Food and Beverage & COVID-19 & Antitrust Q&As

Accordingly, for the duration of the COVID-19 crisis, competitors can use and to much larger extent coordinate with the same distributors, including, by way of example:

• ensuring fair distribution of scarce products
• setting up systems to exchange information on day-to-day stock and shortages,
• sharing labour or facilities, or
• ensuring the supply of groceries in areas which are vulnerable to shortages during the crisis.

Obviously, this cooperation should not be used to fix prices or obtain unjustified price increases. So, producers cannot use joint distributors to collude over their marketing strategies (e.g., to increase pricing or share markets); but can impose that distributors apply maximum resale prices to avoid price gorging at retail level.

For example, by adopting a specific Temporary Framework for State aid in March, the EU Commission acknowledged that “State aid is justified and can be declared compatible with the internal market on the basis of Article 107(3)(b) TFEU, for a limited period, to remedy the liquidity shortage faced by undertakings and ensure that the disruptions caused by the COVID-19 outbreak do not undermine their viability, especially of SMEs”. 

Catering services and producers of agricultural foods can obtain goverment subsidies to aid their businesses

With specific reference to support provided to the catering service sector and to undertakings processing and marketing agricultural products, the Temporary Framework sets out that the following types of aid can be allowed without a specific authorization from the EU Commission:

“a) The overall aid does not exceed EUR 800 000 per undertaking. The aid may be granted in the form of direct grants, tax and payment advantages or other forms such as repayable advances, guarantees, loans and equity provided the total nominal value of such measures remains below the overall cap of EUR 800 000 per undertaking; all figures used must be gross, that is, before any deduction of tax or other charge; 

b) The aid is granted on the basis of a scheme with an estimated budget; 

c) Aid may not be granted to undertakings that were already in difficulty […] on 31 December 2019; 

d) The aid is granted no later than 31 December 2020; 

e) The aid granted to undertakings active in the processing and marketing of agricultural products is conditional on not being partly or entirely passed on to primary producers and is not fixed on the basis of the price or quantity of products purchased from primary producers or put on the market by the undertakings concerned.”

Government subsidies and grants for the agricultural and fisheries sectors

As far as support to undertakings active in the primary agricultural production and in the fishery sector, the following applies by way of derogation from the first condition above and in addition to the conditions (b) to (e) above: 

“a) the overall aid does not exceed EUR 120 000 per undertaking active in the fishery and aquaculture sector or EUR 100 000 per undertaking active in the primary production of agricultural products; the aid may be granted in the form of direct grants, tax and payment advantages or other forms such as repayable advances, guarantees, loans and equity provided the total nominal value of such measures does not exceed the overall cap of EUR 120 000 or EUR 100 000 per undertaking; all figures used must be gross, that is, before any deduction of tax or other charge; 

b) aid to undertakings active in the primary production of agricultural products must not be fixed on the basis of the price or quantity of products put on the market; 

c) aid to undertakings active in the fishery and aquaculture sector does not concern any of the categories of aid referred to in Article 1, paragraph (1) (a) to (k), of Commission Regulation (EU) No 717/2014.”

As an example of how the EU Commission applies such rules please see the EU Commission decision of April 16th which cleared the Latvian direct grants schemes.

This kind of arrangements is even more of value today because it constrains the distributors' ability to raise prices to the customers' detriment, thus avoiding price gorging.

On the contrary, EU Commission has explicitly stated that it "will not tolerate conduct by undertakings that opportunistically seek to exploit the crisis as a cover for anti-competitive collusion […] by, for example, exploiting customers and consumers (e.g. by charging prices above normal competitive levels) or limiting production to the ultimate prejudice of consumers (e.g. by obstructing attempts to scale up production to face shortages of supply)". 

Accordingly, clauses imposing minimum resale prices remain unlawful. 

Normal antitrust rules apply to distribution through e-commerce platforms. 

Your new activity fundamentally changes the way you interact with your network of distributors as you start to compete with them at the retail level.

Accordingly, your commercial relationship with your distributors has changed from a traditional vertical distribution set up to a horizontal one where you are actively competing with your distributors. 

This is always more delicate from an antitrust perspective and will need more scrutiny to ensure compliance. For starters, you may no longer be covered by the automatic exemption/safe harbour rules contained in the EU Vertical Block Exemption Regulation, which means that you will have to self-assess most if not all of your distribution contracts. 

For example, you will particularly have to review, by way of example, that:

• exclusive customer groups or territories will not be seen as illegal market sharing;
• it will be possible to maintain non-compete clauses, and;
• that exchanges of commercially sensitive or strategic information is curbed in the right way. 

Consequently, you will need to carry out a sanity check of your pre-existing agreements with your current distribution partners to see if there are any arrangements that may not be lawful in your new set-up.

Again, the Temporary Framework for antitrust agreements may facilitate some of the cooperation as explained above but this will be limited to the duration of the COVID-19 outbreak.