CN04 - German Federal Cartel Office - pursuit for sustainability may justify cooperation

On 18 January 2022 and 25 January 2022, the German Federal Cartel Office ("FCO") published two press releases which provide guidance on the conditions under which sustainability goals in cooperation agreements between competitors may be sufficient to exempt such agreements from the prohibition against anti-competitive agreements in Article 101(1) of the Treaty on the Functioning of the European Union ("TFEU") and equivalent German provisions.

Key takeaways

• The FCO is generally open to reviewing and assessing sustainability initiatives and their compatibility with competition rules.
• It is essential that sustainability goals are identifiable and transparent about how they are to be achieved, to ensure consumers are fully-informed about their purchase decisions.
• The boundaries of competition law will be exceeded where parties agree on prices, price components, and margins without any sustainability benefit.

In Germany companies can submit cooperation initiatives to the FCO for review and assessment. In this context, the FCO recently reviewed three different cooperation initiatives involving agreements between competitors under Article 101 of the TFEU (and its German equivalent) in the food industry:

• Living wages in the banana sector: The first concerned the envisaged introduction of a pilot project of the German Development Organisation and German retailers to agree on voluntary common standards for procurement practices in the banana sector, including a plan to gradually increase purchases of bananas grown and sold by farms providing sufficient living wages (i.e. wages sufficient to meet the basic necessities of life) for their workers. The FCO did not express any competition concerns with this project as the cooperation will not involve the exchange of procurement prices, other costs, production volumes or margins nor the introduction of compulsory minimum prices or surcharges at any point in the supply chain.
• Animal welfare initiative: The second concerned an animal welfare initiative between the agricultural, meat production and food retail sectors financed by the four largest food retailers in Germany - EDEKA, REWE, Aldi and the Schwarz Group. The initiative intends to reward livestock owners for improving the living conditions of animals. The FCO was more critical of this initiative as it involves a standardised payment to the livestock owners. However, the FCO was prepared to accept this scheme for a transitional period until 2024. Notwithstanding this, the FCO urged the parties to the scheme to include more competitive elements, such as to replace the current standard payment with a recommendation to pay compensation for animal welfare costs. In addition, the FCO stressed the importance of transparent labelling (which informs consumers about origins of animals and their living conditions).
• Milk surcharges: In the third cooperation project, milk producers in Germany proposed an agreed financing concept – involving the introduction of standard surcharges – in favour of raw milk producers, which they claimed necessary to stabilise the raw milk price and allow milk producers to cover their production costs. The FCO concluded that such surcharges, without the goal of increasing sustainability, were merely price-fixing schemes, contrary to competition law.

Future cooperation initiatives between competitors that simply aim to increase, fix, or control prices without delivering on a clear sustainability goal - for example, agreements to apply a surcharge to "stabilise price" or help to "cover production costs" - are likely to be viewed as a form of price-fixing, and will not be accepted by the FCO as exempt from the prohibition against anti-competitive agreements.  Coordinated schemes and initiatives must be in clear pursuit of sustainability-related objectives, and continue to promote competitive elements in pursuit of those objectives, in order to meet the FCO's conditions for exemption.