ILLEGAL AGREEMENT ON SELLING DAIRY PRODUCTS REVEALED: AMO SR decided on EUR 10 million fine on a group of undertakings

11.07.2016
Bratislava, 7 July 2016 – On 13 June 2016 the Antimonopoly Office of the Slovak Republic (hereafter “the Office”) issued a decision by which it imposed a fine in a sum of almost EUR 10 million on 9 undertakings. The subjects concerned operate in the field of supply and retail sale of a group of products – milk, butter and cream. One of the participants to the proceedings used the instrument of settlement and the Office decreased the amount of its fine by 50 %.
 
In 2013 the Office stipulated the sector of food and agriculture as one of its priority fields and performed the survey in the field of milk and dairy products. The Office investigated the effectiveness of markets relating to basic industry and processing of raw milk from cows as well as selling processed dairy products at the level of retail, mainly at the level of retail chains. The Office identified possible competition concerns at the level of supplies and retail sale of several dairy products. The facts found within the frame of investigation were a part of documentation on the basis of which the Office conducted inspections at the premises of 5 undertakings.
 
On the basis of the inspections and the investigation the Office came to a preliminary conclusion that the relevant supplier of a group of products – milk, butter and cream and relevant retailers might have infringed the Act, thus in April 2015 it initiated the administrative proceedings. The participants to proceedings might have infringed the Act by means of concluding vertical agreements between themselves, with the common purpose of resale price maintenance (RPM) between 2009 and 2014. Within the frame of the sale of the group of products – milk, butter and cream are generally considered basic food products (the so-called must have products) which are from the point of end consumer’s daily life an essential part of retailers’ product assortment.
 
What is “resale price maintenance” – RPM?
It is a type of agreements by which the supplier sets the prices for products, eventually also other conditions relating to selling products and services to end consumer. Thus it impacts the independence of retailers in setting prices on products or services for resale. Generally, RPM is prohibited and belong to serious infringements of the Act. Hereby the agreement on prices is considered as target agreement and the restriction of competition results from its subject-matter.
 
The analysis of found e-mail communication
The Office disposed of over 150 e-mails proving the existence of agreements between the supplier and consumers. Some e-mails indicated that some subjects were aware of contradiction of their behaviour to competition rules. The Office confirmed that in the given case the retailers of end products did not operate in retail market independently. In the field of fixing retail prices, the anticompetitive conduct was applied by:
  • demotivating retailers to intensify competing for end consumer,
  • increasing price level of products for end consumer
comparing to situation without the conduct between the participants to proceedings concerned. The presented behaviour decreased the level of the so-called intra-band competition that is within the frame of selling products concerned and the level of competition in the retail market in the Slovak Republic.
 
Mechanism indicating illegal conduct
The agreements on a particular level of prices at a particular time were concluded between the supplier and retailers. The participants to the proceedings proceeded similarly and systematically with reference to overall price changes. The behaviour is the so-called “win-win” situation for undertakings concerned. Both sides concerned – retailers and supplier profit from applying subjected agreement on RPM within the given vertical business relation.
 
Additional analysis
Besides the basic analysis of e-mail communication, the Office conducted also other additional analyses (that were optionally conducted by the Office), however the result of them was in compliance with the findings resulting from the analysis of e-mails.
The Office analysed the difference between price set by supplier and that in a retail store every day between 2013 and 2014 and it found out that the retailers kept the price level set to a very high degree (around 80 % of all measurements).
Margins analysis of investigated products and similar products in retail market in the Slovak Republic in comparison to those abroad and under the so-called private brands proved that the margins of products from supplier concerned were in most cases higher than those of products compared.
 
On the basis of all presented facts, the Office stated that the conduct is contrary to the Act.
 
 
The decision of the Antimonopoly Office of the Slovak Republic is not valid. Whereas it is the first-instance decision, the participants to proceedings can appeal against, the Office does not provide further information at this stage.
Last update:11.07.2016