Irish Competition Authority Decisions

1. Arrangements for the acquisition of the assets and property, including the goodwill of a grain drying and storage business by Dairygold Cooperative Society Ltd., (Dairygold) from J.W. Green & Co. Ltd., were notified to the Competition Authority on 19 July, 1993. The business concerned represents only part of J.W. Green's overall business. The notification requested a certificate, or in the event of a refusal by the Authority to grant a certificate, a licence.

2. The notification relates to an agreement, dated 16 July 1993, between Dairygold Mills Limited and J.W. Green & Co. Ltd. for the sale by Green of the assets and property, including goodwill, of its grain drying and storage business located at Buttevant, Co. Cork to Dairygold. The agreement includes certain restrictions on the vendor.

3. Dairygold Mills is a wholly owned subsidiary of Dairygold Co-Operative Society Ltd. Dairygold is a cooperative society engaged in a wide range of activities including dairy and meat processing, the sale of dairy and meat products on domestic and export markets, the processing and sale of liquid milk and fresh dairy products, the manufacture and sale of animal feed, grain trading, shop retailing, supply of farm inputs and farm requisites. Dairygold's annual report for the year ended 31 December 1992 indicates that it had an annual turnover of £460.1m.

4. J.W. Green & Co. Ltd. is a private limited company engaged in the business of animal feed importation and grain merchandising. Its Buttevant plant was used for the intake, drying and storage of native grain. It had total sales of £4.7m in 1992 of which £1.4m was attributed to grain sales.

5. The business which is the subject of this agreement was involved in the intake, drying and storage of native grain. Such grain is used inter alia in the production of animal feedstuffs. Dairygold is heavily involved in the production of animal feedstuffs, with a dedicated pig feed mill at Mitchelstown and a dedicated bovine feed mill at Lombardstown. Its total animal feed sales in 1992 amounted to 238,000 tonnes, an increase of 19% on the previous year. Dairygold's total grain intake in 1992 amounted to 97,000 tonnes, an increase of 11% on the previous year. Over the past six years Dairygold's cereal intake has increased by 40% [1]. The parties have indicated that Green's grain intake amounted to 10,000 tonnes in 1992. The market involved is that for cereals.

6. The Census of Agriculture for 1991 indicated that there were 301,000 acres under cereal crops in 1991. A total of 46,000 acres were under crops in County Cork. This was more than in any other county and represented over 16% of the total land under cereal crops within the State. Spring barley was the most important crop accounting for over 55% of the total cereal acreage in the county [2].

7. Figures produced by the Cereals Association of Ireland indicate that total cereal production in 1991 amounted to 2.1m tonnes. (See Table 1). Spring barley accounted for almost 50% of the total, with winter wheat the next most important crop.

1991 1992

Winter Wheat 599 693

Spring Wheat 94 130

Total Wheat 693 823

Winter Barley 244 338

Spring Barley 1029 990

Total Barley 1273 1328

Oats 103 129

Total Cereals 2069 2280.

Note: The 1992 figure is the Cereal Association of Ireland estimate for that year.

Source: Cereals Association of Ireland.

8. The CAI newsletter for 20 November 1992 indicated that exports of wheat, oats and barley for the 12 months to June 1991 amounted to 366,000 tonnes with imports of 264,000 tonnes over the same period. This would imply that imported cereals accounted for about 13% of the domestic market. The parties stated that many farmers and merchants sell grain and that there are a large number of purchasers of such products. They indicated that the market was highly competitive and claimed that it was easy for new suppliers to enter the market. In Dairygold/MUL the Authority noted that, according to the CSO there were 33 enterprises in the combined grain milling and animal feed sectors [3].

9. Dairygold's grain intake accounted for just over 4% of total cereal production in 1991 while Green's amounted to only 0.3% in that year. The combined intake of both businesses accounted for less than 5% of total cereal production.

('000 Tonnes)

1991 1992

Dairygold 87.0 97.0

Green 6.4 10.0

Combined Total 93.4 107.0

as % total production

Dairygold 4.2 4.3

Green 0.3 0.4

Combined Total 4.5 4.7

10. The agreement relates to the sale by Green of its grain intake, drying and storage business at Buttevant to Dairygold. Under the terms of the sale Dairygold purchased the property, business assets and goodwill of the business. The business has no long term supply contracts with farmers but buys grain from them on an ad-hoc basis. The vendor has agreed to furnish the purchaser with an introduction to its usual farmer suppliers. Clause 13 provides that the vendor will not for a period of two years from the date of completion either on its own account or for any other person, directly or indirectly solicit the procurement of green grain from farmers within a 15 mile radius of Buttevant County Cork.

11. The parties stated that neither clause 13 nor the agreement itself had as their object or effect the prevention, restriction or distortion of competition. They stated that there were several feed manufacturers, merchants and farmers who purchase in the market. They indicated that the market was highly competitive and claimed that it was easy for new suppliers to enter the market.

12. Section 4(1) of the Competition Act states that ´all agreements between undertakings, decisions by associations of undertakings and concerted practices which have as their object or effect the prevention, restriction or distortion of competition in trade in any goods or services in the State or in any part of the State are prohibited and void.'

13. Section 3(1) of the Competition Act defines an undertaking as ´a person being an individual, a body corporate or an unincorporated body of persons engaged for gain in the production, supply or distribution of goods or the provision of a service.' The parties to the present agreement are Dairygold, and Greens. They are both corporate bodies engaged in the provision of goods and services for gain and are therefore undertakings within the meaning of the Act.

14. The present arrangements therefore constitute an agreement between undertakings whereby Dairygold has purchased the business concerned from Greens. The stated object of the notified arrangements is to transfer ownership of the business from Greens to Dairygold. The Authority has indicated in previous decisions [4] that such an object per se does not offend against Section 4(1).

15. Following the sale, Dairygold's share of the market will still be less than 5%. The Authority notes the claims of the parties that there are a large number of other competitors active in the market. It was not possible in this instance to estimate the degree of market concentration. The market shares of the businesses affected by this agreement, however, suggest that it is unlikely to lead to an increase in market concentration to an extent that would threaten competition. In such circumstances the Authority believes that the agreement for the sale of the business by Greens to Dairygold does not have the effect of preventing, restricting or distorting competition within the State or any part of the State and thus does not offend against Section 4(1) of the Competition Act.

16. Clause 13 of the agreement restricts the vendor from soliciting its former suppliers for a period of two years from completion. The Authority has indicated in a number of previous decisions that a restriction on a vendor competing with the purchaser of a business may be necessary to protect the goodwill of the business being sold, and that, where such a restriction does not exceed what is necessary for the protection of that goodwill in terms of its duration, geographic coverage and subject matter, it does not offend against Section 4(1). In General Semiconductor, the Authority indicated that, having had an opportunity to consider a number of such agreements, it would generally consider a non-competition clause exceeding two years in a sale of business agreement to offend against Section 4(1) [5]. The present agreement does not prevent Green competing in the relevant market, but merely restricts from soliciting business from former suppliers for a period of two years. In the light of its previous decisions such a restriction does not, in the Authority's view prevent, restrict or distort competition and thus does not offend against section 4(1).

17. In the Authority's opinion, Dairygold, and J.W. Green are undertakings within the meaning of Section 3(1) of the Competition Act, and the notified arrangements for the acquisition by Dairygold of the business at Buttevant County Cork from Greens, constitute an agreement between undertakings. In the Authority's opinion the arrangements do not have as their object or effect the prevention, restriction or distortion of competition. The agreement of 16 July 1993 for the acquisition by Dairygold Mills of the cereal handling business of J.W. Green & Co. Ltd. at Buttevant, between Dairygold Mills Limited and J.W. Green & Co. Ltd., does not, in the Authority's opinion, offend against Section 4(1) of the Competition Act, 1991.

18. The Competition Authority has issued the following certificate:

The Competition Authority certifies that in its opinion, on the basis of the facts in its possession, the agreement of 16 July 1993, between Dairygold Mills Limited and J.W. Green & Co. Ltd., for the acquisition by Dairygold Mills of the cereal handling business of J.W. Green & Co. Ltd. at Buttevant, County Cork, (notification no. CA/34/93), notified on 19 July 1993 under Section 7, does not offend against Section 4(1) of the Competition Act, 1991.

For the Competition Authority

Patrick Massey

Member

9 September 1993.