The Competition Authority has, with a new decision published today (No. 19/2016) imposed a statutory fine of 480 million ISK on Mjólkursamsalan ehf. (MS) for serious breaches of competition law. MS abused its dominant market position by selling its competitors a basic raw material for the production of dairy products at an unreasonably high price, at the same time as MS itself and related parties received this raw material at a much lower price, and furthermore below cost. This was intended to give MS and related parties a significant competitive advantage over their rivals. In this way, the ability of competitors to compete with MS and its affiliated companies was seriously impaired, which ultimately tends to harm the interests of consumers and farmers. Furthermore, MS provided the Competition Authority with incorrect information and failed to disclose important data. This has delayed the resolution of the case and harmed competition.
The Competition Authority's previous decision (no. 26/2014) was annulled by the Competition Appeals Board. The appeal board instructed the Competition Authority to reconsider the matter, as MS had submitted new evidence to the board which had not been provided to the authority during the proceedings. With the decision published today, the Competition Authority has completed the investigation mandated by the Appeal Board.
Raw milk is a fundamental raw material in the production of all types of dairy products. The pricing and availability of this raw material is therefore of great importance to all companies that produce and sell dairy products.
Mjólkursamsalan is the only company in the country that sells raw milk wholesale to other dairy producers, as well as using it for its own production.
MS is in an extremely strong position in the Icelandic dairy market, taking in around 90% of the raw milk produced by farmers. In addition, MS has close ties with the second-largest company in the dairy market, Kaupfélag Skagfirðinga (KS). Together, these companies have a near-monopoly on the dairy trade in the country.
Mjólka (hereinafter referred to as Mjólka I) was a competitor to MS and KS until the end of 2009, when KS took over the company. It has since operated under the same name as a subsidiary of KS (hereinafter referred to as Mjólka II). The founder of Mjólka I, together with others, started a new company in the dairy market in 2010, Mjólkurbúið Kú ehf. (the Dairy Farm).
At the end of 2012, the Dairy became aware that the company had to pay a significantly higher price for raw milk than its competitor, Mjólka II. This became clear to the Dairy when MS mistakenly sent the company an invoice for the purchase of raw milk that was intended for Mjólka II. This led to the Dairy lodging a complaint with the Competition Authority at the beginning of 2013, and an investigation into the matter was launched. The investigation looked into whether MS had abused its dominant market position towards Mjólka I on the one hand, and the Mjólkurbúið on the other, between 2008 and 2013.
On 22 September 2014, the Competition Authority made a decision in the case, concluding that MS had abused its dominant market position and distorted competition during the period in question. The investigation revealed that Mjólka I and later Mjólkurbúið had had to pay up to 17% more for the raw milk than the price paid by KS and Mjólka II. The price difference was as high as 21% when compared to the price paid by MS's production division for the raw milk.
The Competition Authority considered it appropriate to impose a fine of 370 million ISK on MS for these infringements.
MS appealed the decision of the Competition Authority to the Competition Appeals Board, which delivered its ruling in the case on 16 December 2014. For the first time, MS submitted a specific piece of evidence to the appeal board: an agreement with KS dated 15 July 2008. MS considered this evidence to be of great significance and to show that the company's actions were lawful.
However, during the Competition Authority's investigation of the matter, MS had never referred to or reported this agreement to the Authority, despite the Authority having repeatedly requested explanations and evidence from MS regarding the aforementioned pricing of raw milk.
The Competition Appeals Tribunal asked MS to explain why the agreement had not been submitted to the Competition Authority. The tribunal's conclusion was that MS had not put forward „plausible explanations“ on the society's inaction. The committee also considered that MS had not provided a satisfactory explanation as to why „Basic data“concerning the performance of the agreement and the settlement, had not been submitted during the proceedings before the appeal board.".
Notwithstanding the foregoing, the Competition Appeal Tribunal considered„to see It is necessary, on the basis of the principle of investigation in administrative law, to bring the matter to a stage where these points are clarified.“and that the committee was unable to take a substantive position on the matter. Did the committee not say „to avoid setting aside the contested decision of the Competition Authority and to direct the Authority to reconsider the matter following a further investigation and after taking into account the views concerning the significance of the agreement between the appellant and KS dated 15. July 2008, the settlement between the parties and the performance during the period when the alleged infringement took place.“
A new investigation by the Competition Authority began on 19 December 2014 and, following the completion of the data collection, a statement of objections was sent to MS on 22 October 2015, setting out the Authority's preliminary findings. MS's comments on the statement of objections were received by the Authority on 12 January 2016. This was followed by the collection of further evidence and submissions. A decision has now been reached.
With this new decision, published today, the Competition Authority re-examines the actions of MS following a further investigation, in accordance with the instructions of the Competition Appeals Board. In short, the conclusion is that the new evidence shows that MS's breach of competition law is even more serious than was assumed in the previous decision. MS has also been found to have provided the competition authorities with incorrect information and failed to inform the monitoring authority of important evidence.
The new decision confirms the aforementioned price difference for raw milk between, on the one hand, Mjólku I (i.e. while it was an independent competitor of MS and KS) and the Mjólkurbúið, and on the other hand, MS itself, KS and Mjólku II (i.e. under the ownership of KS).It is also established that different costs or other objective reasons could not justify this price difference. It is demonstrated that, in fact, MS sold raw milk to KS and Mjólka II at a price that did not cover MS's costs for the transactions. Had KS and Mjólka II had to pay the same price as their competitors for raw milk from MS, their raw material costs would have been approximately 239 million króna higher than otherwise between 2008 and 2013.
In support of the argument that MS's actions did not distort competition, the company has repeatedly claimed that Mjólka I was very poorly run, and that this is the reason its owners sold it to KS in 2009. However, the Competition Authority's decision shows that if MS's production division had faced the same raw material price as Mjólka I, that part of MS's business would have been run at a significant loss.
New evidence shows that the sale of raw milk at the low price to KS was an action aimed at weakening Mjólka I as a competitor or driving the company out of the market. Mjólka I had achieved some success in selling rennet cheese and, among other things, provided some competition in this regard. MS and KS decided that KS would focus on the production of rennet cheese in competition with Mjólka I, and that the company would receive the raw milk at the lower price. When MS then significantly increased the price of raw milk for Mjólka I in mid-2009 (while the price for KS and MS itself remained unchanged), Mjólka I was driven out of the market and KS took over the company. When the competitive restraint from Mjólka I was thus removed, MS organised a price increase for rennet and the profit from that increase was shared between MS and KS.
MS's explanations for the different pricing of raw milk for KS and Mjólku II on the one hand, and for Mjólku I and Mjólkurbúsins on the other, have been both inconsistent and incorrect:
However, the Competition Authority's investigation shows that this is entirely incorrect on MS's part. Data from, among others, the Competition Authority shows that the exact opposite occurred. KS ceased production of surpluslow products and increased production of profittall products (e.g. bacon). When considering the overall effect, it can be seen that KS's profit was much greater than MS's during the study period. There was no need to compensate KS for a profit loss. MS's main justification for its actions is therefore based on incorrect statements of fact.
With Act No. 69/1998, the legislature made changes to the agricultural produce laws towards greater freedom. It was then stipulated that, instead of a fixed price, the Agricultural Prices Committee should set a minimum price for raw milk for farmers. It was therefore assumed that competition between processing plants could improve farmers' terms by them being paid a price higher than the minimum price. The Competition Authority's investigation, however, shows that MS made an agreement with KS which prevented such competition. It is established that when competition from Mjólku I was in effect, it had the effect of raising the price paid to farmers while lowering the price to consumers.
With amendments to the Agricultural Produce Act in 2004, provisions of competition law intended to prevent anti-competitive mergers and certain concerted practices were set aside in the dairy market. Prior to the changes, there were five active dairy processing plants in the country, but mergers, which have not been possible to challenge under competition law, have led to what is tantamount to a monopoly position for MS and its affiliated companies in the processing and wholesale distribution of dairy products. In light of this, the position of MS's competitors is extremely difficult and vulnerable from a competitive standpoint. Under such circumstances, MS, as a dominant undertaking, has particularly onerous legal obligations not to take any action that could unduly distort the competition that may exist in the dairy market.
The conclusion of the Competition Authority is that MS has very seriously breached competition law. MS's competitors had to accept both receiving a basic raw material at an abnormally high price and MS itself and its affiliated parties receiving this raw material at a much lower price. Not only did KS and Mjólka II receive the raw milk at a much lower price than their competitor, but it was also sold by MS below cost. This was intended to give them a significant competitive advantage over their rivals. That was also the purpose of these actions by MS. In this way, the ability of competitors to compete with MS and its affiliated companies was seriously impaired, and MS's dominant market position was protected. This is likely to ultimately harm the interests of consumers and farmers. Furthermore, it is established that MS provided the Competition Authority with incorrect information in the previous case and failed to inform the authority of important evidence. This has delayed the resolution of the case and harmed competition.
The Competition Authority considers it appropriate to impose a total fine of 480 million krónur on MS.
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