The Cheese and Butter Shop's breach of competition law
When Mjólka started operations last year with the production of feta cheese, the company had to buy milk powder from the Cheese and Butter Sales. There have been two pricing structures for milk powder: a higher price for companies in the dairy industry, and a lower price for companies in other food production. Mjólka was made to pay the higher price for the powder, whereas another cheese-making company, Ostahúsið, had for many years been charged the lower price for its production. This prompted Mjólka to complain to the Competition Authority about the Ostasala and Smjörsala's discrimination. The Ostasala and Smjörsala responded by raising the price of milk powder for the Ostahúsið, citing a staff error. The company believed this would level the playing field between Mjólka and the Ostahúsið.
The Cheese and Butter Sales has a monopoly on the sale of milk powder in this country, as high tariffs on milk powder effectively prevent its import. Mjólka is therefore forced to buy powder from the Cheese and Butter Sales Company, which, together with its owners (the dairy co-operatives), are Mjólka's main competitors. Due to the position of the Cheese and Butter Marketing Board as described here, the company has a particularly strong obligation not to discriminate between its customers. In light of this, the Competition Authority considers that the Cheese and Butter Shop abused its dominant market position when it sold milk powder to Mjólka at one price and to Ostahúsið at another. In doing so, the Cheese and Butter Shop breached competition law.
Public restrictions on competition in the dairy industry – an opinion for the Minister of Agriculture
The aforementioned complaint by Mjólku prompted the Competition Authority to consider the general competitive barriers the company faces due to the legal framework in this market. The aforementioned import duties on milk powder effectively make it impossible for Mjólku to purchase it from anyone other than its competitor, the Cheese and Butter Sales Company. The Cheese and Butter Sales Company is owned by the dairy cooperatives, which are also Mjólku's competitors. With amendments made to the Agricultural Produce Act in 2004, dairy cooperatives were permitted to engage in price-fixing and market-sharing, thereby exempting them from competition law. Price-fixing and market-sharing by competitors are highly anti-competitive practices and subject other companies, as well as their managers, to penalties. With the 2004 amendment to the law, mergers between competitors in the dairy industry were also exempted from competition law, even if they distort competition.
Mjólka is not a member of the Association of Dairy Processing Plants. The aforementioned legal amendments enable dairy cooperatives within this association to consult with one another against attempts by Mjólka and, where applicable, other new competitors to gain a foothold in the market. The implementation of the Agricultural Produce Act also results in these competitors being handed trade secrets from Mjólka. In addition, Mjólka is required to pay a specific fee, a price transfer fee, which is used for the benefit of the company's competitors.
The aforementioned amendments to the Agricultural Produce Act from 2004 grant dairy associations a much broader exemption from competition rules than is customary in our neighbouring countries. The purpose of these legislative changes was, among other things, to enable dairy cooperatives to meet competition from abroad. The Competition Authority's opinion argues that the exemptions from competition law enjoyed by dairy cooperatives will harm their competitiveness and work against their ability to meet foreign competition, when and if it materialises in this country in this sector.
Mjólku's entry into the dairy processing market has led to a reduction in prices for the product categories it produces. It has also resulted in farmers who produce milk outside the payment limit now receiving a higher price for their milk than before. Thus, the increased competition brought about by Mjólku's operations has benefited both consumers and farmers. In light of this, the Competition Authority recommends that the Minister for Agriculture should work to remove public barriers to competition in the dairy industry, so that consumers and farmers can enjoy the benefits of competition in this sector.
The Competition Authority's recommendations to the Minister of Agriculture concern the repeal of provisions in the Agricultural Produce Act that permit anti-competitive collusion and mergers among dairy cooperatives. Also, that price and quantity surcharges on milk powder be abolished in order to facilitate competition in the dairy industry. The Minister is also urged to ensure that the competitive position of product processing plants operating outside the Dairy Processing Plants Association is otherwise equalised with that of those operating within the association. Finally, the attention of the Minister of Agriculture is drawn to the fact that recommendations from a 2002 Competition Council opinion are still in effect, calling on the minister to promote the liberalisation of wholesale pricing for agricultural produce.
Conclusion
The Competition Authority has stated that the competitive position in the food market is among the issues to which the greatest emphasis will be placed in the coming quarters. In this context, it is worth mentioning that in December last year the Authority presented a Nordic report on competition conditions in the food market, thereby sparking extensive debate about food prices and the food market in Iceland. The Competition Authority's decision and opinion to the Minister of Agriculture, presented in this press release, are in line with the Authority's priorities and are designed to contribute to lower food prices.
Decision of the Competition Authority No. 39/2006 Submission of Mjólku ehf. concerning the abuse of a dominant position by Osta- og smjörsalan sf. and the Opinion of the Competition Authority No. 1/2006 Official restrictions on competition in the dairy industry,
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