Interim report on conditions for the supply of raw milk

The Bundeskartellamt has today published an interim report on its administrative proceeding concerning conditions of supply for raw milk. In the report the authority presents key results of its investigations so far and offers initial proposals for alternative and more pro-competitive means of structuring supply relations between milk producers and dairies. Interested stakeholders in the sector now have the opportunity to offer their comments.

Andreas Mundt, President of the Bundeskartellamt: "Our investigations have shown that the contracts between milk producers and dairies in Germany have long periods of notice and duration. In addition, farmers in Germany are generally obliged to supply the milk they produce exclusively to their respective dairy. There is virtually no possibility for them to switch to another dairy. This is a problem for farmers and hinders possible newcomers on the dairy side or dairies wishing to extend their activities. Another widespread practice is that the price of raw milk is set only after delivery and is based on reference prices and market information systems.  We now want to intensify discussions with the sector about possible pro-competitive alternatives."   

Since April 2016 the Bundeskartellamt has conducted a proceeding on conditions for the supply of conventionally produced raw milk (see press release of 21 April 2016). The background to the proceeding are the long periods of notice for the milk producers, which, together with special market conditions for the procurement of raw milk, could foreclose the market to the detriment of the producers. In particular, the combination of contract duration and exclusive supply obligation, ex-post pricing and certain market information systems are considered problematic.

The Bundeskartellamt questioned 89 private and co-operative dairies, which in 2015 procured approx. 30.9 million tonnes of raw milk. This is equivalent to around 98 % of the total milk supply volume. The authority's investigations have shown that in 2015 97.8% of the volume of raw milk covered by the investigations was sold subject to exclusive supply obligations. In addition, contracts for more than half of the raw milk supply volume can only be terminated with at least two years' notice.  The actual period of notice can be considerably longer because contracts for 87.5% of the total milk supply volume can only be terminated once a year. All these factors cause a stagnation in market activity, as expressed by a low switching rate. For example, the switching rate in 2015 only accounted for 1.0% of the total raw milk volume.

In the report the Bundeskartellamt offers proposals for alternative ways to structure supply relationships, e.g. short periods of notice, loosening the link between supply relationship and cooperative membership, setting prices before delivery and agreeing set supply volumes.

The Bundeskartellamt's proceeding is currently being conducted as a test case against Germany's largest dairy, Deutsches Milchkontor eG. However, it can be extended to cover other dairies as well should allegations against them be confirmed.

The interim report (in German) is available for download on our website.