compete with those of our European neighbours and to import them, if necessary, if the latter are more competitive. Furthermore, it considers that such agreements or practices are harmful to French agricultural competition and delay the necessary movement towards concentration of food chain products which are still too fragmented, while examples in France and other member states of the European Union have shown that this movement has borne fruit in several sectors such as cereals, seeds and sugar beet. This finding also applies to certain processors who are intermediaries in the food chain, and who need to deal with the dual constraint of the power to negotiate with major retailers downstream and the requirements in terms of purchase prices from the producers upstream, which could involve compression of their profit margin. 15. Two recent examples of cartels of which the Autorité de la concurrence was informed are provided hereunder. 16. Upstream, at the agricultural production stage, in March 2012, the Autorité de la concurrence, acting on information from the DGCCRF, imposed a fine of 3.6 million euros on ten chicory (Belgian endive) producers and ordered their professional bodies (seven trade unions) to pay a fine of 320,000 euros for having broken competition rules 7 and pursued their practices despite reminders of the law from the DGCCRF. The Autorité de la concurrence established that virtually the whole sector had implemented an overall plan for managing the market in order to remove the price of chicory from natural competition. An appeal against the decision is currently pending before the Paris Court of Appeal In practice, several sectors in France were fined by the Autorité de la concurrence: the strawberry sector (Decision no.03-d-36 of 29 July 2003, the cauliflower sector (Decision no.05-d-10 of 15 March 2005), the grains sector (Decision no.07-d-16 of 9 May 2007), the chicory sector (Decision no.12-d-08 of 6 March 2012) and the flour sector (Decision no.12-d-09 of 13 March 2012). See opinion no. 09-A-48 of 2 October 2009 concerning the operation of the dairy sector ( and opinion no.08-a-07 of 7 May 2008 concerning the fruits and vegetables sector ( Decision no.12-d-08 of 6 March 2012 concerning the practices applied in the production and sale of chicory. Of the 16 companies that appealed, (6 trade unions and 10 producers organisations), 14 requested a stay of execution of payment of the fines from the first presiding judge of the Paris Court of Appeal on the basis of the second sub-paragraph of article L of the Code of Commerce, and this was granted. 4

5 17. This practice, whose form and methods developed during the fourteen years in which it was implemented, translated in particular in the distribution of minimum selling price instructions for each category of chicory, the collective coordination of a pricing and commercial policy by the producers, setting the volumes of sales and introducing a price information exchange system for the prices applied by the producers which had been diverted from its original purpose and was being used to ensure that the cartel was properly applied. 18. The Autorité de la concurrence examined the various arguments invoked by the participants to explain this breach and established that it was not of a justifiable nature with respect to the exemptions provided by current legislation at both national and European level. Furthermore, it established that the inclusion of some of those involved in an association of producer organisations with transfer of ownership, as from 2009, caused these practices to cease Downstream, at the processing stage, in February 2013, the Autorité de la concurrence fined eight pig slaughterers and two professional bodies the sum of 4.57 million euros for having come together for 12 weeks in 2009 to fix the price on the quantity of pigs purchased in the main area of French pork production with the aim of reducing the price paid per pig to the livestock producers established on the basis of a reference quotation resulting from a biweekly livestock market 10. This example also illustrates the fact that the rules of competition can also contribute to protecting growers and producers against cartels that are applied downstream in the value chain 11. An appeal against the decision is currently pending before the Paris Court of Appeal. 20. In March 2012, the Autorité de la concurrence also imposed a fine of million euros in respect of several cartels in the bagged flour sector, comprising 95.5 million euros applied to 13 French and German millers due to their creating a cartel that was designed to restrict flour imports between France and Germany, and seven French millers were fined million for two cartels designed to fix prices, limit production and distribute among themselves the customers for bags of flour sold to large and medium-sized retailers and deep discounters in France, through the France Farine and Bach Mühle marketing structures. 12 Fourteen of the seventeen companies fined have appealed Thus, the Autorité de la concurrence has had occasion to recall on several occasions, that the agricultural sector is subjected to competition rules in the same way as all the other economic activities and that certain practices, such as those of coming to an arrangement as to pricing, cannot be accepted regardless of the stage of the activity. The European legislator has adopted measures, however, that in With respect to the amount of the fine, the Autorité took account, on the one hand, of the limited impact of the cartel on the retail prices due to the counterbalancing power of the major retailers and, on the other hand, of the limited financial resources of the producers. Decision no. 13-D-03 of 13 February 2013 concerning the practices implemented in the processed pork products sector. In this case, it should be emphasised that the Autorité had been informed following a complaint by four pig producers in Brittany. Decision no. 12-D-09 of 13 March 2012 concerning practices implemented in the flour for human consumption sector. The three millers who were most heavily fined asked for a stay of execution of payment of the fine from the first presiding judge of the Paris Court of Appeal and two of them were granted it. The Autorité de la concurrence appealed against this order through the Court of Cassation in relation thereto. Furthermore the general directorate of public finance granted all of the French millers who had been fined the benefit of payment by instalment for their participation in the Franco-German cartel and a stay of execution of payment until the Court of Appeal pronounced judgment on their participation in the French cartel. 5

6 certain sectors (especially milk, beef, cereals and olive oil) tend to bend the competition rules to which farmers are subjected (see point 1.2 below which provides more detailed information about these measures). 2.2 The application of competition law: a lever for competition in the sector 22. While clearly reiterating that a cartel between independent producers is illegal and that this ban is justified from an economic point of view, the Autorité de la concurrence has also highlighted, in both its decisions and opinions, that other forms of cooperation that comply with the law and have the benefit of economic efficiency could allow various operators in the food chain to adapt to new conditions in which they are called upon to fulfil their functions. 23. Firstly, the Autorité de la concurrence has issued opinions on proposed laws or regulations or on the competition situation in the food chain and highlighted certain routes that could contribute to better functioning of the whole agricultural sector. 24. As an example, the Autorité de la concurrence issued an opinion on a certain number of issues in the dairy sector 14 and in fruits and vegetables 15. In the first opinion, the Autorité had been informed of the way the dairy sector was operating at a time when it was the victim of a sudden drop in production prices. 25. As the law stood at the time it was informed, the Autorité de la concurrence stressed that although the circulation of price recommendations to producers from professional associations recognised in France was covered in the dairy sector by an exemption in national law 16, this practice was liable to breach European Union law and so would be unlikely to be the subject of an exemption or derogation. The Autorité also stressed that such a system would be have little effect in the context of international competition, since ultimately demand might be directed abroad to the detriment of French producers applying recommended prices. 26. Since then, changes have been made to European law. In particular, in the milk sector, professional bodies have been able to improve their knowledge and the transparency of production and market conditions, especially through the publication of trend indicators i.e. statistical data on pricing, volumes and the lengths of the raw milk delivery contracts already signed as well as through supplying analyses of prospects for development potential in regional, national and international markets in order to contribute to better marketing coordination. The Commission must be notified of the agreements and then has three months to check they are not incompatible with the European Union regulations. It can ban any agreement which (i) introduces compartmentalisation of the markets, (ii) creates competition distortions unless these are indispensable for achieving the objectives of the CAP, (iii) involves price-fixing, (iv) leads to the unavailability of an excessive proportion of the product in question or (v) creates discrimination or eliminates competition in respect of a substantial amount of the products in question. There was an agreement in June 2013 between the European Parliament and the Council with respect to the amendment to regulation no. 1234/2007 of the organisation of the single market providing for an extension to these provisions to all the organisations that shared a market. 27. In both of these opinions, however, the Autorité de la concurrence had promoted a legal device that was at this time still little used but which seems relevant to the attempt to reduce the existing imbalances in the commercial relationship between farmers and purchasers to the extent that they introduce Notice no. 09-A-48 of 2 October 2009 concerning the operation of the dairy sector. Notice 08-A-07 of 7 May 2008 concerning the economic organisation of the fruits and vegetables sector. See article L of the Rural and Sea Fishing Code. 6

7 a certain visibility for market operators, both in respect of supplies, to the benefit of the processors, as well as for planning investments and purchases of input for producers contractualisation. The Autorité de la concurrence stressed the benefits of standard contracts for terms of several years, defining the volumes, prices and conditions of changes thereto in the medium term as well as elements of quality, making it possible to grant the necessary visibility to producers as well as to processors who might thus be able to make better provision for their supplies and costs, as long as the content of each contract could be negotiated individually. Similarly, it indicated that the introduction of contract revision clauses based on changes in prices and costs was possible as long as it was the subject of bilateral negotiation. 28. The 2010 law modernising agriculture and fishing (the LMAP ) 17 now makes compulsory contractualisation possible through the signing of written contracts of sale between producers and buyers where these products are destined for resale or processing. This law thus uses the foundation of the proposals made by the Autorité de la concurrence in the two opinions, a foundation since repeated at European Union level in the modified version of the Common Organisation of a Single Market regulation adopted in June The LMAP provides for the Autorité de la concurrence to be notified so it can give an opinion in the case of definition of the standard contracts through regulation or through a collective agreement 18. On this basis, the Autorité issued opinions on numerous occasions concerning the implementation of contractualisation, demonstrating the benefit of this instrument Furthermore, the Autorité de la concurrence has promoted other routes such as the development of futures markets, recourse to public insurance and the promotion of quality products as a way of guaranteeing a stable and fair income for farmers. In particular, the Autorité de la concurrence considers that the differentiation of quality agricultural products protected by labels or appellations is an advantage for French and European agriculture since this is a resource that makes it possible to occupy a position in a market segment in which there is less pricing pressure and at the same time matches high expectations by consumers who are becoming ever more concerned about quality and the origin of the products they are consuming. 31. Secondly, the Autorité de la concurrence stressed the existence of legal and effective forms of cooperation making it possible for various food chain operators (especially producers and processors) to adapt to market conditions in order to guarantee competitive operation in the sector that will continue to preserve outlets for farmers and thus promote diversity for the consumer s benefit. 32. As it noted in 2009 in its opinion concerning the dairy sector 20, where the market is fragmented, concentration (by grouping into cooperatives) and vertical integration (especially through the acquisition by cooperatives of assets in the processing and distribution sector) can be structural means of rebalancing the power of negotiation to the benefit of producers while maintaining a diverse range for the benefit of consumers Article L of the Rural Code introduced by Law no of 27 July Article L of the Rural and Sea Fishing Code. See in particular opinion no.10-a-28 concerning the fruits and vegetables and the dairy sector, opinion no.11- A-03 concerning sheep-rearing, opinion no.11-a-12 concerning turkeys, opinion no.11-a-14 concerning wines of the Bergerac region. Furthermore, the Autorité made pronouncements on several occasions concerning these agreements without publishing a specific opinion. This was the case in the wine, plum, drinking chicory, tobacco, armagnac, flax, root vegetable and flower sectors. Opinion no. 09-A-48 of 2 October 2009 concerning the operation of the dairy sector. 7

8 33. Thus, between the creation of the Autorité de la concurrence in March 2009 and 1 September 2013, 52 concentration operations were notified by agricultural cooperatives and given permission, three of them subject to implementing commitments to meet the concerns of the competition. 34. With respect to the question of the competitive impact of operations notified by the cooperatives, the Autorité only identified competition problems when concentration resulted in the creation of local monopolies or there was a risk of locking farmers into their product stream or their purchases of farming supplies due to the links binding them to the cooperatives. 35. Two cases illustrate the way in which the Autorité de la concurrence intervenes, including in respect of the issue of freedom of choice in the supply of input for farmers: In decision no. 11-DCC , the Autorité de la concurrence established that the operation in question risked significantly restricting competition on the market for the supply of input to farmers in the three départements of Brittany to the extent that the operation placed the Agrial cooperative in a very strong position in these markets since its articles of association bound the delivery by livestock-breeders of their milk to the cooperative to the condition of buying 80% of their purchases of input from it. Members of the cooperative would have had no other choice than this new entity for collecting milk and would have been forced to buy almost all their agricultural supplies from the cooperative, which would have encouraged the cooperative to increase the price of its products. The Autorité de la concurrence thus established that the new entity was acquiring a particularly strong position in agricultural supplies in the areas concerned (with a market share that was three or four times greater than that of merchants or companies that were in competition with it in the marketplace), so it would thus be in a position to heavily increase prices to the detriment of the co-operators without the return of the surplus to its members a hypothesis that the Autorité de la concurrence examined carefully being sufficient to reduce the risk. The operation was thus permitted subject to the cooperative undertaking to amend its articles of association to reduce to 50% the compulsory level of supplies that had to be purchased from the cooperative, without nevertheless challenging the cooperative model. Similarly, in decision no. 12-DCC-42 concerning the merger between the Champagne Céréales and Nouricia cooperatives, the Autorité de la concurrence emphasised the need for farmers (i) to have the choice locally between at least two suppliers of agricultural supplies so as to be able to negotiate the price of their inputs (ii) as well as being able to choose who should collect their cereal production. In this case, in view of the special competition situation on the market for the sale of agricultural supplies in a département (Haute-Marne), the Autorité de la concurrence made the operation conditional upon an undertaking by the parties not to oppose the cooperative group EMC2, their main competitor on the local market in question, from leaving the shared structure to which they both belonged and which acted as a central procurement operation. 36. Thus, in exceptional cases, a margin of freedom of action can be preserved for livestock-breeders who are members of a cooperative, while leaving intact the cooperative model and principle of forming groups or unions between cooperatives. The Autorité de la concurrence did not assess the principle of the cooperative model but, in the two aforementioned decisions, took into account the configuration of a specific market. It stressed, in other concentration decisions in the dairy sector in which the competition situation was different, that the existence of a contract for exclusive supply could enable it to guarantee 21 Decision 11-DCC-150 of 10 October 2011 concerning the takeover of exclusive control of the Elle-et-Vire cooperative by the Agrial cooperative group. 8

9 secure outlets to all members, which was all the more appreciable since the operation was taking place in an economic climate marked by overproduction of milk in France The approach followed by the Autorité de la concurrence with respect to the very nature of agricultural cooperatives was specified in an appendix to its guidelines concerning control of concentrations, and especially their revised version published on 10 July This text demonstrates how the Autorité de la concurrence takes into account the specific nature of agricultural cooperatives. 38. The Autorité de la concurrence thus reiterates that the specific nature of the links binding the cooperatives to their members 24 is taken into account when analysing the markets that bring them together, such as the upstream markets at which the cooperatives collect their members produce or the agricultural supply markets through which the members get their supplies from the cooperatives. The Autorité de la concurrence takes particular account of the fact that the profits from operations performed by the cooperatives through their members are redistributed to them. In its guidelines, however, and in accordance with its practice, it recalls that the specific nature of the links between the cooperatives and their members is not sufficient to consider that a cooperative, including its members, constitutes a single legal entity since no single farmer-member exercises a decisive influence over the cooperative. 39. In its decisional practice as regards concentration, the Autorité de la concurrence also analysed the unilateral effects of a concentration of the downstream market on the sale of unprocessed or processed products which required commitments to be made by the parties. In a decision relating to the sugar industry 25, it considered that the monopolistic situation resulting from the merger within the same group of two companies marketing sugar produced on the island of La Réunion and destined for local distributors and industries could lead to the Quartier Français being taken over by Tereos (controlled exclusively by a union of cooperatives) subject to the sale by Tereos of assets that would lead to two independent offers on the market for the supply of table sugar and industrial sugar on the island. This sale in fact took place without any particular problems to a consortium consisting of industrial and financial investors. 40. The approach taken by the Autorité de la concurrence with respect to control of concentrations ought nevertheless to be differentiated from its practice concerning cartels that are designed to eliminate competition in which the critical analytical factor is the transfer or non-transfer of ownership of the products for sale. 41. Thirdly and lastly, outside the cooperative context, other types of groupings are allowed under competition law, which offers four major categories of flexibility: The first flexibility concerns the possibility for producer organisations, under certain market share conditions, to play the role of brokers in order to increase their sales volume and thus their powers of negotiation with processors to the benefit of all their members, who will thus receive higher remuneration Decision 13-DCC-47 of 17 April 2013 concerning the takeover of exclusive control of Les Fromageries de Blâmont agricultural cooperative group by the Sodiaal Union cooperative company, paragraph 48; see also decision 11-DCC-150 of 10 October 2011 concerning the exclusive takeover of control of the Elle-et-Vire cooperative by the Agrial cooperative group, paragraph 68. Revised guidelines dated 10 July 2013 concerning control of concentrations. The cooperative and its members maintain a dual capitalistic and economic relationship. Decision 10-DCC-51 of 28 May 2010 concerning the exclusive takeover of the Groupe Quartier Français by Tereos. 9

10 The second flexibility was highlighted in opinion 09-A-48 of 2 October 2009 abovementioned. In this opinion, the Autorité de la concurrence recommended, as an extension to notice 08-A-07 of 7 May 2008 concerning the economic organisation of the fruits and vegetables sector, to generalise the provisions of the regulation concerning the sharing of the organisation of the fruits and vegetables market 26 with that of the diary sector. These arrangements made it possible to create an association of producer organisations, as long as it did not have a dominant position, and for it to handle, even though it did not own the produce as would be the case for a cooperative, the sale of the products and optimisation of the production costs. These arrangements applied until recently without prejudice to regulation (EC) no. 1184/2006, which excludes shared price-fixing 27. Since that date, the European Commission has suggested extending this arrangement to all the producer organisations and an agreement between the European Parliament and the Council was entered into for the removal of the requirement for the absence of a dominant position if an organisation were to be permitted to benefit from this arrangement. The third category of flexibility concerns the sharing of storage or production facilities, which could constitute horizontal collaboration as a source of economic progress. Below a 20% threshold, these agreements are accepted. Where the percentage is higher, a case-by-case analysis is necessary 28. The fourth category of flexibility relates to joint price-fixing which is permitted, in very exceptional cases, if one or other of the following two conditions has been met: (i) if a major buyer does not want to deal with a multitude of prices and demands a single supply price; (ii) if the farmers agree to jointly launch a new product, such as a shared brand of milk, and if this initiative can only reasonably be achieved if there is standardisation of all aspects of marketing, including the price At European Union level, the adaptation measures for applying competition law were adopted or are currently under discussion Council Regulation (EC) no. 1182/2007 of 26 September 2007 establishing specific rules for the fruits and vegetables sector, amending directives 2001/112/EC and 2001/113/EC as well as regulations (EEC) no. 827/68, (EC) no. 2200/96, (EC) no. 2201/96, (EC) no. 2826/2000, (EC) no. 1782/2003 and (EC) no. 318/2006, and abolishing regulation (EC) no. 2202/96. A brochure published by the European Commission echoes this opinion. It states that EU competition rules permit, under certain conditions, the joint marketing of raw milk, including through intermediate organisations or associations. Such agreements are generally accepted as long as they do not include pricefixing, either directly or indirectly and as long as the total market share of farmers involved in the agreement does not 15%. Above such market share, the agreement is not presumed to be illegal, but a case-by-case assessment becomes necessary. (European Commission Brochure, How EU Competition Policy Helps Milk Producers in Europe). Since this brochure was published, European regulation no. 261/2012 of 14 March 2012 was adopted which now offers, subject to certain conditions, the option for producer organisations and associations of producer organisations to negotiate on behalf of their members (see below). The factors highlighted in this brochure can always be transposed into other agricultural sectors and are not the subject of partial or total exemptions. Guidelines concerning the applicability of article 101 of the Treaty concerning the Functioning of the European Union relating to horizontal cooperation. See also European Commission Brochure entitled How the EU s Competition Policy Helps Milk Producers in Europe ( Ibid. 10

11 43. In the dairy sector, regulation (EU) no. 261/2012, which came into force in early April 2012, amended Council regulation no. 1234/2007 of 22 October 2007 (the so-called common organisation regulation of the single market ) by foreseeing the possibility for a producers organisation to negotiate on behalf of its producer-members, for all or part of their joint production, raw milk delivery contracts between farmer and processor. The negotiations could be conducted by the producers organisation, whether or not there was transfer of ownership of the raw milk from the farmers to the producers organisation and whether or not the price negotiated was identical for shared production by all the member farmers or only some of them. For a specific producers organisation, the volume of raw milk that is the subject of these negotiations should not exceed 3.5% of total production by the Union and the volume of raw milk that is the subject of these negotiations produced in all the member states should not exceed 33% of the total national production of the member state in question 30. The European Commission, in the case of negotiations involving more than one member state, or a national competition authority, can reopen the negotiations by bringing in the producers organisation or refuse to permit it if it could have the effect of excluding competition or if it seriously affected SMEs involved in the processing of raw milk. 44. Discussions are also in progress on the subject of amending the regulation of the common organisation of the single market. In this context, it is planned that arrangements equivalent to those that came into force in the dairy sector could also be applied, subject to certain conditions, to the cattle sector, the olive oil sector and for cereals. Finally, as already mentioned, the European Parliament and the Council are also examining the principle whereby the various professional associations in the dairy sector can circulate trend indicators (see above). 2.3 Restrictive practices law makes it possible to retain a certain balance in commercial relations in the agricultural sector 45. In France, food chain distribution is typified by high concentration, close to that of an oligopoly. The market structure is thus favourable to unfair commercial practices or restrictive practices between companies. The nature of the products in question, which are very often perishable and produced from raw materials subject to price fluctuations, also explains the existing tensions between co-contractors. 46. The Code of Commerce contains a list of clauses and abusive practices in commercial relationships that could be punishable under civil law. For example, the action of obtaining or attempting to obtain from a trading partner an advantage of any kind that does not correspond to a commercial service actually rendered or one that is manifestly disproportionate to the value of the service rendered, or to submit or attempt to submit a commercial partner to obligations creating a significant imbalance in the rights and obligations of the parties all make the perpetrator liable and require it to repair the damage caused. 47. The Code of Commerce also contains a list of abusive practices in commercial relationships that are specific to the food chain and agricultural sector. For example, article L of the Code of Commerce makes it possible to combat the practice of abusively low prices in the context of an economic crisis or steep fluctuation of trading prices. 48. Law no of 27 July 2010 concerning the modernisation of agriculture and fishing was intended to define and implement a public food policy and reinforce the competitive nature of French agriculture. This law incorporates new provisions into the Code of Commerce that are designed to protect farming. 30 Council Regulation no.1234/2007 of 22 October 2007, article 126 fourth part. 11

12 49. This law enabled it to become compulsory, through an extension to a trade association agreement or by default by a decree issued by the Council of State, for written contracts to exist between producers or producers organisations and their business customers (including retailers), when buying agricultural produce delivered within French territory. The signature of such a contract must be preceded by a draft contract from the purchaser that complies with the decree. 50. Discounts, rebates and reductions for the purchase of fresh fruits and vegetables imposed by a buyer, retailer or service provider are now prohibited. That is because the eminently perishable nature of fresh produce tends to create an imbalance in pricing negotiations between suppliers forced to sell their production within a very short space of time and purchasers who are tempted to take advantage of this situation. In the context of the draft consumption law currently being debated by parliament, this prohibition has been made more flexible. In fact, reductions are possible in certain specific cases, when there are problems of quality, for instance. 51. The circulation of fruits and vegetables destined for a buyer on national territory is henceforward conditional on the holding of a purchase order produced by the buyer or a contract entered into with a broker or agent. The law specifies that both documents must contain, in particular, the methods by which the price is reached. The possession of a purchase order is designed to govern the practice of delayed invoicing whereby the wholesaler does not pay the supplier of fruits and vegetables until it has resold the products supplied and on the basis of the resale price obtained. Similarly, the fact of having a contract makes it possible to clarify the practice of selling on commission whereby the supplier assigns its products to a broker or agent responsible for finding a buyer at the best price, in exchange for a fee that is usually proportional to the selling price. 52. The practice of advertising away from the place of sale is also now subject to regulation. A prior agreement by the supplier concerning the price at which the fruits and vegetables are to be sold must henceforward feature in the written contract between buyer and seller. Each of the parties must hold a copy of this contract before the stated price is circulated and be capable of showing it to inspectors. 53. Article L of the Code of Commerce makes it possible to restrict the due dates for payment to the producers of foodstuffs and thus preserve their cash flow. Failure to comply with this article is subject to a fine of 75,000 euros. The due date for payment by any producer, reseller or service-provider, may be no greater than: Thirty days from the end of the ten-day delivery period for perishable foodstuffs, chilled or frozen meat, frozen fish, cooked meals and preserves made from perishable foodstuffs, with the exception of the purchase of seasonable foods made through the so-called cultivation contracts covered under articles L to L of the Rural Code; Twenty days after delivery for purchases of livestock destined for consumption and fresh meat derived therefrom; Thirty days after the end of the month of delivery for the purchase of alcoholic drinks subject to excise duty provided for under article 403 of the General Code of Taxation. Exemptions to these provisions are possible in the wine and grape-growing sector, on condition that they are entered into in the form of agreements within professional associations. 54. The DGCCRF performs investigations, especially in the retail food and non-food sector, as part of its annual inspection plan of relationships between businesses or specific investigations of a sector. 12

13 55. Out of 211 indications of malfunction of competition established by the DGCCRF s investigation services in 2012 under its annual investigations concerning commercial relationships, 74 involved the food chain. 56. Where these investigations highlight breaches of the Code of Commerce, the Minister for the economy, via the DGCCRF s departments, has the right to take legal action against the perpetrator of such practices, and this could be in either the criminal or commercial courts, even without having acquired the consent of the victim of the practice who must, in certain cases, be informed of the action. 57. The Minister responsible for the economy may ask the commercial jurisdictions to declare the nullity of illegal clauses or contracts, the cessation of abusive practices, the recovery of overpayments made to the benefit of the suppliers damaged by the practice in question and finally a civil fine. 58. Since 2001, 142 cases have been brought before the commercial jurisdictions and have so far resulted in 68 orders to pay a civil fine and 28 orders to reimburse sums paid unlawfully. 59. Moreover, most of the cases (26 out of 38) currently pending before the courts in which the Minister is a party or has intervened voluntarily involve unfair practices implemented in the retail food sector (some cases involve several such practices): 12 concern the obtaining of an advantage without an equivalent consideration 10 concern a significant imbalance between the rights and obligations of the parties 5 deal with an abuse of purchasing power (this practice no longer exists in law, having been replaced by the concept of significant imbalance) 2 deal with acts of sudden cancellation 1 concerns the prior deduction of penalties 1 deals with overdue payments 60. The draft law concerning consumption, currently being debated in Parliament, will reinforce the DGCCRF s courses of action in order to improve protection of the economic public order. 61. The new article L of the Code of Commerce will make it possible to better take into account the volatility in the trading price of raw materials in contracts for the sale of foodstuffs. It is a matter here of requiring the parties to anticipate, as soon as they are in negotiation, the negative effect of the sometimes erratic fluctuations of these trading prices on the balance of contracts. The parties must therefore provide, in advance, for conditions under which, if faced with such fluctuations, they will renegotiate the price. 62. Furthermore the proposed law provides that the DGCCRF will be able to issue injunctions and administrative penalties. Administrative penalties will replace civil and criminal penalties with respect to overdue payments and contractual formalities. Action taken by the DGCCRF, especially in the foodstuffs and agricultural sector, will be immediate and more effective. 63. Soft law also has a significant place in the current arrangement: 13

14 The mediator in agricultural contracts has expertise in prior contracts and the special way the economy of the sector is organised. The development of the Observatory for the creation of prices and profits for foodstuffs is important to provide the sectors with the elements that will enable more objective dialogue between the various links in the chain. The Commission d examen des pratiques commerciales [Commission for examining commercial practices], created in 2011 by law no of 15 May 2001 with respect to the new economic regulations is a discussion forum between suppliers, distributors and the administration, which issues opinions and produces responses to complaints, whether from the courts or from those in the sector. The Code of Commerce regularly opens up the possibility of exemptions through interoccupational agreements (especially with respect to payment terms or sudden cancellation) in order to take account of the specifics of the various sectors. Good conduct commitments (or engagements ) are regularly made to the authorities by the economic stakeholders. 64. Finally, there are current considerations as to the most relevant form of action to be taken in order to preserve the balance and fairness of commercial relationships on a European level. 65. The European Commission launched a consultation about the opportunity to provide for a penalty for unfair commercial practices 31 on a community level. 66. More than 500 million Europeans daily consume, in complete safety, the various food and drink products offered to them by numerous operators (EU and non-eu) in the marketplace. This consumption represents an average of 15% of household consumption costs. As a vital engine of the economy, the European food chain sector consists of 17 million businesses in farming, food-processing and related services. 67. In order to combat unfair commercial practices in the food sector, a platform of experts on unfair inter-company commercial practices was set up in 2010 within a high-level Forum on the subject of improving the operation of the food supply chain. Contractual practices between companies, competition in the food chain sector and supervision of the price of foodstuffs were the three main areas of the overall approach adopted by this Forum. 68. In an extension of these works, on 31 January 2013, the Commission adopted a European plan of action for retail trade and launched a consultation concerning unfair commercial practices within the intercompany food and non-food supply chain. The green paper concerning unfair commercial practices within the food and non-food supply chain condemns the drawing up of ambiguous clauses, such as the absence of written contracts, retroactive changes to the contract, wrongful transfers of commercial risk and the wrongful cessation of a commercial relationship, for example. The results of the consultation are currently being analysed and the Commission will soon be announcing how it intends to follow them up. 31 Unfair commercial practices are those which are manifestly not good conduct and are contrary to the principles of good faith and fairness. UCPs are generally imposed when there is an imbalance between a strong party and weak party which can exist on either side of the inter-company relationship and at any stage of the supply chain. 14