Irish Competition Authority Decisions

1. Notification was made on 22nd September, 1995 by Bride and Blackwater Valley Co-operative Dairy Society Ltd. (the “Society”) of the Rules of the Society with a request for a certificate or, in the event of a refusal by the Authority to issue a certificate, a licence.

2. Notification is made of the Rules of the Society. The Society is composed of a number of dairy farmers in the south-west of the State. The primary business of the Society is the purchase and the resale of milk and milk products.

3. The Society is registered as an Industrial and Provident Society Limited under the Industrial and Provident Societies Acts, 1893 - 1978. It has less than 50 members. It operates a limited company registered in the State under the name of Bride and Blackwater Valley Dairy Company Limited. The Society and the limited company have their registered offices at Lisheen, Emly, Co., Tipperary.

4. The product affected by the notified arrangements is milk. Milk is produced throughout the State on farms operated by independent dairy farmers. All whole milk produced in the State must, according to the European Communities (Milk Quota) Regulations, 1994 (S.I. No. 70/1994), be supplied by dairy farmer to co-operative societies and other authorised purchasers. These co-operative societies and authorised purchasers are responsible for the resale and processing of the milk.

5. The principal purchasers of milk for processing for the domestic packaged milk market in the State are Premier Dairies, Avonmore Dairies, Kerry Foods and Dairygold Premier, a subsidiary of Waterford. Avonmore and Waterford merged in the Summer of 1997.

7. The total volume of milk purchased and processed by Bride and Blackwater Dairy Co-operative Society in the year ending March 31st, 1998 was less than 60,000 gallons. According to 1996 CSO figures the annual total volume of milk collected in the State for processing and sale was over 5,000 million litres, (approx. 2,000 million gallons). The Society’s market share is therefore approximately 0.01%. The Society has a total current membership of fifteen. The Competition Authority has confirmed with the Department of Agriculture that there are approximately 35,000 - 40,000 active milk producers in the state.

8. The objects of the Society are set out in Rule A.3. The first object listed is “(T)o assist its members in getting the best possible price for their milk.”

9. Rule General.34. states that:

“As a corollary to the first object of this Society and as a consequence of the necessity for the Society to be in a position to negotiate with third parties for the sale of a quantity of milk as nearly as possible equivalent to the total quota available to all its members and in view of the small membership of the Society such that the absence or unavailability of the milk supply of any one member would make an appreciable difference to the Society's total available milk pool for sale in any year, members, at the direction of the board, shall either:

(a) Immediately transfer their milk deliveries (or at least 95% thereof) to the Society as soon as the Society becomes a registered purchaser within the meaning of the European Communities (Milk Quota) Regulations, 1994 (S.I.No. 70/1994) or at such other time as shall be specified by the Board and furthermore, shall give the Society, by letter delivered to the Secretary, at least 12 months' notice before serving on the Society notice of intention to transfer deliveries to another registered purchaser or

(b) Supply their milk to such registered purchaser as they shall be directed so to do by the Board and give the Society, by letter addressed to the Secretary, at least 12 months' notice in writing before serving notice of transfer of deliveries from such other registered purchasers.”

10. Rule General.35. reads as follows:

“The Society shall be obliged, if carrying on business as a registered purchaser, to accept all milk produced by members as long as it carries on business as a milk purchaser in any year to the limit of the members milk quotas available to it for that year. The Board may, at its sole discretion, refuse to accept milk offered by a member which is in excess of the quota allocated to a member. A member's obligation to supply milk to the Society as outlined above shall be limited to the mount of his quota with the Society. Both the Society's obligation to accept milk and the member's obligation to supply milk may be waived by the other without prejudice to the rights of the other party under these rules. Similarly, if the society is merely negotiating the sale of milk on behalf of its members, to negotiate on behalf of each and every member of the Society.”

11. The parties submit that the arrangements do not afford the undertaking the possibility of eliminating competition in respect of a substantial part of the product market in question. The parties submit that as the quotas of the original members were previously with Waterford, the formation of the new co-op contributes to increased competition and efficiency generally in the production and processing of milk. This, they argue, can only lead to better quality and better prices for consumers.

12. The parties submit that nothing in the notified arrangements impose on the undertakings concerned terms which are indispensable to the attainment of these objectives.

13. 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.

14. The members of the Society are individuals engaged for gain in the dairy farming business and each member is therefore an undertaking for the purposes Act. The Society itself is an association of undertakings. As such, the Rules of the society therefore constitute an agreement between undertakings and an agreement between undertakings and an association of undertakings within the meaning of Section 4(1) of the Act.

15. Farming associations have a qualified exemption from competition rules under European law. Article 2 of Regulation 26 of 1962 provides that “(Article 85(1)) shall not apply to agreements, decisions and practices of farmers, farmers’ associations, or associations of such associations belonging to a single Member State which concern the production or sale of agricultural products . . . and under which there is no obligation to charge identical prices, unless the Commission finds that competition is thereby excluded or that the objectives of Article 39 are jeopardised.” The Society here is such a farming organisation as referred to in Regulation 26 and therefore has a qualified exemption from European competition rules. However, there is no equivalent exemption from Irish competition rules in the Competition Acts or other legislation for farming organisations. As the Authority is only empowered to apply Section 4 of the Competition Act to its decisions on notifications, the European exemption for farming organisations is not relevant here.

16. The Rules of the Society constitute the establishment of the effective assignment of the marketing function of the members of the Society to the Society. The Rules oblige the Members to transfer their milk quotas to the Society and the Society is obliged to take them. Members must give one year notice prior to leaving the Society. Therefore, the Society may be characterised as a joint selling arrangement on behalf of the members.

17. Joint selling arrangements may infringe Section 4(1). Section 4 proceeds on the basis that undertakings must compete independently and not co-ordinate their commercial activities, particularly in areas such as selling or the setting or prices. Joint selling arrangements among undertakings who are competitors and are in a position to sell directly in the market are an obvious example of such co-ordinated practice which the competition rules are designed to prohibit. This is the position under European law (See Floral, OJ 1980 L39/51 (1980).

18. The arrangements notified here are significantly different from that of a typical joint selling arrangement organised among competitors. Here, the sellers, the dairy farmers must sell to authorised purchasers by law pursuant to the European Community’s milk quota regime. These authorised purchasers are the only means by which the dairy farmers obtain access to the market for processed milk. Under these circumstances, the farmers are prohibited from selling product individually to downstream customers, the joint selling arrangements which exisit in the milk market can not be deemed to be inherently anticompetitive.

19. The Authority also takes note of the structure of the relevant market here and the nature of the selling arrangement notified. The effect of the arrangement notified here is to decrease concentration in the relevant downstream market as the dairy farmers who sell into this cooperative have diverted their supplies from a much larger joint selling arrangement. Arrangements which decrease market concentration in the downstream market are likely to be characterised as being pro-competitive. Therefore, the Rules of the Society notified here do not restrict competition.

20. In the Authority’s opinion, the members of the Society are undertakings and the Society is an association of undertakings within the meaning of the Competition Act, 1991 as amended. The notified arrangements is an agreement among undertakings and between undertakings and an association of undertakings. In the Authority’s opinion, the notified agreement does not prevent, restrict or distort competition and thus does not contravene Section 4(1) of the Competition Act.

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 Rules of the Bride & Blackwater Valley Co-Operative Society Ltd. notified under Section 7 of the Competition Act on 5 October 1995 (Notification No. CA/34/95) does not contravene Section 4(1) of the Competition Act, 1991, as amended.

For the Competition Authority,

William Prasifka

Member

17 July 1998