Can't Make an Omelette Without Breaking Eggs: Will Farm-to-Fork Crack European Antitrust?
The Situation: The European Commission ("EC") is expected to release guidelines regarding a newly introduced exemption to the EU antitrust rules for certain agreements aimed at achieving the EU's sustainability objectives in the agri-food supply chain. The guidelines will follow the EC's public consultation with stakeholders in the agriculture and food industry, including primary producers, processors, manufacturers, wholesalers, retailers, and input providers.
The Background: The EC's Farm-to-Fork strategy is one of the key initiatives in the European Green Deal, which seeks to make Europe a climate-neutral continent by 2050. The Farm-to-Fork strategy aims to develop a "sustainable food system" that reduces greenhouse gas emissions, pesticides, antimicrobials, and excess fertilization; improves animal welfare; increases organic farming; and reverses biodiversity loss.
Looking Ahead: The EU has made a policy choice to permit certain agreements in the agri-food supply chain that it might otherwise view as contrary to its antitrust laws so long as those agreements reinforce sustainability standards higher than what is mandatory under EU and/or national laws. However, the forthcoming EU exemption guidelines will need to provide clarity about the EC's enforcement intentions in this area to overcome risks associated with an antitrust violation, including hefty fines and other remedies, and to promote its Farm-to-Fork objectives.
EU antitrust law prohibits agreements between companies that restrict competition such as price fixing, bid rigging, information sharing or other agreements between competitors that lead to higher prices or lower output. Certain types of agreements like price fixing and bid rigging are condemned regardless of the justification. Other agreements that limit competition may be permitted, but only if the net benefit to competition outweighs the anticompetitive harm from an agreement.
The European Green Deal, and in particular the Farm-to-Fork strategy, has led to a debate in the EU about whether competition rules stand in the way of the EU achieving its sustainability goals, given that the EU competition laws prohibit or limit competitor (or supply chain) activity that might otherwise support the EU's climate policies. As the EC has rolled out various Green Deal initiatives, the leadership at the highest levels of the EC—including those responsible for competition policy—have put their thumb on the scale of that debate. To achieve the goals of the Green Deal, EC leadership has said that it will apply competition rules in ways that "better support the Green Deal." In the agricultural sector, cooperation among competitors or in the supply chain is seen, at least from a political standpoint, as more desirable among EC leadership.
To support the Farm-to-Fork strategy, the European Parliament and Council of the EU adopted an antitrust exemption in Article 210a (the "Exemption") of Regulation 2021/2117. The Exemption states that some agreements between agricultural competitors or agreements in the vertical agricultural supply chain can have positive effects on the EC's sustainability goals. The Exemption allows such an agreement—even if it harms competition—as long as the agreement is aimed at achieving sustainability standards higher than what is mandatory under EU and/or national laws, and provided that any restriction of competition is indispensable in achieving the sustainability outcome. To qualify for the Exemption, an agreement must promote certain EU environmental objectives:
- Climate change mitigation;
- Sustainable use and protection of landscapes, water, and soil;
- Transition to a "circular economy," including reduction of food waste and prevention and control of pollution;
- Protection and restoration of biodiversity;
- Reduction of pesticide use;
- Reduction in the danger of antimicrobial resistance in agricultural production; and
- Improved animal health and welfare.
The European Parliament and Council of the EU have tasked the EC with issuing Exemption guidelines to provide some legal certainty so that businesses can support the EC's Farm-to-Fork policy, while also staying clear of competition law violations. The EC conducted a public consultation with stakeholders such as primary producers, processors, manufacturers, wholesalers, retailers, and input providers, which concluded in May 2022. The EC expects to issue draft Exemption guidelines for public comment in the first half of 2023, with the final guidelines due by December 8, 2023. Companies also will be able to request an opinion from the EC about whether a proposed Farm-to-Fork-related agreement would violate the competition rules.
Despite the general policy announcements from the EC, key questions remain about whether the Exemption, including the Exemption guidelines, will provide sufficient clarity to encourage business cooperation in furtherance of the Farm-to-Fork strategy. Even in the best of circumstances it can be challenging for businesses and antitrust enforcers to forecast with precision an agreement's net effect on competition. Adding the impact on the EU's Farm-to-Fork objectives will only complicate that analysis, unless and until the EC adopts guidance that more clearly articulates the sustainability objectives it will credit and how to weigh sustainability benefits against potential anticompetitive harm.
Three Key Takeaways
- The EC has said it will relax certain competition rules to achieve its Farm-to-Fork sustainability objectives. Until the EC puts meat on those bones in the form of Exemption guidelines set to be released in early 2023, it will be difficult for businesses to predict what business collaborations might pass muster.
- Companies active in the agricultural sector should consider what competitor or industry collaborations might help advance their business interests that also benefit the EC's Farm-to-Fork objectives. Beyond a first-mover advantage, companies or trade associations will have an opportunity to shape the EC's policies when it releases the Exemption guidelines for public comment in the first half of 2023.
- Global agri-food businesses will not have the luxury of considering the EC's exemption in isolation. While other countries may share some of the EU's policy goals, there is no indication they plan to adopt a similar antitrust exemption.
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