This article is based on a contribution by Páll Gunnar Pálsson, Director-General of the Competition Authority, at an open meeting of the Association of Business Owners on competition and food prices, held on 27 February 2025. Slides are available. here .
When asked whether effective competition is capable of delivering competitive food prices for the Icelandic community, the answer is inevitably yes. However, we need to do better. We must seize opportunities, whilst at the same time avoiding the pitfalls.
With this in mind, I would like to mention a few points for consideration, and at the same time offer guidance to those concerned.
In light of the debate on competition and agriculture in recent terms, it is worth recalling that modern competition rules owe much of their origin to the struggle for rights by American farmers in the second half of the 19th century. At that time, the farmers' most important trading partners, particularly meat-packing companies and transport firms, had formed extensive collaborations that harmed and constrained the farmers. The farmers' struggle against big business was instrumental in the passing of the first modern competition law in 1890.
A 2021 investigation by the Competition Authority into the merger of Norðlenska, Kjarnafæður and SAH revealed that Icelandic farmers were, in many respects, in the same boat as their American counterparts nearly a century and a half earlier. A survey was therefore conducted among farmers, which indicated that most of them were dissatisfied with their position vis-à-vis the meat processing plants. Over 90% horse and sheep farmers and 75% cattle farmers considered their negotiating position vis-à-vis the processing plants to be weak or non-existent.
The survey also revealed that farmers have a considerable interest in having more control over the sale of their produce and in connecting better with end consumers. The results of surveys conducted in connection with the research are published in Report no. 4/2022.
Following an investigation, it was concluded that the merger should be approved but subject to conditions, including to ensure the bargaining position of farmers and to ensure that both farmers and consumers enjoyed a fair share of the benefits the merger was intended to deliver. This is discussed in Decision no. 12/2021.
At the urging of producer organisations, the legislature has on two occasions decided to exempt producer organisations from important competition rules, thereby depriving farmers and other customers of the producer organisations of their freedom of choice. First in 2004, when dairy processing plants were exempted from merger control and permitted specific cooperation regardless of competition law, and then in spring 2024, when meat processing plants received similar, albeit in some respects broader, exemption powers. (See, for example, opinion no. regarding exemptions for dairy processing plants. 1/2006 and 1/2009 and about meat processing plants reviews from 20 March 2024 and 19 June 2024.)
Proponents of these changes have argued that with the derogation powers, farmers now enjoy the same exemptions as farmers in Europe. That is not correct. In none of the neighbouring countries have processing plants been exempt from merger control, but merger rules are often used in neighbouring countries to protect the interests of farmers, businesses and consumers against concentration among processing plants. And unlike exemptions in Europe, the Icelandic exemptions are not limited to co-operation between farmer-owned processing plants. Existing meat processing plants are only to a small extent majority-owned or controlled by farmers, and the exemptions are therefore likely to weaken the farmers' position, rather than improve it.
The Minister of Fisheries has now presented a bill to Parliament proposing that the exemptions for meat processing plants be revoked, and has announced a new bill that will address strengthening the bargaining position of farmers, in line with European practice. That is a good thing. But it is also important going forward to review the exemptions granted to dairy processing plants.
The exemption powers of meat processing plants are also being tested in the courts, but as is well known, the Reykjavík District Court ruled in the autumn that the exemption powers had not been enacted into law. The Competition Authority was sued in that case as, in light of the exemption powers, it had rejected Innnes's request to investigate the conduct of meat processing plants. It then falls to the Competition Authority, as a matter of legal necessity, to appeal a district court's judgment to the Supreme Court. The hearing in that case is forthcoming.
The harm of such widespread exemptions was clearly demonstrated when MS abused its dominant market position by charging a small competitor, Mjólka, later Mjólkurbúið Kú, a higher price for raw milk than MS-affiliated companies paid. The Supreme Court upheld Serious breaches by MS. However, that finding does provide a degree of protection for companies that need to buy raw milk from MS.
This brings us to tariff protection. Globally, it is common for domestic agricultural production to be protected by tariffs. However, most countries ensure that tariff protection is structured in such a way that domestic production always faces competitive pressure. If competition in domestic production is low, tariff protection must be reduced, thereby increasing external pressure.
In this country, competition-oriented policymaking is lacking in this respect. The Competition Authority has repeatedly directed recommendations and comments to the government regarding this, including the following:
Firstly, the government needs to consider other forms of support for Icelandic agriculture, rather than tariff protection. We have an example of this because when the competition authorities dismantled illegal collusion in the vegetable market, the government complied with recommendations to move away from anti-competitive tariff protection and instead adopt production-enhancing support (see Opinion No. 1/2001Experience has shown that this change led to an increase in the production of domestic vegetables, increased consumption of vegetables and lower product prices.
Secondly, the involvement of processing plants in imports needs to be considered, which is a matter of particular concern. Under the current system, they are able to protect their position and maintain product prices by bidding for tariff quotas. At the same time, the processing companies are selling foreign produce in competition with domestic products, i.e. in competition with Icelandic farmers. Recent data collection by the Competition Authority shows that the participation of processing plants in imports is, for example, significant in beef, poultry and pork. The data also indicate that in recent years, the processing plants have imported the majority of the products for which they purchased the right to process. (The Competition Authority has repeatedly addressed these matters, see e.g. opinions, dated. 14 March 2012 and 11 December 2020)
Thirdly, it should not be the case that products not manufactured in this country are subject to tariffs, as has been the case.
Attention must also be paid to ensuring competition in the import of foodstuffs and other food production, as well as agricultural production. In recent years, there has been considerable consolidation among companies in this sector, and suppliers have become fewer and larger. The Competition Authority has reviewed several such mergers and approved the vast majority of them, in some cases with conditions aimed, among other things, at protecting competition in certain product categories, such as when ÍSAM and Ó. Johnson and Kaaber merged.
These mergers have usually been justified on the grounds that increased economies of scale will result in lower prices, and that competition will be maintained by other imports. It is, of course, important that this comes to pass. In this connection, I would like to emphasise the following:
Firstly, it is of the utmost importance that importers do not take any action that is likely to hinder the efforts of supermarkets or others to import goods concurrently. Such imports often create opportunities to lower product prices and increase competitive pressure on importers who hold agency for strong brands. Measures to hinder such imports can constitute serious infringements of the prohibition on unlawful collusion or abuse of a dominant position (see e.g. Chapter 4 of the report No. 1/2008). The supervisory authority has repeatedly raised this issue. In this regard, it may also be noted recent case at the European Commission where the parties to the case reached a settlement and paid fines due to an agreement between the manufacturer and the agents which restricted parallel imports.
Secondly, the Competition Authority has for a long time urged suppliers to ensure that their contracts do not contain competition-restrictive exclusive purchasing and loyalty discount clauses, but such agreements can create barriers to entry for new competitors and may contravene the prohibition on illegal collusion or the prohibition on abuse of a dominant position (see e.g. Chapter 3 of the report No. 1/2008). Reference may be made to the report on suppliers' commercial contracts from 2008 and subsequent cases.
Thirdly, supplier co-operation on in-store presentation can constitute illegal collusion. In this regard, reference may be made to the settlement reached between Ölgerðin and CCEP (formerly Vífilfell) and the regulator in 2020, in which such infringements were acknowledged and fines were paid, see decision for further details. No. 31/2020.
In retail, competition and barriers to entry also need to be reduced. First, it should be noted that Haga's dominant market position has for many years had a shaping influence on the market. Bonus's long-standing promise to always have the lowest prices on all goods was examined in the so-called underpricing issue, where Hagar were fined for selling dairy products below cost in order to reduce competition from Krónan. This generally constitutes a significant barrier to entry if smaller competitors can under no circumstances offer a more favourable price than the market-dominating firm. The case was litigated all the way to the Supreme Court and his judgement It set an important example.
However, it is important to bear in mind that a dominant market position does not mean that the company concerned is not allowed to face competition or to take the initiative in competing.
Secondly, experience shows the importance of ensuring that grocery retailers' contracts with suppliers do not involve illegal collusion. In the so-called pre-labelling case, Bónus on the one hand and several meat processing companies on the other had anti-competitive price-fixing discussions, including on the retail pricing of meat. Six of the companies settled and paid fines, but one of the companies took the case all the way to the Supreme Court, where the infringements were upheld. Langasjór (the parent company of Síldar og fisks and Matfugl) took the matter to court. That case concluded with confirmation of the Supreme Court of Iceland.
Thirdly, it is right to emphasise that a significant price difference in transactions between suppliers and different retail outlets can constitute a serious barrier to entry. In 2012, the regulator published Results of a detailed analysis on price differences in 270 product categories. It emerged, among other things, that smaller shops had to sell products with an average mark-up of only 1-2% if they intended to match the lowest prices of discount stores. With this in mind, the regulator directed suppliers to justify that the price difference was based on objective grounds, which can certainly be the case in various instances.
The Authority revisited this in 2015 and reiterated that, at all times, powerful suppliers must be able to demonstrate that their trading terms with retailers are justified on objective grounds (see section 5 of the report No. 1/2015). Unexplained price differences should be reviewed. With the arrival of Prís, this debate has re-emerged and it is important that suppliers pay attention to this. The strong position of the largest grocery chains may play a part in this.
There are therefore considerable barriers to entry in the retail sector. A similar lesson can be drawn from the conditions imposed in merger cases, where the merging parties have committed to creating space for new competitors in the retail sector for, among other things, groceries. Both Hagar and Festi committed to such measures when Hagar bought Olís and N1 and Festi merged. Those measures did not achieve the intended result. Recently, Festi admitted a breach of its agreement, see. Decision no. 28/2024. It is a minimum requirement that larger companies which make settlements with the competition authority in merger cases honour their commitments, as evidenced, for example, by yesterday's Supreme Court judgment, where Síminn was ordered to pay a fine for breaching a settlement.
When discussing competitive food prices in this country, it is inevitable that the competitive conditions in transport are also addressed, both to and from the country and domestically. In the autumn of 2023, the Competition Authority concluded an investigation into Samskip's anti-competitive practices (see Decision No. 33/2023), but in the summer of 2021, Eimskip had reached a settlement with the authority in which the same infringements were acknowledged. Samskip appealed the decision to the Competition Appeals Board, and a ruling is awaited.
FA, the Consumers' Association and VR subsequently requested an independent assessment by an expert of the potential damage from the collusion, and the damage was estimated at over 60 billion krónur. It is obvious that the conduct highlighted by the regulator's decision has had an impact on food prices in Iceland.
Immediately following the decision, the Competition Authority published an opinion for the government and businesses on ways to strengthen competition in the transport market (see Opinion No. 2/2023Firstly, the Ministry of Transport, the City of Reykjavík and Faxaflóahafnir were instructed to ensure that new and smaller competitors in maritime transport have access to adequate port facilities and ship handling services in the country.
Secondly, the government, including all local authorities in the country, was directed to create conditions for increased competition in land transport.
Thirdly, the government and all companies that rely on transport were urged to consider ways to create increased scrutiny of new or specific charging on transport markets. The opinion outlines several examples that shed light on the scope that transport companies have taken for themselves in terms of charging. Subsequently, The Competition Authority has received more recent tips about this.
The Authority is now following up on the opinion and determining what measures are needed to ensure fairer competition in transport. The Authority welcomes any suggestions and assistance in this regard.
Finally, I would like to reiterate that it is important to comply with competition law in all public discussion of possible price increases. The regulator raised this issue just before Christmas, in view of the circumstances. I refer to that discussion, etc. News from 18 December 2024 and instructions page on business interest groups and competition rules.
In summary, it is clear that there are various opportunities to structure things in such a way that competition results in more competitive food prices. For this to happen, however, many people will need to play their part.
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