At the beginning of 2013, the Competition Authority launched an investigation into alleged breaches by Mjólkursamsalan ehf. (MS) of the prohibition in Article 11 of the Competition Act against the abuse of a dominant position. The investigation was prompted by the fact that Mjólkurbúið Kú ehf. (The Dairy) complained that it had to pay MS a price for unprocessed milk for processing, i.e. raw milk, that was 17% higher than its competitors affiliated with MS had to pay. The Dairy is owned by Ólafur Magnússon et al., who also founded the company Mjólku ehf., which began competing with MS in 2005. At the end of 2009, Kaupfélag Skagfirðinga (KS) bought Mjólku ehf. and has operated it since. The case also examined a comparable price difference for raw milk from MS, on the one hand to Mjólku while the company was owned by Ólafur Magnússon et al., and on the other hand after it had been sold to KS. The dairy has argued that with this difference in raw material prices for processors, MS was abusing its dominant market position towards smaller competitors.
With amendments to the Agricultural Produce Act in 2004, provisions of competition law intended to prevent anti-competitive mergers and collusion were set aside in the dairy market. Prior to the changes, five dairy processing plants were operating in the country, but mergers that could not be challenged under competition law have led to what is close to a monopoly position for MS and its affiliated companies in the processing and wholesale distribution of dairy products. Under an exemption from the competition law prohibition on collusion, KS and MS have extensive cooperation in the production and sale of dairy products, and in addition, KS holds a 10% stake in MS. MS states that MS, KS and Mjólku, under the ownership of KS, should be regarded as a single „commercial entity“. There is no doubt that MS is in a dominant position.
The investigation into the matter has revealed that MS has discriminated against the Mjólkurbúið and previously Mjólku while it was owned by its previous owners, by selling the companies unpasteurised raw milk at a price up to 17% higher than that applied to related parties, i.e. KS and later Mjólku after it had been sold to KS. This discrimination in raw material prices intended to weaken Mjólku as a competitor to MS and its affiliated companies and to facilitate the sale of the company to KS. After Mjólka came under the ownership of KS, the company received raw milk from MS at a completely different and lower price than before, even though it had previously been a competitor of MS and KS in the dairy market.
Raw milk is a fundamental raw material for the production of dairy products, and price discrimination has an obvious impact on the ability of the company that is subjected to it to compete. The competitors in question not only had to endure price discrimination from the dominant firm, but also the fact that companies linked to MS received this raw material at a much lower price, which was likely to give them a significant competitive advantage over their rivals. In this way, their ability to compete with MS and its affiliated companies was seriously impaired, and the dominant market position of the MS group was protected. This is ultimately likely to harm the interests of consumers.
MS has argued that the amendments to the Agricultural Produce Act 2004 have the effect that the said price discrimination cannot constitute a breach of competition law. The Competition Authority's decision argues that it was not the intention of the legislature for dominant processors in the dairy industry to be exempt from the competition law prohibition on the abuse of a dominant position. MS is therefore subject to the same rules in this regard as dominant undertakings in other sectors.
The conclusion of the Competition Authority is that MS has seriously breached Article 11 of the Competition Act. The provision, among other things, prohibits a dominant undertaking from discriminating between customers by offering different terms for comparable transactions, thereby weakening their competitive position.
The Competition Authority considers it appropriate to impose a fine of 370 million kr. on MS for this infringement. The infringement is serious in nature as it relates to important consumer goods and has lasted for a long time, or at least from 2008 until the end of 2013. Dairy products are a large part of households' food shopping in the country. It was also taken into account that this is a repeated infringement. In 2006, one of MS's predecessors, the Cheese and Butter Shop, infringed in a similar manner against Mjólka while it was owned by its previous owners, see the decision of the Competition Appeals Board in the case No. 8/2006. In that case, no fine was imposed, but it is considered necessary in this case to deter further breaches in this important market.
See decision No. 26/2014.
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