In the Morgunblaðið on Saturday, 28th January, an article was published under the headline, „Icelandic competition legislation stricter than is common abroad, by Sigurjón Rafnsson, assistant manager of Kaupfélag Skagfirðinga and chairman of the Association of Agricultural Enterprises. The same issue contains an interview with Sigurjón on the same subject.
The article and interview respond to the decision of the Minister of Food, who published on 25 January...to withdraw the draft bill on exemptions from competition law for meat processing plants. The draft of this bill was presented for consultation on the Government's Consultation Portal last November.
For this reason, it is appropriate to draw attention to the following, in the interest of an informed discussion:
In Norway and within the EU, exemptions from the general competition rules apply to farmers and farmer-owned processing plants. The main objective is thus to improve the bargaining position of the farmers themselves and enable them to manage their own interests.
However, the current exemptions in Icelandic law for dairy processing plants, and the proposals in the draft bill for an exemption for meat processing plants, make no distinction as to whether they are owned by farmers or not. As is set out in detail in Opinion of the Competition Authority Under the draft bill from the Minister of Food, meat processing plants are not owned by farmers except in part. Exemptions in Norway and the EU would therefore be of little use to Icelandic meat processing plants.
In Norway and within the EU, competition law merger rules apply to agricultural processing plants, and there are numerous examples of them being used to protect the interests of farmers and consumers. Examples of this are cited in the annex to the watchdog's review of the draft bill.
The current exemptions in Icelandic law for dairy processing plants, however, override the merger rules of competition law. The draft bill concerning meat processing plants could also be interpreted as meaning that by authorising the establishment of a joint product company by competitors, the Competition Authority's powers to investigate the company's establishment under the merger provisions of the Competition Act would be set aside.
The exemption provisions for Icelandic dairy products and the draft bill therefore go much further than in Norway and within the EU.
Competition law in this country permits companies to work together, inter alia to achieve economies of scale and reduce operating costs, provided that certain conditions are met. These conditions are primarily concerned with ensuring that the benefits arising from the collaboration do not accrue exclusively to the collaborating companies and their owners, but that customers also receive a fair share of the benefits.
The current legislation therefore permits cooperation between produce processing companies, whilst ensuring that farmers and consumers enjoy the resulting benefits. However, agricultural produce processing companies have not yet tested the provisions of the current legislation in this regard.
Merger rules also provide for comparable considerations to be taken into account. The Competition Authority recently approved the merger of Norðlenska, Kjarnafæði and SAH Afurða with conditions which, among other things, were aimed at protecting the interests of farmers.
Claims that the enforcement of Icelandic competition law prevents optimisation among meat processing plants are therefore incorrect.
The interests and priorities of farmers and meat processing plants can often align. However, if ownership or competitive oversight is lacking, a rift can develop between them. A dominant processor, for example, has less incentive to treat its customers well, ensure effective cost discipline in its operations, and pursue innovation, compared to a company operating in a genuinely competitive environment and subject to ownership discipline.
The views of the farmers themselves make this quite clear. In an investigation into the merger of Norðlenska, Kjarnafæða and SAH afurða, the Competition Authority had a survey conducted. Attitude surveys among farmers to better highlight their point of view. For example, farmers were asked how strong or weak their negotiating position was vis-à-vis processing plants. Responses were received from nearly 900 farmers, of whom approximately 90% considered their negotiating position vis-à-vis processing plants to be weak or non-existent.
It is important to seek effective ways to strengthen the position of Icelandic farmers, for the purpose of going on the offensive rather than on the defensive. In this context, the Competition Authority has suggested that exemptions from competition rules could be granted to farmers and their owned companies, with the aim of strengthening their position, particularly vis-à-vis meat processing plants. At the same time, the interests of consumers must be taken into account.
A detailed review of the Minister of Food's draft bill can be found on the Competition Authority's website. With the review, the authority was fulfilling its statutory duty 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“, as stated in Article 8 of the Competition Act.
Páll Gunnar Pálsson
The author is the Director General of the Competition Authority.
This column was published as an article in Morgunblaðið on 2 February.
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