The Spanish Competition Authority hinders Government measures in favour of food processors

01 July 2013

Carlos Maldonado

One of the historical main problems in the Spanish food sector has been the food processing industry’s remarkable weak position before the distribution sectors.

In order to attenuate the imbalance between food processors and distributors the Government has initiated steps in order to pass a law on the food supply chain.

According to the Draft Law, its objective is to improve the functioning and the cohesion of the food chain sector in order to increase the efficiency and the competiveness of the Spanish food sector while reducing the imbalance in the commercial relations amongst the different operators in the food value chain, within a framework of fair competition to the advantage not only of processors but also of consumers.

In this context, one of the measures planned by the Government in the Draft Law is the establishment of primary production costs. Accordingly, the price of products in commercial agreements between processors and distributors cannot be lower than the primary production cost. Furthermore, in those cases where there are signs of abuse of dominant position, the competent authority (to be established) will have the power to establish the primary production cost.

This measure has been strongly criticised by the Spanish Competition Authority (CNC), which considers that the above-mentioned measure would cause “a great damage to competition”.  

The CNC views are that there will be a situation of price fixing derived from that law given the existence of primary production costs that no doubt will be used as a reference for the sales price, and the fact that there will be no option to negotiate below it.

Moreover, the CNC states that such a measure is neither justified nor proportionate and would go beyond the objective of preventing abuses by distributors.

With its report, the CNC’s stance clearly disregards the producers’ negotiation weakness. It must be said however that such position is consistent with its past actions, where it has repeatedly fined food processors which have established price fixing agreements between them as a reaction against distributors’ extremely high margins. It remains to be seen whether the Government will take into account the CNC’s negative assessment or will focus on the protection of food producers.

Such a legislative action will no doubt affect the European food chain given the importance of Spanish agricultural producers. A good question will be to assess the compatibility of such an action with European law and whether other producing countries may follow the lead.