Irish Competition Authority Decisions

1. Notification was made of an agreement between Snowcream Limited and Oliver Murphy on 30 September 1992 with a request for a certificate under Section 4(4) of the Competition Act, 1991 or, in the event of a refusal to issue a certificate, a licence under Section 4(2) of the Act.

2. The notification concerns the appointment by Snowcream Limited of Oliver Murphy as an independent distributor and seller of pasteurised/homogenised milk (and other associated products) under the Snowcream brand on a door to door basis in a specified area known as the Round.

3. Snowcream Limited (Snowcream), which had its registered office at Glenville in the City of Waterford, was a member of the group of companies controlled by Waterford Foods plc (Waterford) which had its registered office at The Friary, Main Street, Dungarvan, Co. Waterford. Waterford’s principal activities were the manufacturing and distribution of dairy-based foods and food ingredients in the State, the UK and the US. Another company in the Waterford Group, Premier Dairies, was involved in liquid milk distribution in the State. In subsequent developments Waterford and Avonmore merged in the summer of 1997 to form the Avonmore Waterford Group.

4. Checkout magazine estimated the value of the market in the State for milk for domestic consumption at IR£330m in 1996 [1]. This represented a volume of 5.2m hectolitres. The same source estimated that 2.6m hectolitres of milk was delivered in 1996 by milkmen which had a value of IR£163.8m. Snowcream estimated that they had 5% of the sales of liquid milk for domestic consumption in the State. Another company in the Waterford group, Premier Dairies, is involved in liquid milk distribution in the State (Premier’s distribution agreements are the subject of Decision No. 461 of 21 March 1996). In terms of the Leinster market, Checkout estimated that Avonmore had 35% of the market while Premier had 25%, with the remainder shared among smaller dairies. Further, in the Waterford and Wexford areas Snowcream is reputed to be the market leader.

5. Oliver Murphy, of Rathmore, Ramsgrange, Co. Wexford, is an independent distributor and seller who undertakes doorstep delivery of Snowcream products (the Products) in the area known as the Round, which comprises the towns of Campile, Fethard and Ramsgrange in Co. Wexford and the surrounding areas in the vicinity thereof. Snowcream claimed that it was not aware of the total turnover of Oliver Murphy.

6. The product primarily affected by the arrangement is milk, in particular liquid milk which has been packaged for domestic consumption [2]. A number of different types of packaged milk are affected, the most important being pasteurised milk, homogenised milk, low fat milk and skimmed milk. The arrangement also affects two products derived from whole milk, namely cultured buttermilk and cream. Pasteurised milk is milk which has been sterilised partially by heating and then by chilling. Homogenised milk is milk which has been treated so that the particles of fat are broken down and the cream content of the milk does not separate. Low-fat milk is pasteurised milk from which a substantial proportion of fat has been removed. Skimmed milk is pasteurised milk from which all cream has been removed. Cultured buttermilk is skimmed milk with lactic cultures added. It is primarily used for baking. Cream is the fatty part of milk which is removed by the skimming process. Cream is used primarily for baking and confectionery purposes

7. Whole milk is produced throughout the State on farms operated by independent dairy farmers. All whole milk produced in the State must, by law, be supplied by the dairy farmers to co-operative societies and other authorised purchasers. These co-operative societies and authorised purchasers are responsible for the processing of the milk, which involves the preparation of liquid milk for human consumption.

8. Snowcream claimed that liquid milk intended for domestic consumption is placed on the market by almost all co-operative societies (co-ops) and other authorised purchasers of milk. Snowcream claimed that as a result of the very high volume and quality of Irish production and the sophistication and competitiveness of the Irish producers, there is no significant level of importation of liquid milk for domestic consumption in the State [3]. The relevant geographical area in this case is the area defined as the Round as described in the agreement.

9. Snowcream claimed that the principal producers of liquid milk for domestic consumption in the State include Premier Dairies, Avonmore Dairies, Kerry Foods and Dairygold [4]. The ultimate purchaser of packaged milk are individual households. Almost every household in the State purchases packaged milk regularly. The ultimate purchasers of packaged milk may buy it from a variety of sources including retail outlets or mobile suppliers, such as Oliver Murphy who deliver on a door to door basis. Retail outlets and mobile suppliers are generally supplied directly by milk (for domestic consumption) producers, i.e. the co-ops and other licensed producers. Snowcream estimated that in the State approximately 60% of liquid milk for domestic consumption was purchased in retail outlets while the remaining 40% was delivered door to door. Snowcream claimed that there are no special features, either related to supply or demand, which distinguish one region of the State from another.

10. Snowcream estimated that the value of the packaged liquid milk market for domestic consumption in the State in 1991 was approximately IR£250m. No figures were given which correspond to the geographical coverage of the agreement. In 1995 the total production of whole milk stood at 51.9m hectolitres of which some 5.34m hectolitres was used for milk for domestic consumption [5].

11. Snowcream claimed that due to the fact that there is a surplus of milk produced in the EU as a whole and particularly in Ireland, there is intense competition among suppliers of liquid milk for domestic consumption. This competitiveness is accentuated by the relatively large size of many of the enterprises involved in milk production, most of which have well developed distribution networks.

12. Snowcream claimed that in respect of most, if not all, of the uses of milk the only substitutes for liquid milk used for domestic consumption are other products produced from liquid whole milk (e.g. dried milk).

13. The agreement of the 15 May 1991 between Snowcream and Oliver Murphy referred to Oliver Murphy as “the agent”. The agreement stated that the Round had been heretofore operated by an agent for and on behalf of Snowcream and that Snowcream was beneficially entitled to the goodwill associated with such sale and distribution in the Round. Snowcream appointed Oliver Murphy as an independent distributor and seller of the Products in the Round and granted Oliver Murphy a licence of Snowcream’s goodwill in the sale and distribution of the Products in the Round (clause 1.1). Snowcream was to pay to Oliver Murphy the consideration in the amount, manner and at the times specified in the third schedule of the agreement (clause 1.2). The agreement continued in force for a period of 3 years (clause 1.3) from May 17 1991. After the 3 years expired a new agreement between Snowcream and Oliver Murphy was put in place. This agreement was similar to the John Greene agreement which was certified by the Authority [Decision No. 480].

14. In clause 2.1 Oliver Murphy was obliged to purchase solely from Snowcream sufficient quantities of the Products to meet the needs of customers in the Round at a price given in the first schedule which may be varied from time to time as notified by Snowcream to Oliver Murphy. In clause 2.2 Oliver Murphy agreed that he would sell the Products as soon as is practicable after they are received by him and that he would not alter, remove or in any tamper with any of Snowcream’s marks or numbers. In clause 2.3 Oliver Murphy agreed that he would not be associated in any way whatsoever by way of sale, distribution or otherwise with products that compete or are likely to compete with the Products either in the Round or in any other area where Snowcream or its franchisees or agent operate. In clause 2.4 Oliver Murphy agreed not to sell any other products other than those specified in the agreement without the written consent of Snowcream. In clause 2.5 Oliver Murphy agreed not to re-sell the Products at a price in excess of that permitted by law.

15. In clause 2.7 Oliver Murphy is held responsible for maintaining a full and accurate record of customers accounts and he shall on demand produce the same to Snowcream for inspection by them. In clause 2.8 Oliver Murphy agreed that he will co-operate with Snowcream in the marketing and promotion of the Products on a local, regional and national basis and that he will at all times use his best endeavours to promote and extend the sale of the Products throughout the Round.

16. Snowcream shall at all times use its best endeavours to supply the Products to Oliver Murphy but if due to industrial action or otherwise Snowcream is prevented from doing so, Snowcream shall not be deemed to be in breach of the agreement (clause 3.1). Snowcream will allow 14 days credit to Oliver Murphy in respect of the Products purchased by Oliver Murphy (clause 3.2). Snowcream will on an ongoing basis promote the Products by way of advertising and marketing on a local, regional and national basis for the purposes of retaining and improving local, regional and national sales of the Products (clause 3.3). Snowcream shall provide advice, assistance and backup to Oliver Murphy in establishing a suitable accounting system for the recording of his business.

17. The notification concerns the appointment by Snowcream Limited of Oliver Murphy as an independent distributor and seller of pasteurised/homogenised milk (and other associated products) under the Snowcream brand on a door to door basis in a specified area known as the Round.

18. Snowcream stated that the Authority might consider the following provisions of the arrangement to be restrictive of competition:

19. Snowcream submitted that the likely effect of the arrangements on competition in the State is negligible. Snowcream stated that given that Section 4(1) of the Act was adopted by analogy to Article 85(1) of the EEC Treaty, the intended ambit of Section 4(1) should be understood in the light of the European Commission’s interpretation of the scope of Article 85(1) and, in particular, the EC’s Commission’s Notice of 3 September 1986 on agreements of minor importance which do not fall under Article 85(1) [OJ C231 of 12 September 1986]. In that Notice the EC commission stated its opinion (paragraph 1.2) that:

“...agreements whose effects on trade between Member states or on competition are negligible do not fall under the ban on restrictive agreements contained in Article 85(1). Only those agreements are prohibited which have an appreciable impact on market conditions, in that they appreciably alter the market position, in other words the sales or supply possibilities, of third undertakings and of users.”

20. Snowcream submitted that, by analogy with the Notice, Section 4(1) cannot be regarded as applying to the arrangement concerning the appointment of individual milkmen, because the arrangement did not have an appreciable impact on market conditions or on the sales or supply possibilities of third parties and consumers. The appointment of each individual milkman concerned only a geographically limited area comprising approximately three hundred to four hundred households. In addition, Snowcream’s sales of liquid milk for domestic consumption did not account for more than 5% of the total market in the State (c.f. EC Commission Notice, paragraph 7). As the effects of the arrangement on competition in the State were negligible, Snowcream submitted that the arrangement did not fall within the prohibition contained in s4(1). Snowcream requested that the Authority issue a certificate on this basis.

21. Snowcream presented arguments in support of their request for the granting of a licence. These arguments are not relevant in this case.

22. There were no submissions by third parties.

23. 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 goods or services in the State or in any part of the State are prohibited and void”.

24. Section 3(1) of the Competition Act defines an undertaking as “a person, being an individual, a body corporate or an unincorporated body engaged for gain in the production, supply or distribution of goods or the provision of a service.” Snowcream is a corporate body engaged for gain in the supply and distribution of liquid milk and other products, and Mr Murphy is engaged in the distribution of goods for gain. They are therefore undertakings, and the agreement is an agreement between undertakings. The agreement has effect within the State.

25. It is clear from the agreement that Mr Murphy is appointed as the sole independent distributor and seller of Snowcream products for door-to-door delivery in the area encompassed by the Round. He is also required to purchase exclusively from Snowcream. Snowcream products are also distributed to retail outlets for resale to consumers in the territory.

26. The agreement between Snowcream and Mr Murphy is not of a kind which is contemplated in the category licence for exclusive distribution agreements (Decision No. 144 of 5 November 1993), since the supplier, Snowcream, supplies the goods to other resellers within the territory and to certain final users.

27. The Authority has recognised in Decision No. 480 (Snowcream/John Greene) that distribution agreements of this type may not, in certain circumstances, be anti-competitive and that they may simply constitute a logical and efficient, and in some instances the only, mechanism by which the products concerned can be distributed, in which case they cannot be considered to have either the object or effect of preventing, restricting or distorting competition.

28. An examination of the facts in each case is necessary to establish whether or not a distribution agreement contravenes Section 4(1). On examining the facts in this particular agreement with Mr Murphy, the Authority has concluded that this distribution agreement did not contravene Section 4(1). This agreement did not restrict inter-brand competition because other companies may choose to enter similar agreements with other parties for the delivery of their competing milk products in the Round. The agreement does not prevent or restrict intrabrand competition since there are other retailers of the products within the Round. The arrangements with Mr Murphy, the only party permitted to provide a doorstep delivery service of Snowcream products in the Round, were principally designed to enhance the efficiency of liquid milk distribution in the Round. It is the view of the Authority that the agreement cannot be considered to have either the object or effect of preventing, restricting or distorting competition.

29. Snowcream and Mr. Murphy are engaged in the supply and distribution of liquid milk, and they are undertakings within the meaning of the Competition Act. The notified agreement is an agreement between undertakings. The Authority considers that the agreement notified on 30 September 1992 (notification no. CA/1137/92EX), does not contravene Section 4(1) of the Competition Act, 1991.

30.. The Competition Authority has issued the following certificate:

31. The Competition Authority certifies that, in its opinion, on the basis of the facts in its possession, the Snowcream distributor agreement (notification no. CA/1137/92EX), notified on 30 September 1992 under Section 7 did not contravene Section 4(1) of the Competition Act, 1991 while it was in existence.

[1] Checkout magazine estimated that in 1996 the market for milk was made up of full cream milk which made up 78% of total sales, low fat milk which made up 14-15%, with fortified making up 5% and skimmed milk making up the remaining 2% of the market.

[2] In what follows, when referring to milk it should be assumed that the reference is to milk for domestic consumption unless otherwise stated

[3] In terms of the importation of milk in 1997 there was some IR£19.9m of imports of milk and cream (with a fat content, by weight, of 1% to 6%). This milk originated almost 100% from Northern Ireland.

[4] Premier is a subsidiary of Waterford. Avonmore and Waterford merged in the Summer of 1997.

[5] Source CSO Statistical Abstract 1996.

[6] No such post termination non-compete clause is written into the agent’s agreement with Oliver Murphy.