[This article was published on visir.is on 18 February 2021]
Erna Bjarnadóttir, an economist at Mjólkursamsalan, directed a question to me in her article on Monday which I answered kindly the day before yesterday. Yesterday, Erna then published new article where she interprets and judges my answer, for the convenience of readers.
In this, her second article, the MS economist presents a viewpoint that business leaders are strongly putting forward to farmers these days, namely that the interests of farmers on the one hand and meat processing plants on the other are entirely aligned. She criticises the Competition Authority for suggesting the opposite. On this, Erna says:
„One of the CEO's arguments is that the Competition Authority monitors whether and to what extent meat processing plants are permitted to merge. Such an approach is, however, unacceptable. Why? It is sufficient to refer to the Competition Authority's own assessment." where the interests of farmers and the interests of processing plants are defined as opposing interests.“(Emphasis added)
It follows that an unconditional exemption of product processing plants from competition law is the most effective way.
There is cause for pause over this line of argument, as it crystallises the misunderstanding that characterises the debate on these matters.
Farmers' interests
The fact is that the interests of processing plants and farmers do not always align. The farmer wants to get the highest possible price for his produce. If he feels he is not getting a fair price, he will likely want the option to go elsewhere and thereby exert some pressure. He also wants to know what price he is being offered in good time. For example, it is not enough for him to be told the price in the middle of the slaughtering season, as was the case last autumn. The farmer also does not want to have to transport his livestock a long way for slaughter, if he can avoid it.
Farmers may also care how their produce is processed. They may see advantages in their produce that they wish to promote and sell at a higher price. In this way, they may have an opinion on who processes the produce; for example, sheep farmers may wish to take carcasses home at a fair price and manage the further processing and sale themselves. Perhaps they want to cultivate a direct relationship with consumers, e.g. through product traceability or home slaughter. And so on.
Interests of processing plants
Processing plants, on the other hand, are likely to emphasise other factors, such as mergers or collaborations for the sake of economies of scale, which in various cases can be important if well-managed and if competitive pressure is sufficient for farmers and consumers to also benefit from the optimisation. Similarly, companies naturally have an interest in protecting their business, tying farmers into contracts, reducing operational uncertainty and otherwise safeguarding their position. All of this can, if mismanaged, limit farmers' options and restrict their ability to improve their own operations or advance on the basis of innovation.
These differences in interests between farmers and processing plants are most apparent when the latter are owned by non-farmers or are minority-owned, but can also apply even when they are not. Surveys by the Competition Authority indicate that the overwhelming majority of farmers believe they have no, very little, or little bargaining power vis-à-vis meat processing plants. A majority of farmers who are members of a slaughterhouse also believe that they have very little or no influence on the decision-making of the respective processing plant.
It is important to bear in mind that, both at home and abroad, competition law is applied precisely to find a solution that enables companies to improve their operations without harming the interests of customers, including farmers in this case.
Competition rules protect the interests of both farmers and consumers in Norway and the EU.
The rules in Norway and the EU that the MS economist refers to in his article are precisely aimed at protecting these interests of farmers and strengthening their position vis-à-vis their counterparts, including produce processors. Although the regulatory frameworks of the respective countries permit specific cooperation between farmers and their enterprises, care is taken to ensure that agricultural activity nevertheless remains subject to competitive constraints. Therefore, specific limits are placed on the cooperation. This is well illustrated by the data referred to in our article, Erna, in particular in the reports she cites in her latest article.
The aforementioned interests of farmers in competition in the field of product processing are clearly evident in EU report on the application of competition rules in agriculture, from 2018. It states that regional competition authorities carried out 167 investigations into agricultural anti-competitive practices between 2012 and 2017. More than half of these cases concerned milk and meat. It is also stated that farmers are the largest group of complainants, having initiated around 23% complaints.
The report cites examples of cases where the wrongdoing of product processors was directed against farmers. It is reported that Spanish buyers of raw milk were fined for engaging in illegal collusion to suppress the price paid to farmers and for not competing for business with the said dairy farmers. It is also reported that France was fined for similar collusion by purchasers against pig farmers. Furthermore, in Sweden and France, measures have been taken to ensure that dominant farmer co-operatives cannot unduly restrict their members' ability to direct their business to competitors in order to obtain a higher price for their produce.
Significant obligations for Nortura and Tine
In support of its argument, the MS economist refers to the Norwegian meat processing company Nortura, which was created by the merger of Gilde and Prior in 2006. That merger was authorised by the Ministry of Competition, which at the time acted as an appeals authority. The decision was based on an assessment of the merger's competitive effects under Norwegian competition law.
However, Erna fails to mention in her article that strict government conditions are imposed on Nortura, intended to protect the interests of farmers and smaller competitors from effective competition. As such, Nortura has duties towards farmers and competitors that arise from the company's strong position. The company is obliged to purchase slaughtered animals at a similar price throughout the country. Furthermore, it must promote competition by selling meat to independent processors on competitive terms and otherwise conduct its business in a way that promotes competition.
Conditions also rest on Tine, which is a very powerful cooperative of Norwegian dairy farmers. The conditions placed on Nortura and Tine reflect the Norwegian government's assessment that it is necessary for competition to exist between agricultural processing companies. Otherwise, there is a risk of stagnation, poorer quality and service, and the interests of farmers and consumers being neglected. These principles also apply in Iceland.
Erna also claims that a merger analogous to the Norwegian merger would never be approved in Iceland „due to the narrow assessment by the Icelandic competition authority“. It is not clear what Erna bases this conclusion on. At the very least, the Competition Authority itself cannot draw the same conclusion without first giving it a try. The aforementioned conditions imposed on Nortura are precisely an example of the kind of conditions that can be considered in merger cases, both domestically and abroad, in circumstances such as these.
Let's learn from what has worked well.
The Competition Authority hopes that the government will take care to thoroughly examine foreign precedents and learn from what has proven successful. Such an analysis reveals that none of our neighbouring countries has considered it sensible to set aside competition rules in the way that the MS economist and others propose.
On the contrary, there is an emphasis everywhere on ensuring that agricultural businesses are subject to competitive constraints, whilst farmers and their associations are in some cases granted greater scope to strengthen their collective bargaining power.
Páll Gunnar Pálsson,
Director-General of the Competition Authority
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