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Press release - Violation by Osta- og smjörsalan of the Competition Act

10/13/2006

  • The Competition Authority submits the recommendation that the Minister for Agriculture take steps to amend the provisions of the Agricultural Products Act which is anticompetitive and discriminates between enterprises in the dairy sector, and that the Minister take steps to remove tariffs on powdered milk for the purpose of encouraging competition in the dairy sector.
  • The Competition Authority is of the opinion that Osta- og smjörsalan abused its dominant position vis-à-vis the enterprise Mjólka ehf, thereby violating the Competition Act.
Violation by Osta- og smjörsalan of the Competition Act
When Mjólka began operating last year with the production of feta cheese, the company had to purchase powdered milk from Osta- og smjörsalan. There have been two types of pricing for powdered milk, on the one hand a higher price to enterprises in the dairy industry and, on the other hand, a lower price to enterprises in other food production.  Mjólka was required to pay the higher price for the powdered milk, while another company in cheese production, Ostahúsið, had been paying the lower price for its production over a number of years. For this reason, Mjólka complained to the Competition Authority over the discrimination by Osta- og smjörsalan. Osta- og smjörsalan responded by raising the price of powdered milk to Ostahúsið, claiming that a staff error had been made in the company. In the opinion of the company this ended the discrimination between Mjólka and Ostahúsið.
Osta- og smjörsalan has a monopoly on the sale of powdered milk, as high tariffs on powdered milk effectively prevent its importation. Mjólka must for this reason buy powdered milk from Osta- og smjörsalan, which, together with its owners (the dairy associations) is Mjólka's principal competitor. Because of the position of Osta- og smjörsalan described here, the company is under particular obligation not do discriminate among its customers. For this reason, the Competition Authority is of the opinion that Osta- og smjörsalan abused its dominant position when the company sold powdered milk to Mjólka on the one hand and Ostahúsið on the other hand at different prices. By its conduct, Osta- og smjörsalan was in violation of the Competition Act.

Anticompetitive public measures in the dairy industry – opinion issued to the Minister for Agriculture
The above complaint from Mjólka led the Competition Authority to study in general the anticompetitive operating conditions of the company resulting from the legal environment in this market. Reference was made earlier to the import tariffs on powdered milk which make it de facto  impossible for Mjólka to buy the products from suppliers other than its competitor, Osta- og smjörsalan. Osta- og smjörsalan is owned by the dairy associations, which are also in competition with Mjólka. The amendments to the Agricultural Products Act made it possible for the dairy associations to collude and share markets, which exempts them from the Competition Act. Price fixing and market sharing by competitors are extremely anticompetitive measures and enterprises in sectors other than the dairy sector, and their managements, are subject to sanctions for such measures. By the amendment of 2004, mergers of competitors in the dairy industry were also exempt from the Competition Act, even in cases where such mergers served to distort competition.
 
Mjólka is not a member of the Federation of Processing Centres in the dairy industry. The amendments mentioned above make it possible for the dairy associations within the Federation to collude in opposing the attempts of Mjólka, and other competitors, to gain a foothold in the market. The enforcement of the Agricultural Products Act also has the effect that these competitors gain possession of Mjólka's business secrets. In addition, Mjólka is required to pay a fee, a price transfer fee, which is used for the benefit of the company's competitors.
The said amendments to the Agricultural Products Act of 2004 grant to the dairy associations much more extensive exemptions from the Competition Act than is the case in neighbouring countries. The purpose of the legislative amendment was, among other things, to enable the dairy associations to meet competition from overseas. The opinion issued by the Competition Authority includes reasoning to the effect that these exemptions from the Competition Act enjoyed by the dairy associations will undermine their competitiveness and their ability to meet foreign competition, when and if such competition arrives in Iceland.
The arrival of Mjólka in the market for processed dairy products has led to a reduction in the price of the product categories manufactured by Mjólka. Their arrival has also had the effect that farmers producing milk in excess of their state support quotas now receive a higher price than before for the milk. In this way the onset of competition brought on by Mjólka has benefited both consumers and farmers. In light of this fact, the Competition Authority recommends to the Minister for Agriculture that steps should be taken to remove the competitive barriers in the dairy sector so that consumers and farmers can benefit from competition in the sector.
The recommendation of the Competition Authority to the Minister for Agriculture relate to the repeal of those provisions of the Agricultural Products Act which permit both collusion and mergers among dairy associations. It is also recommended that quantitative tariffs should be removed for the purpose of encouraging competition in the dairy sector. The recommendation is also submitted to the Minister for Agriculture to level in other respects the competitive position of processing centres operating outside the Federation of Processing Centres as compared to the position of parties operating within the Federation. Finally, the attention of the Minister for Agriculture is drawn to the fact that the recommendations included in the opinion of the Competition Council of 2002, to the effect that the Minister take measures to liberalise the wholesale pricing of agricultural products, is still in effect.

Conclusion
The Competition Authority has declared that the competitive position in the food market is among the tasks on which the Authority will place particular emphasis in the coming months. In this context it is noted that the Authority presented last December a Nordic report on the competitive position in the food market, which gave rise to extensive public discussion in Iceland on food prices and the Icelandic food market. The decision of the Competition Authority and its recommendation to the Minister for Agriculture contained in this press release are in line with the focus of the Authority and designed to promote reduced prices of food.

Decision of the Competition Authority No. 39/2006. Complaint by Mjólka ehf. relating to the abuse by Osta- og smjörsalan sf. of its dominant position [in Icelandic]
 
Opinion of the Competition Authority No. 1/20006. Anticompetitive public measures in the dairy sector [in Icelandic]

 

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