Unfair Competition or Beneficial Co-operation - Advice for Farmers

In his report on the Future of Food and Farming, Sir Donald Curry made a number of recommendations intended to promote co-operation in farming. Nevertheless, some agricultural businesses remain concerned that collaborative agreements may break competition laws. 

The Competition Act 1988 ("the Act") prohibits anti-competitive practices and enables the OFT to levy large fines to those who breach the rules. It is therefore important for businesses to know whether or not their proposed arrangements are likely to be viewed as a breach of the law or not.

The Office of Fair Trading ("OFT") has published guidance to help promote greater legal certainty in agriculture, which sets out the types of agreement and conduct which are unlikely to breach the UK competition rules.   Put simply, whilst the OFT considers that some forms of collaboration (e.g. agreeing common selling prices) are bad for consumers and against competition law, many arrangements between farmers (e.g. sharing equipment or the cost of support services) is good for efficiency and raises no competition issues.

Acceptable conduct and agreements

Currently, some agreements between famers or farmers' associations which concern the production or sale of agricultural products (including livestock, dairy, meat and fish products as well as fruit and vegetables and other crops) or the use of joint facilities for the storage, treatment and processing of agricultural products are excluded from the Act. The exclusion only applies if:

• The agreement is only between farmers or associations of farmers (for example, an agreement between a group of dairy farmers and milk processors would not come within the exclusion); and
• The agreement does not involve an obligation on the farmers to charge identical prices for their products.

Arrangements whereby farmers agree to sell through a co-operative and take whatever price the co-operative realises in the market should, however, benefit from the exclusion.

The following type of agreements are also unlikely to be considered anti-competitive by the OFT:

• Small local agreements for sharing the use of equipment;
• Sharing farm overheads, for example, sharing the cost of training courses and support services or joint recruitment, with other farm businesses; and
• Setting up a farmers' buying group (provided the conditions for the agricultural exclusion are met).

Anti-competitive conduct and agreements

The following sorts of arrangements are likely to be caught by the Act :

• Agreements that include obligations to charge identical prices;
• Agreements to fix prices; and
• Agreements to share markets.

Collusion amongst farmers to withhold produce in order to obtain a "fairer" price could also be considered anti-competitive, if this results in higher prices and potential shortages to the detriment of consumers. 
There are also special rules which apply to farmers or co-operatives where they have a dominant position in a relevant market.  Whilst it is highly unlikely that any individual farmer or local co-operative will hold a dominant position, a national co-operative may do so. 

The OFT announced its intention to revise its guidance to farmers at the end of August and is seeking submissions by 21 September on how it can improve its guidance to assist farmers make decisions in co-operating with other farm businesses (and whether farmers would welcome further guidance on specific competition law issues).  Michelmores is intending to assist clients and contacts in this sector, by responding to the OFT to protect their interests in the forthcoming review.

If you wish to respond to the consultation, or are interested more generally in the impact of competition law on your business, we would be pleased to assist.  Our lawyers include specialists in EU, Competition and State Aids and in Agriculture and Rural Business.  Please contact either Philip Wolfgang, Head of Agriculture and Rural Business or Jason Phelps, Competition Associate on 01392 688 688.

This update contains summaries of complex issues and should not be relied upon in relation to specific matters. We recommend that you take legal advice on particular matters and we will be happy to assist.