The UK Parliament on May 2 adopted the Dairy Produce Order, which temporarily relaxes the application of UK competition law to certain types of cooperation between either dairy produce suppliers or logistic service providers to address issues in the supply chain caused by the ongoing coronavirus (COVID-19) pandemic, such as decreased demand from the hospitality sector and reduced collections from retailers.
Businesses are likely to have many questions as regards the types, nature, and scope of collaboration that would be tolerated. It is important that businesses ensure that their arrangements intended to address the COVID-19 pandemic are competition law compliant, and that they are appropriately documented such that they can be properly defended to the European Commission, national authorities, and/or in private litigation if necessary.
Under the Dairy Produce Order (Order), certain types of cooperation between dairy produce suppliers[1] or logistic service providers, respectively, are excluded from the Chapter I prohibition under the UK Competition Act 1998.[2] To qualify for an exemption, the collaboration must be limited to one of the activities specified in the Order; it must be entered into for a specific purpose, such as maximizing efficiencies in the processing, transport, or storage of dairy produce, and/or limiting the waste of fresh milk due to a decrease in demand; and it must be notified to the Secretary of State.
For dairy produce suppliers, permitted types of collaboration include the following:
For logistics service providers, permitted types of collaboration include the following:
The Order came into effect on May 2, 2020, and is currently set to expire after three months.
Measures to support the dairy industry have also been adopted by the European Commission. For further information, see our LawFlash, COVID-19: EU Relaxes Competition Rules for Cooperation in the Dairy, Potato, and Flower Sectors.
The dairy industry has previously been subject to UK antitrust scrutiny. In 2011, the UK antitrust authority issued an infringement decision and imposed fines against a number of market participants further to an investigation in the dairy sector.
Even though the Order relaxes the application of UK competition law in the short term for certain types of collaboration in the dairy sector, other types of collaboration continue to be prohibited, and the dairy sector is not exempt from antitrust scrutiny. For example, the Order explicitly states that market operators are prohibited from sharing information regarding costs and pricing.
The Order also explicitly sets out that any coordinated effort to reduce milk production must not be aimed at excluding one or more dairy product suppliers from the market. The UK’s Competition and Markets Authority has stressed that it will not tolerate breaches of competition law on the back of the crisis, and that it remains vigilant. See in this regard our LawFlash, COVID-19: UK Antitrust Authority Issues Guidance on Business Cooperation During Pandemic.
For information on other measures to support the UK retail food industry, see also COVID-19: UK Temporarily Relaxes Antitrust Rules to Allow Supermarkets to Collaborate.
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If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:
London
Frances Murphy
Omar Shah
[1] This includes farmers, operators that process milk and/or manufacture milk products, and businesses that buy and sell milk and milk products at any point in the supply chain.
[2] Chapter I prohibits arrangements between businesses that have as their object or effect the restriction, distortion, or prevention of competition within the United Kingdom or a substantial part of it, unless they can be shown to give rise to benefits to consumers that outweigh any restrictions of competition. Such anticompetitive arrangements can arise directly or indirectly between competitors, and/or between companies at different levels of the supply chain, such as between a supplier and its customers. Companies and individuals found to have breached Chapter I are liable to fines of up to 10% of the worldwide group turnover for companies, and for an individual, disqualification from serving as a director for a period of up to 15 years. Cartel arrangements are considered to be the most serious form of anticompetitive agreements. It is a criminal offense for an individual to participate in bid rigging, price fixing, market or customer sharing, or limitation of output or supply. Participation in such cartel arrangements may lead to the imposition of a five-year prison sentence, unlimited fines, or both, for the individual, and disqualification from serving as a director for a period of up to 15 years.