EU Relaxes Antitrust Restrictions in the Food and Agriculture Sectors

On May 4, 2020, the European Union (EU) announced a package of measures to support the food and agriculture sector and mitigate the effects of the COVID-19 outbreak, including relaxing some antitrust rules on cooperation.  The European Commission (EC) had previously announced measures to support the food and agricultural sector through the so-called Coronavirus response investment initiative plus (CRII+) to introduce more flexibility and simplify the use of the European structural investment funds (ESIF), including the European agricultural fund for rural development (EAFRD), as well as making other changes to simplify common agricultural policy (CAP) instruments.

The newly approved measures to stabilize markets include support for private storage in the dairy and meat sectors and authorization of self-organization measures inthe milk, flowers and potatoes sectors, as well as greater flexibility in the implementation of market support programs. The EC has also proposed allowing Member States to use rural development funds to compensate farmers and small agri-food businesses.

Antitrust authorities around the world have taken steps to relax antitrust limitations on cooperation among competitors, while warning against so-called “crisis cartels” or abuses of dominant positions. Previously, except in relation to State aid, the EC response has mainly focused on cooperation in the healthcare sector. EU antitrust rules in the food and agriculture sector are unique, and it is unclear to what extent the new measures may presage EU antitrust relief for other sectors. On the other hand, the newly adopted measures may well be used as a template for additional measures in the food and agricultural sector to stabilize markets and help farmers producing products not covered by this initial package.

Background

EU competition law in the agricultural sector. The food and agriculture sector is subject to another EU policy framework that takes precedence over competition policy: the CAP. Article 42 of the Treaty on the Functioning of the European Union (TFEU) provides that EU competition rules apply to the production of and trade in agricultural products listed in Annex I TFEU only to the extent determined by EU regulations adopted under the CAP. Although Annex I TFEU covers a broad range of agricultural products, it is not exhaustive; for example, it does not cover products derived from the processing of agricultural products.

EU regulations do in fact extend EU competition rules to the agriculture sector as defined in Annex I TFEU. The current legal framework is set out in Regulation 1308/2013, as amended (the CMO Regulation). Article 206 CMO Regulation provides that EU competition rules apply to all agreements, decisions and practices relating to the production of, or trade in, agricultural products, but subject to certain derogations. These derogations include general derogations and a number of sector-specific derogations designed to enhance farmers’ bargaining power.

The general derogations are set out in Articles 209 and 210 CMO Regulation. Article 209(1) exempts (i) agreements, decisions and practices “necessary for the attainment of the objectives” of the CAP and (ii) agreements, decisions and practices of farmers, farmers’ associations, or associations of such associations, or recognized producer organizations or associations of producer organizations, unless the agreement, decision or practice entails an obligation to charge an “identical price” or “excludes competition.”   Article 210(1) CMO Regulation provides that Article 101(1) TFEU shall not apply to agreements, decisions and concerted practices of recognized “interbranch organizations” with the object of carrying out permitted activities. The CMO Regulation also contains special rules for the olive oil, beef and veal products, certain arable crops, dairy, ham, sugar, fruit and vegetables and wine sectors.

Article 222 CMO Regulation allows the EC to adopt temporary derogations from certain EU competition rules in situations of severe market imbalances. This article is the basis for the temporary relaxation of rules on self-organizing described below.

EU competition law and the EC’s response to the COVID-19 outbreak. Agricultural products not listed in Annex I TFEU are subject to the general EU competition law rules. Many global antitrust authorities, including members of the International Competition Network, or ICN, and the European Competiiton Network, or ECN, have recognized that the COVID-19 outbreak may necessitate new and more extensive cooperative arrangements among competitors than would otherwise be allowed.

On April 8, the EC published a Communication on a temporary framework for assessing antitrust issues related to business cooperation stemming from the COVID-19 crisis (the Cooperation Framework) and created a dedicated COVID-19 webpage discussing the application of EU antitrust rules in the crisis and mailbox, COMP-COVID-ANTITRUST@ec.europa.eu, for companies seeking informal guidance on specific initiatives to respond to the crisis. However, the EC’s communication focuses on the healthcare sector and does not mention other sectors, such as the food and agriculture sector.

The Cooperation Framework acknowledged the potential need for companies to cooperate to overcome or mitigate the effects of the crisis, especially with respect to medicines and medical equipment used to test and treat COVID-19 patients or to mitigate and possibly overcome the outbreak. The Cooperation Framework recognized that companies might need to rapidly increase production for some products, while reducing production of others, and to reallocate stocks. These steps could require companies to share information on sales and stocks and to coordinate the use of production lines. For example, output could be increased more efficiently if only one medicine was produced at a particular site (as opposed to switching production between different products, which requires time-consuming cleaning of machinery, etc.), balancing economies of scale with the need to avoid excessive reliance on any particular production site.

On the other hand, the Cooperation Framework underlines that it is more important than ever in the current crisis that competition law protect companies and consumers and warns particularly against companies engaging in anti-competitive agreements or abusing their dominant positions (including dominant positions resulting from the crisis) by exploiting customers and consumers (e.g., by charging prices above normal competitive levels) or limiting production to the ultimate prejudice of consumers (e.g., by obstructing attempts to scale up production to face shortages of supply).

Separate from the EU rules on cooperative arrangements and abuses of dominant positions, which are governed by Articles 101 and 102 TFEU, financial assistance granted by EU Member States is subject to the EU State aid rules under Article 107 TFEU. Article 107 TFEU generally prohibits “State aid,” which is interpreted broadly to include many types of financial assistance, unless the aid is covered by a general approval under EU rules or specifically approved by the EC.   On March 19, 2020, the EC adopted a temporary framework (the State Aid Framework) for the assessment of State aid based on Article 107(3)(b) TFEU, which covers aid measures adopted to address “serious disturbances” in Member State economies. The State Aid Framework applies to aid granted to remedy liquidity shortages and to ensure that the disruptions caused by the COVID-19 outbreak do not undermine the viability of companies, especially small and medium-sized enterprises (SMEs). The State Aid Framework was amended for the first time on April 3, 2020 notably to enable Member States to accelerate the research, testing and production of coronavirus relevant products, and will likely soon be amended further to cover Member State participation in recapitalizations.

Member States must still notify their proposed aid measures to the EC and show that they are necessary, appropriate and proportionate and that all the conditions of the State Aid Framework are respected. Nonetheless, the State Aid Framework allows the EC to approve State aid notifications very quickly.

Exceptional Measures in the Food and Agricultural Sector

The exceptional measures approved on April 30 include private storage aid for the dairy and meat sectors, the temporary authorization to self-organize market measures by operators in hard-hit sectors, and flexibility in the implementation of market support programs. On top of these market measures, the EC has proposed to allow Member States to use rural development funds to compensate farmers and small agri-food businesses with amounts of up to €5,000 and €50,000, respectively.

More specifically, these measures include:

• Private storage aid: the EC will support private storage aid for dairy (skimmed milk powder, butter, cheese) and meat (beef, sheep and goat meat) products. This measure allows the temporary withdrawal of products from the market for two to six months to stabilize markets by temporarily reducing available supply.

• Flexibility for market support programs:  the EC will allow flexibility in the implementation of market support programs for wine, fruits and vegetables, table olives and olive oil, apiculture and the EU's school scheme (covering milk, fruit and vegetables) to limit supply and rebalance markets while allowing the reorientation of funding priorities towards crisis management measures.

• Temporary derogation from EU competition rules: The EC adopted derogations under Article 222 CMO Regulation for the milk, flowers and potatoes sectors. These derogations allow operators to self-organize and implement market measures to stabilize their sectors for up to six months. For example, the milk sector will be allowed to collectively plan milk production, and the flower and potatoes sector will be allowed to withdraw products from the market. Storage by private operators will also be allowed. Consumer price movements and any possible partitioning of the internal market will be monitored closely to avoid adverse effects.

In addition, the EC proposes – subject to approval by the European Council and Parliament -- that Member States with remaining rural development funds can use this money to provide support to farmers and small agri-food businesses in 2020. Member States can offer support of up to €5,000 per farmer and €50,000 per small business. This comes on top of the de-minimis aid for the agricultural sector and the increased State aid ceiling previously adopted.

Conclusion

EU competition law in the agricultural sector is a complex patchwork of general EU competition rules and highly technical sector-specific rules. The EU’s agricultural and competition policies sometimes conflict, as the EU’s competition policies strictly limit cooperation among competitors to ensure low prices for consumers, while the EU’s CAP allows for a greater degree of cooperation to enhance farmers’ bargaining power, even at the risk of higher prices for consumers.

In response to the COVID-19 outbreak, the EC has dramatically accelerated the approval of State aid and has recognized that the crisis may necessitate a higher level of cooperation among competitors than would otherwise be allowed. Until the adoption of the new measures in the food and agriculture sector, however, the EC has focused on the need for cooperation in the healthcare sector to ensure continuity of supply. The EC has so far not followed the lead of other authorities granting antitrust relief to other sectors, such as supermarkets and transport.

The new food and agriculture measures were adopted under CAP legislation, not under the traditional EU competition law framework. As such, they focus on stabilizing markets and supporting farmers rather than ensuring the supply of scarce commodities for consumers. It is unclear whether these measures will serve as precedents for EC antitrust relief in other sectors. On the other hand, it seems likely that these measures will serve as a template for measures to support farmers in other sectors as the current crisis evolves.

Jay Modrall, Partner, Norton Rose Fulbright LLP

James R. Modrall is an antitrust and competition lawyer based in Brussels. He joined Norton Rose Fulbright LLP in September 2013 as partner, having been a resident partner in a major US law firm since 1986. A US-qualified lawyer by background, he is a member of the bar in New York, Washington, D.C., and Belgium. With 27 years of experience, he is a leading advisor for EU and international competition work, in particular the review and clearance of international mergers and acquisitions. Mr Modrall also has extensive experience with EU financial regulatory reform, advising the world’s leading private equity groups in connection with the new EU directive on alternative investment fund managers and leading banks and investment firms on EU initiatives including EU regulation of derivatives, EU reforms in financial market regulation and the creation of a new EU framework for crisis management, among others.Mr. Modrall’s native language is English, and he is fluent in Italian and proficient in Dutch and French.