Mitigating the effects of possible gas shortages – Bundeskartellamt allows one-time temporary cooperation project between sugar producers

The four companies Nordzucker, Südzucker, Pfeifer & Langen and Cosun Beet producing sugar in Germany are planning to work together in order to ensure the processing of sugar beets in the event of gas supply shortages. The agreement provides for the companies to make production capacities available to each other in the event of gas supply cut-offs and ensuing production stoppages at the factories affected. The German sugar industry association Verein der Zuckerindustrie (VdZ) is to be included in the cooperation.

Andreas Mundt, President of the Bundeskartellamt: “We support crisis management initiatives within the framework of competition law. In these difficult times, the cooperation between sugar producers is intended to mitigate the effects of possible gas shortages on production. A number of sugar factories are currently powered by natural gas. A lack of gas would lead to production stoppages with serious consequences as large parts of the beet harvest would then be likely to rot. This scenario must also be avoided in the interest of consumers since excessive peaks in prices for the base product sugar affect the entire value chain. The fact that this is a one-time temporary cooperation project to deal with possible gas supply shortages was central to our assessment under competition law. The flow of information between the companies will be limited to what is necessary by means of accompanying measures.”

Free production capacities are to be made available to each other within the framework of the cooperation only if energy management measures imposed by the government lead to a reduced or suspended gas supply and, as a result, to production stoppages at one of the factories. However, the companies must first use all free production capacities available to them at their own factories in Germany and Europe and try to process the sugar beets at one of their other factories not powered by gas, provided that this is economically feasible due to transport costs. As a preparatory and implementing measure, the VdZ is to obtain information from the sugar companies about the processing capacities available at the individual factories and introduce continuous capacity monitoring to determine which capacities can be made available on a voluntary basis.

The cooperation is temporary and limited to the upcoming sugar beet campaign and the subsequent settlement period until June 2023. The campaign for the processing of sugar beets is expected to last from the beginning of September 2022 until the first quarter of 2023.

In addition to the special objective of mitigating the effects of a unique and exceptional geopolitical situation and the fact that the cooperation is limited exclusively to the current sugar campaign, it is also an essential element of the planned cooperation that the flow of information between the companies is reduced to the absolute minimum necessary. The processing is to be billed on the basis of the production costs, which are obtained from the sugar companies bilaterally – and in confidence – by an independent economic consultant. At the end, the economic consultant communicates the processing costs to the company as a total amount. Neither the specific calculation method nor the data used are passed on to the sugar companies. Consequently, the Bundeskartellamt believes that due to the differences in procurement, the highly volatile fuel costs and the additional costs incurred due to the sugar factories’ longer running times, it is impossible to retrospectively determine the specific production costs. In addition, the processing of third-party beets and the proportionate provision of corresponding sugar quantities in the context of this cooperation will not lead to the disclosure of secret information on customer relations either. The company delivering the beets will collect its production share from the processor without delay at its own expense, without the processor gaining knowledge of the further use of the processed sugar and the subsequent supply streams.

In addition, the authority also took into account that due to the impending emergency situation in the supply of natural gas the companies have made considerable efforts to switch from natural gas to other fuels, such as heating oil and coal in particular, to power their sugar factories. For some factories, however, this was not possible in view of the short time remaining until the upcoming harvest, since for environmental reasons and due to government requirements they had previously switched completely from oil to gas, which could no longer be reversed. The 18 sugar factories of the four companies intending to work together in Germany are for the most part powered by natural gas.

In the overall assessment and in exercising its discretionary powers, the Bundeskartellamt decided not to initiate proceedings to review the planned capacity cooperation. With regard to cooperations intended to overcome special emergency situations relating to the war in Ukraine, please also refer to the joint statement of the European competition authorities (ECN) on the war in Ukraine.