Competition & sustainability: when restrictions on competition are accepted

Operators active in the food sector may be willing to discuss and co-operate in order to attain sustainability goals. In some instances, such discussions and co-operations are likely to raise competition law problems, like exchange of strategic information. In its “Farm to Fork” initiative of its Green Deal, the European Commission indicates that competition rules need to be clarified as regards sustainable actions taken in supply chains. EU measures should be adopted by the end of 2022. In the meantime, competition authorities are taken actions to enable competitors to reach sustainable co-operations.   

On 1st September 2020, the “Autoriteit Consument & Markt” (ACM), the Dutch competition authority, stated that Dutch companies were able to act independently from each other in order to offer more sustainable chicken to consumers, in line with its earlier prohibition of a draft horizontal co-operation agreement between producers and retailers about minimum requirements regarding the welfare of chicken. However, the ACM repeated that, in some instances, companies should be able to cooperate with each other in order to reach environmental and sustainable benefits. Therefore, the ACM launched a public consultation on draft Guidelines that specifically deal with sustainable agreements. At EU level, the European Commission is pushed to revise the EU regulatory framework on horizontal agreements to allow companies to reach environmental and sustainable agreements, in line with the goals pursued by the Green Deal.   

The Dutch Competition Authority’s stance regarding sustainable agreements

On 1st September 2020, the “Autoriteit Consument & Markt” (ACM), the Dutch competition authority, stated that Dutch companies were able to act independently from each other in order to offer more sustainable chicken to consumers.

In January 2015, the ACM already decided that a draft agreement between producers, traders and retailers about minimum requirements regarding the welfare of chicken, known as “the Chicken of Tomorrow”, felt within the prohibition of cartels (Section 6, paragraph 3 of the Dutch Competition Act). According to the ACM, the welfare benefits of the draft agreement were insufficient and did not offset the projected price increase. The draft agreement was thus prohibited.

In a study of 13 August 2020, the ACM noted that the supermarkets and companies have been able to independently switch to more animal-friendly alternatives chicken, in line with its prohibition of the 2015 draft agreement. The ACM observed that the fresh chicken products that are currently offered by the supermarkets meet or exceed the minimum requirements of the “Chicken of Tomorrow” draft agreement. In the ACM’s eyes, in this case, competition has thus driven companies to achieve an animal-welfare improvement while acting independently from each other. The study can be accessed here.

However, the ACM repeated that, in some instances, a restriction of competition may be necessary to achieve sustainable goals. In this respect, on 9 July 2020, the ACM launched a public consultation on revised draft Guidelines on Sustainability Agreements to clarify how competition law is applied to sustainable agreements concluded between competitors. So doing, the ACM sought to widen the possibilities for companies to enter into horizontal sustainable agreements:

  • The ACM notes that certain types of sustainable agreements do not contain restrictions of competition, and therefore are allowed, like codes of conduct promoting environmentally-conscious or climate-conscious practices.
     
  • Other sustainable agreements may fall within the scope of the cartel prohibition. For these agreements, the ACM specifies the conditions under which an agreement may nevertheless be authorised. One of these conditions is that the agreement should bring about benefits (like reduction of carbon emissions) for the society as a whole that offset the disadvantages arising from the agreement and contributes to the government’s objectives.
     
  • Finally, if sustainability agreements turn out to be incompatible although they have been discussed with the ACM and for which the ACM has not identified any major concerns or if companies acted in good faith, the companies will be required to amend their agreements as requested by ACM which will not impose any fines.

The draft Guidelines can be accessed here.

And at EU level?

At EU level, the current regulatory framework on horizontal agreements1 focuses on economic efficiencies only (as explained by the European Commission,2 the first question should be: what is the economic importance of such efficiencies?). Agreements concluded between competitors can be concluded if they generate economic efficiencies in line with Article 101(3) of the Treaty on the Functioning of the EU. Other types of efficiencies, like environmental protection, play a secondary role in the assessment.

However, the European Commission is currently reviewing the framework on horizontal agreements which are due to expire by the end of 2022. Following the public consultation, many respondents requested the European Commission to take into account sustainability and environmental benefits that could arise from horizontal agreements. It remains to be seen if and to what extent the European Commission will enable companies to cooperate in order to reach sustainable and environmental-friendly goals. In any event, the new regulatory framework should be consistent with the environmental ambitions and strategy defined in the EU’s Green Deal.

The European Commission would also be prepared to give informal guidance to companies on competition law compliance to encourage them to enter into sustainable agreements.

In the agricultural sector, under strict conditions, agreements concluded by producers organisations or interbranch organisations with a view of improving products can benefit from an exemption from the application of Article 101(1) TFEU in compliance with Regulation (EU) No 1308/2013 of the European Parliament and of the Council of 17 December 2013 establishing a common organisation of the markets in agricultural products3 as amended in 2017.

Practical implications

Currently, competitors should be particularly cautious when they contemplate to enter into agreements with the aim to reach sustainable and environmental goals. Their agreements should be carefully analysed in light of the applicable legal framework to determine whether they are compliant with competition law. Specifically, economic efficiencies to the benefit of consumers should be identified. Recent legislative initiatives show the regulators’ willingness to extent the scope of efficiencies to environmental sustainability that can be taken into account to assess whether agreements between competitors are compliant with competition law. But, in the meantime, even though the wide economic and legal context should always be taken into account, a cautious approach is still needed.

1 Commission Regulation (EU) No 1217/2010 of 14 December 2010 on the application of Article 101(3) of the Treaty on the functioning of the European Union to categories of research and development agreements (O.J. of 18 December 2010, L 335, p. 36); Commission Regulation (EU) No 1218/2010 of 14 December 2010 on the application of Article 101(3) of the Treaty to categories of specialisation agreements, O.J. of 18 December 2010, L 335, p. 43, and Commission from the Commission – Guidelines on the applicability of Article 101 of the Treaty in the Functioning of the European Union to horizontal co-operation agreements, O.J. of 14 January 2011, C 11, p.1.
2 See Communication of the Commission — Notice — Guidelines on the application of Article [101] (3) of the Treaty, O.J. of 27 April 2004, C 101, p. 97.

(O.J. of 20 December 2013, L 347, p. 671).

Questions?

To know more about the possible consequences for your business, please feel free to contact us:

Pierre GOFFINET                    
Partner - EU Regulatory & Competition Law
pgo@daldewolf.com

Aude MAHY
Partner - Commercial & Food Law
ama@daldewolf.com