Surcharges without improved sustainability in the milk sector: Bundeskartellamt points out limits of competition law

Representatives of German milk producers involved in the agricultural policy project "Agrardialog Milch" have approached the Bundeskartellamt and proposed an agreed financing concept in favour of the raw milk producers. In the milk producers’ view this is necessary because the raw milk prices are not sufficient to cover their costs. The Bundeskartellamt has now concluded its assessment of the concept under competition law.

Andreas Mundt, President of the Bundeskartellamt: “The financing model proposed by Agrardialog is not acceptable under competition law. Essentially it is about agreeing on surcharges which will be passed along the supply chain right down to the milk shelf. Public interest objectives such as sustainability are legitimate aims. But the economic interest in a higher level of income per se cannot justify the exemption of such an agreement from competition law rules. Sustainability does not play a role in the financing model. However, Agrardialog can at any time present us with a sustainability concept which is not based on a price agreement to the disadvantage of consumers.”

Agrardialog’s model proposes to retroactively stabilise the contractually agreed “raw milk price” paid out to the dairy farmers. To this effect the average milk production costs for agricultural businesses are to be determined throughout the agricultural sector which will then form the basis for standard surcharges on the base milk price. The surcharges would then be constantly adapted on the basis of a binding clause in contracts between producers, dairies and food retailers. Those subscribing to the model argued that this could be instrumental in financing the transformation of the domestic agricultural sector. However, the concept does not provide for specific criteria for the production of raw milk which would take account of sustainability aspects.

In view of the intended implementation of the project across the entire sector and the participants involved, the model presented by Agrardialog would have resulted in an industrywide increase in milk prices. As a consequence, consumers buying milk and dairy products in retail stores would in future not have the possibility to switch to other retailers offering cheaper products.

Cooperation is possible - illegal price-fixing agreements are not

Cooperations between agricultural producers and recently also along the entire value chain often enjoy the privilege of being exempted from competition law. The Bundeskartellamt offers guidance in these matters and provides advice on how to ensure that agreements conform with competition law. The authority recently concluded its examination of two other sector initiatives aimed at achieving sustainability. The Bundeskartellamt had no competition concerns about the initiative to introduce living wages in the banana sector and showed ways in which the animal welfare initiative “Initiative Tierwohl” could be further developed in line with competition law (see Press Release of 18 January 2022).

Andreas Mundt: “We generally encourage and support agricultural producers wishing to strengthen their position by means of cooperations or which pursue sustainability aims. German and European competition law rarely stand in the way of such cooperations. There are already extensive exemption rules, especially for the agricultural sector. Producers can bundle their offers, negotiate collectively and punch their weight. But if they agree on price components between them, this clearly exceeds the boundaries of competition law.”

Since 7 December 2021 the legal framework for assessing initiatives to implement sustainability standards in the agricultural sector has changed at European level (with the entry into force of Article 210a of the Regulation establishing a common organisation of the markets in agricultural products). Accordingly, under certain conditions it is still possible for sustainability initiatives to be exempted from competition law. However, price-fixing agreements which are not aimed at a higher sustainability standard than stipulated by European or national law cannot be exempted under the new provisio