Sanctions in the dairy industry
In 2013, the food and agriculture sector was subject to supervision by the Antimonopoly Office of the Slovak Republic (hereinafter referred to as the “Office”). The Office also reviewed the raw milk market and the dairy retail industry.
Following the investigation, five inspections were conducted at various dairy companies. After their investigation, the Office (preliminarily) concluded that the subject milk, butter and cream suppliers, as well as their affiliated retailers, may have infringed upon Act no. 136/2001 Coll. on Protection of Competition and on Amendments and Supplements to the Act of the Slovak National Council No. 347/1990 Coll. on Organization of Ministries and Other Central Bodies of State Administration of the Slovak Republic as amended (hereinafter referred as the “Act”).
In April 2015, as a result of the findings from their investigation, the Office decided to initiate administrative proceedings. The subject companies were suspected of having concluded vertical agreements between them, agreeing to resale price maintenance (RPM)1 between 2009 and 2014. The aggravating fact was that the products (milk, butter and cream from cow's milk) are viewed by consumers as basic and essential food products (must-have products).
The Office's suspicions were confirmed by the existence of over 150 e-mails found on the companies' premises during the investigation. The subject e-mails also confirmed the involvement of additional companies and/or suppliers in the illegal agreements that were part of a coordinated retail market scheme based on fixing retail prices of dairy products. This resulted in increased prices for products which negatively impacted consumers.
From the initial findings it appears that the entire scheme was devised by the retailers. They were familiar with the pricing policy and guarantees of setting the same rack rates for a specific date by competitors. For retailers it was much easier to utilize this mechanism and act systematically, resulting in a so-called “win-win” situation for all participating suppliers and retailers – resulting in higher profits.
The Office also analysed daily differences in pricing set out by suppliers and retailers between 2013 and 2014, which revealed a high incidence of price fixing. Additionally, the Office also conducted an analysis to determine whether the retail prices of selected dairy products of specific brands are higher than they would have been without the existence of the illegal agreements.
The Office compared the margins of the investigated products with similar products in the dairy industry (milk, butter and cream) available on the Slovak Republic retail market, with foreign products and so-called “private labels”. This analysis showed that the margins for the products of the investigated supplier were higher in most cases (often several times), than the margins achieved in comparable products.
As a result of the findings, the Office imposed fines totalling approximately 10 million euros to nine companies. It was reported that one of the companies reached a settlement with the Office and obtained a 50% fine reduction.
At this time, the first instance decision of the Office from 13 June 2016 is not yet valid. Since this is a first instance decision, against which an appeal may be filed, the Office has not published further details, such as the identities of the companies involved.
This investigation signals an extension of the Office´s reach within the food sector – specifically the raw milk market and dairy industry. Last year, following an unannounced inspection conducted in May 2014 on the premises of four retail food chains (as well as a milk and dairy product supplier), the Office issued a decision through which it imposed a fine on the supplier´s company in the amount of EUR 1, 645, 969.20 for violation of its obligations during the inspection .
Due to the aforementioned violations, it is likely that additional industry-wide inspections will be conducted and government focus on this sector will continue. Hopefully this type of government intervention will discourage illegal behaviour and ensure that prices for everyday food products are fair for consumers.
- RPM – types of agreements concluded between suppliers setting product or service prices (or conditions), related to the sale of such products or services to the end consumer/user. RPMs are a serious infringement prohibited by the Act. These types of agreements restrict competition and prevent the creation of conditions for free market adjustment.
