Irish Competition Authority Decisions

1. An arrangement was notified on 30 September, 1992 by Malting Company of Ireland Limited with a request for a licence under Section 4(2) of the Competition Act, 1991. The parties subsequently informed the Authority that they wished to amend the licence application to one for a certificate under Section 4(4) of the Act, or, in the event of a refusal by the Competition Authority to issue a certificate, a licence under Section 4(2).

2. The notification concerns an agreement dated 4 December 1989 for the supply of malt by Malting Company of Ireland Ltd, a company engaged in the production of malt, to Beamish & Crawford PLC, a brewing company.

3. Malting Company of Ireland Ltd (“MCI”) is engaged in the production of malt. The company was set up in 1965 jointly by Beamish & Crawford (“Beamish”) and Cork Distillers; at the time the agreement was notified, it had become a wholly-owned subsidiary of Irish Distillers Ltd. MCI is now, since 1994, a wholly-owned subsidiary of R&H Hall, which in turn is owned by IAWS. The turnover for IAWS for the year ended July 1995 was £510.59m and the turnover for R&H Hall was estimated at £140m for the same period.

4. Beamish is involved in the brewing and marketing of beer and other alcoholic beverages. At the time the agreement was notified, Beamish’s ultimate holding company was Elders IXL (Australia); its ultimate parent now is Scottish and Newcastle (UK). Beamish’s turnover for the year ended April 1996 was IR£41.9m.

5. The product involved in this notification is malt. Malting is a capital-intensive business and a substantial amount of capital would be required to start up in business. Apart from MCI, the major malt producer in Ireland is Greencore plc, which has in excess of 70% of the market. The buyers in the malt market in Ireland are the distillers and the brewers. It is estimated that there are 3,000 growers of malting barley in the State who sell their malt to the various malting houses. The total market for malt sales in Ireland in 1993 was estimated at approximately £40m, with Greencore having £30m (75%) of that total, and MCI having £4m (10%).

6. Malt is an internationally-traded commodity and a large proportion of the output of the malting companies in the State is exported. MCI exports to Northern Ireland and Scotland, while Greencore are malt exporters on a world scale. Malt is also imported into Ireland from the United Kingdom and other parts of Europe. Some specialist supplies are imported from the USA.

7. The Authority considers that the relevant market in this case is the market for malt.

8. The purpose of the agreement of 4 December 1989 is to continue the long-standing trading relationship between Beamish and MCI, following Irish Distillers Group’s acquisition of Beamish’s shareholding in MCI in 1989. The agreement is a supply agreement whereby Beamish, in return for a consideration of IR£[ ] from MCI, agrees to purchase from MCI its annual malt requirements, that is “... not less than [ ] tonnes (minimum) and not more than [ ] tonnes (maximum) ...”, at a price agreed between the parties. The agreement had a fixed minimum duration of seven years but could be continued beyond that, unless terminated by either party giving at least two years notice (clause 4), but not before 31 October 1994.

9. There are also requirements covering MCI’s failure, for reasons beyond its control, to supply the agreed annual malt requirement to Beamish, which allow Beamish to obtain the balance of its malt requirements from a third party and releasing it from the obligation to take the full amount from MCI for a particular year (clause 8). Clause 9 of the agreement provides that if, on the other hand, Beamish is unable to take the full annual malt requirement, it must arrange to have supplied to MCI a quantity of dried or green barley free of charge for processing by it; it must also arrange for a brewery in the UK to accept delivery of, and pay for at a price to be agreed, the processed malt.

10. In response to a query from the Authority, MCI stated on 19 September 1995 that the agreement was still in force and confirmed that no changes had been made to the agreement since it was notified to the Authority. Clause 13 of the agreement requires Beamish to keep any information made available to it, for the purpose of calculating the price of the malt, confidential.

11. MCI submitted that the agreement was not between competing manufacturers of product and that the parties were not connected in any respect. They maintained that it was not an exclusive agreement, as Beamish was not restricted from purchasing malt, in excess of the quantity agreed in clause 2, from a third party. The arrangements enabled MCI to plan the sale of its products, its financial strategy and targets with a greater degree of certainty and for a longer period of time. The arrangements also benefited Beamish, by ensuring that its requirements for malt would be guaranteed as regards regular supply, quantity and for a specified duration.

12. The parties submitted that the two-year notice period for termination in clause 4 of the agreement represented a reasonable time period for the parties to adjust to the loss of supply for Beamish and the loss of order for MCI. They claimed that, in the malting industry, Malt Supply Agreements were generally arranged annually (post-harvest) with brewers and distillers for a minimum period of twelve months and that this supply agreement was not, therefore, unusual. They maintained that clause 5 enabled the parties to freely and fairly assess the price for the malt requirement and they regarded it as being pro-competitive, as it was agreed within the context of the Irish market price and that of the other suppliers in the market. It prevented the parties from fixing the price according to one or the other party’s needs. Clause 7 provided a method for the parties to establish a “Fair Price” in the event that there was no agreement on the price. They believed that the criteria set out in the clause provided a reasonable basis to assess a reasonable price for the supply of malt to Beamish. Clause 9 was included in the agreement to protect MCI in the event that Beamish did not fulfil its obligation to purchase the full quantity of malt. They maintained that this clause did not affect competition in the State because the brewery which was obliged to take the balance of the malt was an English brewery.

13. The consumer benefited from the arrangements resulting from the degree of certainty of supply and stability of supply price. The parties maintained that, because Beamish knew in advance the price of the malt, it was able to plan its financial budget in advance and thereby avoid variations in costs and prices. They maintained that a supply / purchase agreement of this nature resulted in a cost-effective organisation and enhanced production and distribution; the obligation to purchase a certain quantity of product from MCI was indispensable if these objectives were to be achieved. The agreement could be terminated on a two-year notice basis, in order to allow both parties to make alternative arrangements - Beamish to seek an alternative supply and MCI to obtain a new order.

14. They submitted that the agreement did not relate to the sharing of a market and that none of the conditions placed the parties at a competitive disadvantage; rather it helped both parties by enabling them to plan their business on a more certain basis. The agreement did not contain supplemental obligations which were not required or unusual in an agreement of this kind. The arrangement did not have as its object or effect the prevention, restriction or distortion of competition. MCI was not restricted from supplying other consumers in the market with malt. The agreement only related to one type of product and set a minimum requirement. They submitted that there were no other obligations imposed on Beamish or MCI other than the obligation to purchase and sell.

15. They maintained that the agreement was indispensable to securing the business objectives of the parties and it did not contain any restrictions impeding the normal commercial activities of either party. The agreement could not be considered as an exclusive purchasing agreement because Beamish was free to purchase malt elsewhere in excess of the annual requirement, and the goods (malt) were not for resale directly, but used in the manufacture of beer. Even though the agreement did not come within the definition of an exclusive purchasing agreement, they argued that this agreement was less restrictive and therefore should be regarded as falling outside the ambit of the Competition Act, 1991. The agreement had the effect of providing the benefit of certainty of supply to the parties while still allowing them to obtain (in the case of Beamish) or provide (in the case of MCI) supply to or from other sources. They asserted that the obligations in the agreement were only for the duration of the agreement. There was no elimination of competition in the malt industry sector in the Republic of Ireland or any part thereof as a result of the agreement.

16. Section 4(1) of the Competition Act, 1991, 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 ”.

17. Section 3(1) of the Competition Act, 1991, 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 ”. MCI is engaged for gain in the production of malt. Beamish is engaged for gain in the brewing and marketing of beer and other alcoholic beverages. Consequently, they are both undertakings within the meaning of Section 3(1) of the Act, and the agreement is an agreement between undertakings.

18. The agreement between MCI and Beamish is an agreement whereby Beamish, in return for a consideration of £[ ] paid to it by MCI, contracts to purchase a quantity of malt from MCI for a minimum period of seven years. The quantity, ranging between a fixed minimum ([ ] tonnes) and a fixed maximum ([ ] tonnes) amount of malt per year, is called the Annual Malt Requirement. There are requirements in the agreement for the setting of the price each year between the parties, (clauses 5, 6 and 7), confidentiality requirements, arrangements for making up the annual malt requirement if Beamish are unable to meet it (clauses 8 & 9) and termination provisions.

19. The price of the malt is determined by the parties by agreement, but based on the current Irish market price of barley and malt from other suppliers. If no agreement is reached on the price, then the price will be calculated by using the price for the previous year adjusted to take account of changes in the price or quality of the barley, the cost of production (fuel and power) and other costs such as conversion and financing charges. In the opinion of the Authority, the provisions concerning price are not anti-competitive and do not contravene Section 4(1) of the Competition Act, 1991.

20. Beamish is obliged, under the terms of the agreement, to purchase an Annual Malt Requirement from MCI ranging between a stated minimum and maximum quantity of malt per year. In the event that Beamish is unable to purchase this quantity of malt from MCI, for reasons other than those beyond its control, then, under clause 9, it is obliged to arrange for the supply of a quantity of barley free of charge to MCI for processing, the quantity in question must make up the shortfall between the amount of malt taken by Beamish and its minimum Annual Malt Requirement, and Beamish must also arrange for another company, outside the State, to take delivery of the processed malt.

21. The initial duration of the agreement was seven years with effect from 1 November 1989, with a requirement for a two-year notice period for termination (which could not be made before 31 October 1994) and it will continue in force unless terminated by either party.

22. The duration of the agreement is not much beyond that for normal long-term sales agreements in the malt industry. Other brewers in the State have agreements for 5 years duration for the supply of malt. The Authority considers that such an agreement length in a non-exclusive agreement does not contravene Section 4(1) of the Act.

23. The parties involved in this arrangement have market shares not exceeding 10% in their respective markets. Furthermore, both markets are characterised by a major player which account for the vast majority of the market. Taking this into account, the agreement does not, in the opinion of the Authority, contravene Section 4(1) of the Act.

24. In the Authority’s opinion, Malting Company of Ireland and Beamish & Crawford are undertakings within the meaning of Section 3(1) of the Competition Act, 1991 and the notified agreement is an agreement between undertakings. In the Authority’s opinion, the malt supply agreement dated 4 December 1989 does not contravene Section 4(1) of the Act.

25. 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 malt supply agreement dated 4 December, 1989, notified under Section 7 of the Competition Act, 1991, on 30 September 1992, does not contravene Section 4(1) of that Act.