Taking farmers to market

Farming producer organisations have an important opportunity to influence European Commission thinking on exemptions from competition law in the beef/veal and arable sectors

16th February 2015 | Siobhan Kahmann, Georgina Eclair-Heath

The European Commission has launched a public consultation on proposed guidelines on joint selling in the beef and veal livestock, and arable sectors. (While the guidelines also cover the olive oil sector, this article only considers the rules applicable to those sectors most relevant to the Scottish agricultural industry.)

The 2013 Common Agricultural Policy ("CAP") reform introduced a limited exemption from competition law for producer organisations ("POs") that negotiate joint supply contracts on behalf of their members. The guidelines are intended to help producers, competition authorities and courts to understand how this exemption should be applied in practice.

Launched on 15 January 2015, the public consultation gives stakeholders the chance to comment on the draft. In particular, the Commission is seeking producers' views as to how joint selling (including joint distribution, joint promotion, joint use of equipment or facilities, or joint procurement of inputs) can reduce producers' costs and create significant efficiencies. Producers thus have a unique opportunity to influence the Commission's understanding of their industries before it publishes the final guidelines at the end of the year.

Background to the exemption

In 2011, the Commission's CAP impact assessment identified a number of changes required to improve the functioning of the EU food supply chain and to create the right conditions for the EU agricultural sector to become more competitive and innovative. Among these were measures intended to encourage co-operation between (particularly small) farmers/producers and thus improve their bargaining power in dealings with their (generally larger) customers.

One such measure introduced by the Common Market Organisation Regulation ("CMO") – one of the four basic EU regulations of the new CAP – was a limited exemption from competition law for government-registered POs that negotiate joint supply contracts on behalf of their members.

An exemption from what?

Article 101(1) of the Treaty on the Functioning of the European Union ("TFEU") prohibits agreements between two or more independent undertakings that are liable to restrict competition. In principle, joint selling agreements between two or more producers (including the activities of POs) fall within this provision, since they are liable to influence the trading conduct of producers in a way that may restrict or distort competition in the markets in which those producers operate.

The exemption provides a derogation from article 101(1) TFEU for joint selling agreements and the activities of POs that meet certain criteria. (POs that do not qualify for the CMO exemption may still benefit from an individual exemption under the general CMO derogation, or the usual competition law rules.)

When does it apply?

In order to qualify for the exemption, POs must meet two principal conditions:

first, POs must make farmers/producers significantly more efficient by providing (in addition to joint commercialisation) ancillary services such as storage, distribution or transport; and
secondly, the volume of the product jointly commercialised by a single PO must not exceed 15% of total national production.

What products are covered?

The exemption applies to POs involved in the supply of:

certain types of beef and veal livestock for slaughter; and
the following arable crops – wheat, barley, maize, rye, durum, oats, triticale, rapeseed, sunflower seed, soya beans, field beans, and field peas.

The guidelines

While the CMO sets out the criteria for the exemption, it offers no guidance as to how these should be applied in practice. Which is where the guidelines come in…

The guidelines are intended to provide detailed guidance to enable producers and POs to self-assess whether they meet the criteria for the exemption. In particular, they explain:

how producers (or non-producers) can create eligible POs (e.g. by obtaining formal recognition, ensuring democratic control, and defining appropriate objectives);
the types of services that the Commission recognises can generate significant efficiencies for farmers/producers (e.g. joint processing, joint promotion, joint distribution, etc);
how to ensure that the volumes traded by a PO do not exceed the 15% volume threshold, and the duty to notify the competent authority of the volume covered; and
the situations in which competition authorities may intervene in joint negotiations (i.e. where the 15% threshold is exceeded, or where there is a risk either that competition is being excluded or the CAP objectives are jeopardised).

Key consultation questions

Stakeholders are invited to provide general comments on all aspects of the proposed guidelines. In addition, the Commission is seeking producers’ views as to how joint selling – including joint distribution, joint promotion, joint use of equipment or facilities, or joint procurement of inputs – can reduce costs and create significant efficiencies.

Examples received from producers will be used to supplement the Commission's existing list of activities that it believes will meet the "significant efficiency" test in each of the relevant sectors.

For example, the guidelines explain how joint procurement of inputs in the beef and veal livestock industry is "likely to generate significant efficiencies" where the purchase of significant volumes enables the PO to "obtain significant discounts, better delivery terms, and/or credit terms" compared to those an individual producer would obtain.

The Commission is particularly interested in the efficiencies generated by the following activities in the beef and veal livestock and arable crop sectors (although stakeholders are able to comment on all of the examples included):

Joint distribution	Are there situations in which setting up a distribution centre or a selling infrastructure, and/or organising a selling platform (including online), is likely to generate significant efficiencies?
Joint promotion	Are there situations in which joint promotion, for instance the promotion of generic products without further integrated activities, is likely to generate significant efficiencies?
Joint use of equipment or storage facilities (not applicable to arable)	(a) Is there costly equipment requiring significant volumes that could be acquired by a PO for joint use by its members in order to generate significant efficiencies? (b) Are there storage facilities (besides for feed) entailing significant costs and requiring substantial volumes that, if set up by a PO for joint use by its members, are likely to generate significant efficiencies?
Joint procurement of inputs	Are there other significant inputs (including services) that entail significant costs and require substantial volumes, of which the joint procurement by a PO for its members is likely to generate significant efficiencies?

The more examples included in the final guidelines, the easier it will be for farmers/producers to assess with certainty whether their activities qualify for the exemption.

Why get involved?

With the CMO Regulation now in force, the guidelines are set to become essential reading for Scottish farmers looking to increase their bargaining power through joint selling arrangements. With this in mind, the consultation provides an invaluable opportunity for Scottish producers.

First, the specific questions posed by the Commission on "significant efficiencies" give Scottish stakeholders the chance to contribute directly to the Commission's understanding of important sectors of Scottish agriculture. It is also an opportunity to ensure that adequate consideration is given to any uniquely Scottish concerns.

Secondly, the better the guidelines, the less farmers/producers will need to seek expensive legal advice to interpret the rules, the fewer resources they will need to devote to unnecessary investigations by competition authorities, and the greater the legal certainty for all operators in applying the unprecedented exemption.

The Commission will present the proposed guidelines to stakeholders, national competition authorities, and ministries of agriculture at a conference on 4 March 2015 (registration is open until 20 February).

Responses to the public consultation can be submitted until 5 May 2015. The final guidelines are expected to be adopted by the end of 2015.

The proposed guidelines, press releases, and the invitation to the public conference are available via this link.