The European Commission (EC) on May 4 announced the adoption of exceptional derogations from EU competition rules to allow certain types of cooperation in the following sectors: milk and milk products, potatoes, and live plants and flowers,[1] as part of a wider package to support the agri-food industry during the ongoing coronavirus (COVID-19) pandemic.
The adopted measures enable farmers, farmers’ associations, producer organizations, and other market participants to enter into agreements and make common decisions to cope with the severe drop in demand caused by COVID-19. More specifically, operators in the relevant sectors are allowed to take the following actions:
The derogations are applicable for six months, starting on May 5, 2020 for the potatoes, and live plants and flowers sectors, and are applied retroactively from April 1, 2020 for the dairy sector.
During this period, the EC and the national antitrust regulators of EU member states will closely monitor consumer price movements to ensure that the adopted measures are strictly aimed at stabilising the sectors and do not give rise to anticompetitive effects. To that end, information (including on the relevant operators’ market shares) must be provided to the competent authorities of the relevant member state/s, including the relevant antitrust authorities.
Article 101 of the Treaty on the Functioning of the European Union (TFEU), and the equivalent national provisions of the United Kingdom[2] and EU member states, prohibit arrangements between businesses that have as their object or effect the restriction, distortion, or prevention of competition between EU member states, unless they can be shown to give rise to benefits to consumers that outweigh any restrictions of competition. Such anticompetitive arrangements can arise directly or indirectly between competitors, and/or between companies at different levels of the supply chain, such as between a supplier and its customers. Companies found to have breached Article 101 of the TFEU are liable for fines of up to 10% of their worldwide group turnover.[3]
Under Article 222 of the Common Markets Organisation Regulation (CMO Regulation), the EC may adopt measures to temporarily limit the application of Article 101 of the TFEU for agreements and decisions of agricultural operators during periods of severe imbalance in the market, such that collective stabilizing measures may be adopted.
Measures to support agri-food sectors have also been adopted on a national level. On April 17, 2020, the UK government announced its intention to adopt measures to support the UK dairy industry during the COVID-19 outbreak. This allows the dairy industry operators to work together to adapt to changes in the supply chain, avoid waste, and ensure that future demand is met.
This follows the adoption of the Groceries Order, which temporarily relaxed the application of UK competition law to allow retailers to share data with each other on stock levels, cooperate to keep shops open, share distribution depots and delivery vans, and to pool staff with one another to help meet demand. However, the UK authority made it clear that it will not tolerate using the crisis as a “cover” for nonessential cooperation, including the exchange of commercially sensitive information on longer-term pricing or business strategies where this is not necessary to meet the needs of the current situation. For more information on these measures, see COVID-19: UK Temporarily Relaxes Antitrust Rules to Allow Supermarkets to Collaborate.
Even though the measures support the agro-food industry during the COVID-19 pandemic by temporarily suspending the application of competition law in the relevant sectors for certain types of collaboration, other types of collaboration continue to be prohibited, and the relevant sectors are not exempt from antitrust scrutiny. Both the EC and the national authorities have stressed that they will not tolerate breaches of competition law on the back of the crisis.
Accordingly, businesses are likely to have many questions as regards the types of collaboration that would be tolerated, the nature and extent of any cooperation they may engage in with one another, and how these should be documented, as well as on their own individual pricing policies. It is important that businesses ensure that their arrangements intended to address the COVID-19 situation are competition law compliant, and that they are appropriately documented such that they can be properly defended to the EC, national authorities, and/or in private litigation if necessary.
For our clients, we have formed a multidisciplinary Coronavirus COVID-19 Task Force to help guide you through the broad scope of legal issues brought on by this public health challenge. We also have launched a resource page to help keep you on top of developments as they unfold. If you would like to receive a daily digest of all new updates to the page, please subscribe now to receive our COVID-19 alerts.
If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:
London
Frances Murphy
Omar Shah
Joanna Christoforou
Brussels
Izzet Sinan
Christina Renner
Frankfurt
Michael Masling
[1] This includes operators in the live trees and other plants, bulbs, roots, cut flowers, and ornamental foliage sectors.
[2] Under the UK Withdrawal Agreement, EU laws continue to apply in the UK until the UK exits the EU on 31 December 2020 (unless extended).
[3] The equivalent national provisions may also have personal consequences for individuals. For example, in the UK, individuals may be disqualified from serving as a director for a period of up to 15 years, while the participation in a criminal cartel (namely, bid-rigging, price fixing, market or customer sharing, or limitation of output or supply) may also lead to the imposition of a five-year prison sentence, unlimited fines, or both for the individual.