This article was published as Article in Bændablaðið 16 May 2024.
Dear farmers,
Just before Easter, amendments to the Agricultural Produce Act were passed by the Althingi, allowing meat processing plants to engage in consultation that would be illegal in other industries. Furthermore, meat processing plants are now permitted to merge, without the restrictions and oversight provided for by competition law.
Among other things, these changes mean that meat processing plants are granted the right to set prices for produce from farmers. No provision is made for any other form of oversight to replace the regulatory framework that was removed.
In the media, those who advocate for these changes have put forward various claims that do not stand up to scrutiny. In the interest of an informed debate, I would like to provide you with information concerning farmers and outline the concerns the Competition Authority has about their position following the legislative changes.
Farmers' grip on produce processing strengthened
It has been claimed that the newly adopted exemptions are comparable to those known in Norway and within the European Union. This is not correct.
First, it should be noted that exemptions from the prohibition on collusion in neighbouring countries' competition laws are primarily intended to improve the position of farmers vis-à-vis their counterparts, including meat processors. Therefore, consultation exemptions in neighbouring countries cover farmers' enterprises.
The Minister of Food's original bill was based on this approach. The Competition Authority had expressed a positive stance on exemptions aimed at strengthening farmers' position in this regard. In its review of the original bill, the authority emphasised that farmers would clearly control the companies to which the exemptions applied. This would have created incentives to give farmers greater influence and power in existing meat processing plants.
However, the Parliamentary Industry Committee went in the complete opposite direction when it amended the bill. Instead of the exemptions strengthening the position of farmers in their dealings with their counterparts, they now strengthen the position of meat processing plants towards, among others, farmers, as the vast majority of processing plants are not majority-owned by farmers.
Monopoly authorised
The exemptions go further than those in neighbouring countries in that the supervision of mergers of meat processing plants has been abolished. This also opens the door to the establishment of an absolute monopoly in the market.
In Norway and within the EU, merger control is, on the other hand, applied, inter alia, to protect the position of farmers vis-à-vis meat processing plants. There, farmers' organisations have in various cases called on the competition authorities to restrict mergers of meat processing plants in order to safeguard the fundamental interests of farmers. This is discussed in more detail in appendix in the Competition Authority's review No. 20/2022 , which can be accessed on its website.
It can be asserted that no neighbouring country would enact legislation that would allow a monopoly in such an important market.
What is the purpose of merger control?
Merger control creates discipline. It requires companies planning a merger to notify the Competition Authority and provide information about the market and their plans.
The rules are, among other things, intended to prevent the creation or strengthening of a dominant market position. However, competition authorities may authorise the merger of companies with a very high market share if the companies can demonstrate that it entails efficiencies which will be passed on to customers. The competition authorities can also approve such a merger with conditions that ensure customers benefit from it.
This was precisely the subject of the Competition Authority's investigation when Norðlenska, Kjarnafæði and SAH-afurðir merged. In its investigation of the merger, the authority requested information, among other things, on the intended efficiencies and how these would benefit farmers and consumers.
During the investigation, the supervisory authority twice conducted a survey of farmers' attitudes, see report. No. 4/2022. Upon further review, the regulator considered that the merger could lead to harm for, among others, farmers. The merging parties then requested conciliation and undertook conditions, including to strengthen the bargaining position of farmers and ensure their share of the intended efficiencies.
This is discussed in detail in the decision. No. 12/2021. On behalf of Norðlenska Kjarnafæði, it has been publicly stated that, due to the merger and rationalisation measures, the group's operational viability has been secured for the foreseeable future. Furthermore, prices for farmers have increased significantly.
With a newly approved exemption to the Agricultural Produce Act, meat processing plants are free to pursue further mergers and, where applicable, establish a monopoly, without having to demonstrate or ensure that the actions will deliver benefits for farmers. Furthermore, there is uncertainty regarding the continued validity of the conditions set for the merger of Norðlenska, Kjarnafæða and SAH.
The need was not demonstrated.
Similarly, Article 15 of the Competition Act permits cooperation between competitors if it is demonstrated that the cooperation leads to improved production or distribution of a product or service and provides customers, in this case farmers, with a fair share of the benefits. Interestingly, operating meat processing plants have never tested these provisions of the Competition Act. In one instance, the Lamb Meat Marketing Board submitted an exemption request to the regulator, but the request was not finally resolved as the board did not take the opportunity to provide information and evidence.
Therefore, there is no need for the newly introduced exemptions to the Agricultural Produce Act in this respect.
It is also noteworthy that the exemptions go further than the recommendations of the so-called sprint team from 2022 and the recommendations of working groups and experts within the Cabinet Office, who have in recent years researched the need for exemptions. The exemptions are therefore not based on the analyses that had, however, been carried out.
Analyses on the need for rationalisation have primarily focused on the slaughter of sheep and, to a lesser extent, cattle and horses. However, the exemptions are not limited to this, but permit cooperation and mergers of meat processing establishments in all areas, regardless of the position of the companies in the relevant sector or the need for rationalisation.
Exempting certain companies from important fundamental rules of business would, in most countries, call for thorough analysis and careful preparation. This was not the case here.
What are the processing plants allowed to do?
Operating processing plants have welcomed the newly acquired exemptions and asserted that they will be used for the benefit of farmers. Without intending any ill towards their management, it is important to shed light on how the exemptions could be utilised. This is important because management comes and goes, and there is little oversight from the farmers due to their weak position in most of the processing plants.
Operating processing plants are permitted to establish a monopoly, as previously stated. This means that farmers will have no choice as to where their animals are slaughtered or on what terms.
In addition to mergers, the companies can have extensive consultation. However, the legal amendments are contradictory and unclear in this respect, and therefore there is uncertainty as to how extensive they are. The final interpretation will be determined by the courts.
At this stage, however, it is clear that the exemptions give meat processing plants ample scope to close abattoirs and thus destroy competition. The incentive for individual abattoirs to pass on price increases to farmers will therefore weaken or disappear.
The processing plants are also permitted to specialise and enter into agreements to exchange profits from their operations.
In practice, these provisions effectively grant them the sole authority to jointly determine the price of meat from farmers, as they can arrange matters in such a way that farmers have no choice. This applies to various aspects of pricing, including take-away prices.
It should be borne in mind that the exemption provisions apply to all meat products. Thus, for example, it could be the case that processing plants might consult to manage pricing across different types of meat, but compensate individual plants for any loss this causes through agreements on profit sharing.
Two of the companies involved, or companies within the same group, also supply farmers with various inputs, including fertiliser. It may be a question whether the exemptions weaken the prohibition on collusion concerning such inputs for farmers to their detriment.
Similarly, it may be tested whether the exemptions cover consultation on tenders for tariff quotas, as the meat processing plants are among the largest importers of meat and, in that sense, compete directly with domestic farmers' production.
The exemptions do not cover the prohibition on the abuse of a dominant market position. The Competition Authority is therefore still tasked with ensuring that meat processing plants do not abuse their dominant market position. However, should such cases come under investigation, it can be expected that the company in question will argue that the exemptions in the agricultural produce legislation narrow the prohibition on the abuse of a dominant position. This was tested, for example, when the Competition Authority fined Mjólkursamsalan for driving Mjólku out of business.
The exemptions inevitably mean that meat processing plants are entrusted with great power to direct the development of farming in Iceland, i.e. where farming will thrive and where it will not. The exemptions can therefore undoubtedly affect the development of rural settlements.
Here are just a few examples of the possible effects of the legislative changes.
Legislative irony – little protection
The irony of the legislation is that at the same time as the meat processing plants are granted the aforementioned exemptions, the Agricultural Produce Act does not provide for any exemptions for the farmers themselves. For example, if farmers consult with each other to exert pressure on meat processing plants, the legislature provides that the provisions of competition law will apply in full to such consultation. Thus, the exemptions enjoyed by farmers in Europe have been thoroughly turned on their head by the new legal amendments.
Furthermore, farmers have little recourse against these exemptions. Firstly, the processing plants involved are not majority-owned by farmers, with the exception of those in the pork and poultry sectors. Farmers are therefore unable to exert full ownership oversight over the companies.
Secondly, the legislature does not provide for other forms of regulation in place of the provisions of competition law, such as public pricing of produce from farmers, in a comparable manner to what the legislature considered necessary for the pricing of milk from farmers.
Thirdly, farmers here have been made to find it difficult to manage their own produce, for example, through home slaughter or the operation of mobile abattoirs, as is common in neighbouring countries. There is much to suggest that stricter requirements are imposed on farmers here than are necessary under European legislation. The interests of existing meat processing plants are to narrow such a margin for farmers, rather than expand it, for example by raising the price for off-take and tightening health requirements.
The only protection the new legislation provides for farmers is that processing plants which make use of the exemptions are not permitted to refuse to accept animals for slaughter.
What is the will of the farmers?
Undoubtedly, there are differing opinions among farmers regarding the aforementioned exemptions. In an interview with Heimildin on 20 April, the following was quoted from the newly-elected chairman of the Farmers' Association on this matter: „I just have an enormous amount of faith that this will be handled well for our benefit. […] Yes, it's a great deal of trust we're placing in these companies.“
On the other hand, the outgoing management of the Farmers' Association stressed in a review of the original bill that exemptions from competition law needed to strengthen the position of farmers, including vis-à-vis processing plants, but not the other way around, as was the case.
A similar attitude was also revealed in the surveys conducted by the Competition Authority during its investigation into the merger of Norðlenska, Kjarnafæða and SAH-afurða. Over 90% of sheep and horse farmers and 75% of cattle farmers considered their bargaining position vis-à-vis the processing plants to be nonexistent or weak. Of the 75% of those respondents who owned a share or were members of a processing plant, they believed they had little influence on its policies. Only 8% of them believed their influence was significant.
Nearly half of the farmers had experienced problems due to a lack of competition between processing plants, which manifested as collusion, duopoly, and prices that were too low for the farmers. Around 70% of farmers considered it important that it should be made easier for farmers to approach more than one meat processing plant in order to seek better prices and services. There was strong support for the Competition Authority to impose conditions on the merger to protect the position of farmers.
The newly introduced exemptions are not consistent with the position of farmers according to the aforementioned surveys. They are also in contradiction with the experience of almost all countries in the world, which is that it is not advisable to rely solely on the goodwill of companies. Therefore, states have enacted competition laws and enforce them.
On the starting line?
Modern competition law has its roots, not least, in the struggle for rights by farmers in the United States of America in the latter half of the 19th century. At that time, farmers in the country lived in difficult circumstances, partly because their most important trading partners, particularly meat-packing plants and transport companies, colluded, leaving farmers to accept the harsh terms of their more powerful counterparts.
Under these circumstances, farmers formed organisations that pressured politicians to pass laws regulating the companies. This struggle for farmers' rights eventually led to the first modern competition law being enacted in 1890, named after the Senator John Sherman.
Around the same time, Icelanders were gaining full freedom of trade, and Icelandic farmers were keen to sell their produce and secure favourable prices for supplies, for instance by establishing trading and purchasing associations. Thus, the farmers succeeded in securing control over their production, partly by utilising the incentives of competition and creating a check on their counterparts.
Unfortunately, there is much to suggest that Icelandic farmers are now back at square one in this regard.
Final words
Although farmers now enjoy limited protection under the provisions of competition law, the Competition Directorate continues to have the task of enforcing the prohibition on the abuse of a dominant position, pursuant to Article 11 of the Competition Act, and to „to ensure that the actions of public authorities do not restrict competition and to suggest ways for the government to make competition more effective“, pursuant to Article 8 of the same Act.
You are therefore invited to submit your views and suggestions to the Competition Authority, including if you encounter any barriers to competition. For example, this can be done anonymously, via The Competition Authority's homepage.
On the homepage, you can also access the Competition Authority's more detailed coverage of these matters, such as opinions no. 3/2024, 2/2024 and 20/2022, decision No. 12/2021 and a report No. 4/2022.
I wish you all the very best.,
Páll Gunnar Pálsson,
Director-General of the Competition Authority
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