The Competition Authority has concluded that the Icelandic Farmers' Association (BÍ) has breached competition law with actions aimed at raising the price of agricultural products. The infringement concerns agricultural products that are not subject to public pricing under the Agricultural Produce Act, such as chicken, eggs, vegetables and pork. As a result of this infringement, the BÍ has been ordered to pay a government fine of 10,000,000 kr. and has been instructed to take measures to prevent a similar infringement from recurring.
The origins of the case can be traced to a news report published in Morgunblaðið on 7 March 2008 under the headline „Agreement on pay rises necessary. The news report covered the 2008 Agricultural Congress, which had just concluded. It emerged at the congress that a price increase on food products for agricultural producers was inevitable. Following this, the Competition Authority launched an investigation which concluded with the decision published today.
In the case, the BÍ argue that their actions do not fall under the provisions of the competition law, and the organisation says it is absurd to demand that competition should exist between agricultural producers. The Competition Authority's decision addresses these views of the BÍ. It points out that agricultural products are, on the one hand, priced using the methods prescribed by the Agricultural Produce Act, i.e. that the price of their produce is determined by a public committee, the Agricultural Produce Price Committee. However, other agricultural products are priced outside the pricing system of the Agricultural Produce Act, in which case competition law applies in full. The pricing of important agricultural products such as chicken, eggs, vegetables and pork is free and therefore falls entirely under the provisions of competition law. In these cases, competition is intended to protect consumer interests and promote fair prices. This is provided for in both the Agricultural Produce Act and the Competition Act.
Producers of these agricultural products, some of whom have strong processing and distribution companies, are therefore, like other Icelandic companies, subject to the prohibition in competition law against anti-competitive collusion. The same applies to their organisation, BÍ. The above interpretation of competition law has been confirmed, e.g. in the so-called 'Vegetable Case' from 2001, which concerned, among other things, illegal collusion by vegetable producers.
BÍ are an association of companies within the meaning of competition law Article 12 of the Act prohibits such business associations from engaging in any anti-competitive collusion. The prohibition on collusion in Article 10 of the Competition Act means that companies must independently decide how they behave in the market and how they price their products. An association of undertakings may in no way undermine the independence of its member undertakings. In the interests of price competition, competition law prohibits all price-fixing, regardless of the circumstances underlying it.
In the opinion of the Competition Authority, repeated infringements by organisations of companies related to the food market are a matter of great concern to the Authority. In February 2008, the Competition Authority imposed fines on the Federation of Icelandic Industries and the Association of Trade and Services for actions that facilitated price-fixing in the food sector. In mid-last month, fines were imposed on the Association of Icelandic Wholesalers for, among other things, discussions about the need for an increase in food prices. The Competition Authority will take firm action against any further infringements of this kind by business associations.
The evidence shows that on the BÍ's platform, significant consultation took place regarding the prices of agricultural products, and BÍ's representatives publicly advocated for price increases for agricultural produce, including on products that are subject to free price competition. For example, the chairman of the BÍ was quoted in the Fréttablaðið newspaper on 2 March 2008 as saying that it was necessary to raise prices. At the agricultural assembly that began on the same day, a resolution to the same effect was adopted. The necessity for such price increases to take place at the earliest opportunity was discussed, as was their timing. For example, a representative of the poultry producers discussed a 10% increase in the price of chicken which would come „in the coming weeks.“ The most appropriate method for such increases was also discussed, and it was suggested that they should be raised. „relatively often but little“.
After the agricultural parliament concluded, BÍ's trustees were quoted in the media as saying that the discussions at the parliament were aimed at reaching an agreement on price increases for agricultural produce; for instance, a representative of the vegetable growers stated that cost increases „would ultimately be borne by consumers“ and a representative of pig farmers had stated that pork had„only increased by 15-20%“ over a two-year period and therefore, discussions among pig farmers have, among other things, centred on „to reach an agreement on price increases for their products“. The data also show that BÍ staff discussed amongst themselves that potato, vegetable, pig and poultry and egg farmers would have to significantly increase their prices, and in this context spoke of the time of cheap food being over. The Competition Authority considers that this constituted a clear and serious breach of the prohibition provisions of the Competition Act.
This case concerns important consumer goods, and BI's violations were linked to almost all of the country's producers of, for example, chicken, eggs and pork. Furthermore, it should be noted that certain BÍ confidants who had commented on price increases were also owners of major processing plants and meat-processing companies, or sat on their boards. It is clear that BÍ's infringement was, by its nature, liable to cause loss to consumers and contribute to higher food prices in this country.
It cannot be overlooked that the Icelandic government provides most domestic agricultural producers with significant protection from foreign competition, inter alia in the form of tariffs. This protected environment means that the potential harmful effects of illegal price-fixing within the BÍ are greater than they would otherwise be. In this context, it is serious that the BÍ, an organisation of companies which is afforded multifaceted protection, breaches competition law in order to raise the price of free-range agricultural produce. Under these circumstances, the potential harm to consumers is greater, as the access of foreign agricultural produce to the market is restricted in favour of domestic producers.
The BÍ have in their submission pointed out the difficulties in agriculture and the price increases for inputs that member companies are facing. The Competition Authority is aware of these circumstances. However, it is a recognised principle in competition law that difficult market conditions can never justify companies taking the law into their own hands. If the producers of agricultural produce considered the circumstances called for cooperation which is prohibited in advance by competition law, they were perfectly free to seek an exemption for such cooperation on the basis of Article 15 of the Competition Act. This was not done in this case, and the aforementioned difficulties cannot change the fact that an infringement was committed. However, this situation was taken into account when determining the penalty in the case, and it was considered appropriate to impose an administrative fine of kr. 10,000,000 on BÍ.
The Competition Authority's decision directs the BÍ to prevent similar infringements from recurring. The organisation is required to take measures to ensure that its platform is not used to discuss or share information about prices, price developments and other sensitive competitive matters in a way that could distort competition in the production and sale of agricultural products subject to the provisions of the Competition Act.
Background information:
In recent quarters, the Competition Authority has focused on combating all forms of barriers to competition in the food market. The reason for this is the market's importance to the public. A report from the Competition Authority from last year showed that the price of food is on average 64% higher in Iceland than in the EU average. It can be assumed that in recent months, food prices have risen by a greater proportion here than in the countries under comparison. It is therefore of the utmost urgency that measures be taken to strengthen competition and lower prices for Icelandic consumers on these essential goods. The decision of the Competition Authority in the BÍ case is a step in this direction. Other recent measures on the food market include the following:
The Competition Authority, as previously stated, emphasises that business associations must ensure they comply with competition law in their activities. It is important to note that in such associations, competitors come together, and their activities are therefore sensitive from a competition perspective. It should be noted that in the report of the Competition Authority No. 1/2008 Guidance is provided on the types of lobbying and cooperation within business associations that may contravene competition law (see Chapter IV of the report). Business associations connected to the food market are therefore urged to take this into account.
For clarity, the following decisions may be cited, where it has been concluded that business associations have breached competition law:
See the decision for details No. 9/2009.
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