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Commission publishes draft guidelines for the exemption of certain sustainability agreements in the agri-food supply chain

  • United Kingdom
  • Europe
  • Competition, EU and Trade
  • ESG
  • Supply Chain

25-01-2023


Exclusion from competition law for certain agreements in the agri-food supply chain

In 2021, in the context of the common agricultural policy reform 2023-2027, the European Parliament and the Council of the European Union adopted a new exemption from competition rules for certain agricultural products.

Specifically, Article 210a of Regulation 1308/2013 establishing a common organisation of the markets in agricultural products (“CMO Regulation”) introduced an exclusion from the prohibition against anti-competitive agreements (or “cartels”) for certain restrictive agreements in the agricultural sector when those agreements are indispensable to achieve sustainability standards.

In this latest development, on 10 January 2023, the European Commission (“Commission”) published for consultation its draft guidelines on how this exclusion should apply. The Guidelines seek to clarify how operators active in the agri-food sector can design joint sustainability initiatives in line with Article 210a. The deadline to respond to the consultation is 24 April 2023. 

“Agricultural production is currently facing significant sustainability challenges ranging from animal welfare and biodiversity to natural resources, health and climate change. We want to make sure that operators in the agri-food sector can design joint sustainability initiatives to tackle these challenges while respecting our competition rules. We now invite all interested parties to share their views on our proposal.”

Margrethe Vestager, Executive Vice-President in charge of competition policy – 10/01/2023

What is excluded? 

The exclusion may apply to agreements between agricultural producers or between such producers and other operators active along the agri-food supply chain, such as companies supplying inputs for production, distribution, transport or packaging of the product intended to achieve sustainability objectives.

The draft Guidelines clarify that the scope of the sustainability objectives that can be pursued with the agreements must be: environmental protection (including climate change mitigation and adaptation, the sustainable use and protection of landscapes, water and soil, the transition to a circular economy, including the reduction of food waste, pollution prevention and control, and the protection and restoration of biodiversity and ecosystems); reduction of pesticide use and antimicrobial resistance; or animal health and welfare.

Measurable and higher sustainability standards

In order to benefit from the exclusion, parties need to agree on the adoption of a sustainability standard for a sustainability objective that is higher than what is mandatory under EU or national law.  The draft Guidelines do not set a minimum level of improvement that the parties need to achieve compared to mandatory standards.  They do, however, clarify that the assessment of the indispensability of this improvement will need to take into account the level of the restrictions.  In addition, the results obtained from the sustainability standard need to be tangible and measurable.  If this is not appropriate, they nevertheless need to be observable and describable.

Where there is no existing mandatory standard, a sustainability agreement that adopts one may still fall under the exclusion, provided that the agreement pursues one of the sustainability objectives laid down in Article 210a.

Indispensable restrictions

Parties to a sustainability agreement need to assess whether any anti-competitive restrictions stemming from their agreement are indispensable to achieving the sustainability standard.  The draft Guidelines set out a four-step test to determine this:

     (a)  identifying the obstacles that would prevent the parties from attaining the sustainability standard on their own and explaining why collaboration is necessary;

     (b)  determining the appropriate type of agreement (e.g. an agreement on price or quantity);

     (c)   identifying indispensable restriction(s) to competition (e.g. an agreement on price can either fix the whole price, establish a minimum price or establish a price premium); and

     (d)  determining the appropriate level (e.g. the amount of the price) and duration of the restriction(s).

The parties should continuously review whether the indispensability condition is met throughout the duration of the agreement.

Informal guidance

From 8 December 2023, agricultural producers will be able to request an opinion from the Commission on the compatibility of their sustainability agreements with Article 210a.

Safeguard mechanism

Article 210a(7) of the CMO Regulation sets out a safeguard mechanism.  The Commission and the national competition authorities have the right to stop or require amendments to sustainability agreements if this is necessary in order to prevent competition from being excluded or if they consider that the CAP objectives are jeopardised.

Comment

The exemption from competition rules, as further explained in the draft Guidelines, is potentially far reaching and could apply to sustainability agreements for certain agricultural products entered into not only between agricultural producers but also involving other stakeholders down the agri-food supply chain. Businesses that could benefit from the exclusion under Article 210a of the CMO Regulation, either now or in the future, are therefore encouraged to review the draft Guidelines carefully and consider responding to the Commission’s consultation. 

These guidelines should also be considered alongside the new chapter on the assessment of sustainability agreements between competitors in the Commission’s draft Horizontal Guidelines published for consultation in May 2022.