The German FCO at the Intersection between Competition Law and Sustainability Initiatives

“Competition law does not stand in the way of cooperations [between companies] that aim to achieve sustainability objectives – quite the contrary” – stressed the president of the German Federal Cartel Office (“FCO”), thereby demonstrating the intention of the German government and the FCO itself to support sustainability initiatives as long as they truly serve sustainability goals and do not unduly restrict competition.

However, this intention and, in particular, the framework conditions are not (yet) explicitly established in German law or in concrete guidelines. It is therefore currently difficult for companies in Germany to reliably assess the competition law compliance of planned initiatives or cooperation. The FCO´s current case practice supports sustainability initiatives, always provided companies can show that the project in question brings about (collective) consumer benefits that outweigh the anti-competitive effects of the collaboration and that competition is not eliminated in total, or profits unduly increased, under the disguise of sustainability.

This article gives an overview of the FCO’s most recent case practice.

Bananas (case no B2-90/21)

Case B2-90/21 concerned a working group formed by major food retailers and aimed at promoting living wages and incomes along the supply chain in the banana sector in cooperation with GIZ, a governmental development agency. To achieve this goal, retailers mutually committed to voluntary common standards and strategic goals along the private label banana supply chain, as well as jointly adopted responsible sourcing practices and developed processes to monitor transparent wages. At the same time, the retailers committed themselves to producing by 2025 as much as 50% of the (private labels) bananas sold in Germany in accordance with so-called “Living-Wages-Criteria”.

The FCO's examination found that the commitment of a mandatory percentage of “living-wage bananas” is a horizontal agreement between competitors (food retailers) and, that the coordinated agreements with direct purchasers and wholesalers, constitute vertical agreements.

However, in its evaluation of these agreements, the FCO emphasized that the project does not lead to a harmonization of wages in the producing countries and that it also does not extend to the commercial parameters of the participating companies. Rather, it is a voluntary setting of qualitative production standards that are intended to ensure that the production of bananas in Ecuador complies with local legal requirements (i.e. statutory minimum wage law) and that a living wage is generally paid, without thereby unnecessarily restricting competition.

Of key importance to the FCO for its positive assessment was the fact that, further to the voluntary self-commitments, no competitively sensitive information on e.g. prices, costs, production volumes or margins are exchanged, nor are there agreements on minimum prices or price premiums or on if and how to pass-on price increases along the supply chain.

Animal welfare (case no B2-72/14)

The FCO was more critical regarding a cooperation called the “Initiative Animal Welfare” (ITW). ITW is an industry initiative in which agricultural representatives, the meat industry and food retailers work together for more animal welfare in livestock farming. The core element of the initiative is the payment of a surcharge (so-called "animal welfare fee") per kilogram of pork or poultry meat sold as a financial subsidy for participating livestock farmers who implement certain animal welfare criteria from a predefined catalog.

So far, this “animal welfare fee” only applies to pork and poultry meat. The FCO has been in close contact with the initiative since 2014 and has in particular worked to ensure that the initiative introduces clear labeling of meat produced according to animal welfare criteria, which is visible to consumers. The initiative now also intends to implement the “animal welfare fee” in the area of cattle fattening from 2022 onwards.

In concrete terms, the payment of the “animal welfare fee” is structured in such a way that the slaughterhouse pays the cattle fatteners a price surcharge determined by the initiative for the beef purchased, which is produced in accordance with the animal welfare criteria and labeled accordingly. The participating food retailers in turn pay the slaughterhouses a price surcharge, whose specific amount the initiative has no influence on.

The FCO held that, in principle, this was a hardcore price fixing agreement but found that, nonetheless, ITW was temporarily permissible because of the pioneering nature of the project, the introduction of consumer label raising awareness for the issue and the improvement of animal welfare standards more generally.

The FCO stresses, however, that the exemption granted is limited in time and that ITW must gradually introduce competitive elements into the system. This includes namely to switch from fixed prices (the uniform animal welfare surcharge) to price recommendations. For the next project phase starting in 2024, the initiative will therefore be conceptually developed.

Milk (case no B2-87/21)

In contrast, the FCO considered the financing concept presented by “Agrardialog Milch” to be unlawful. Milk producers intended to set a uniform and mandatory surcharge on the basic milk price across the entire industry between producers, dairies and retailers.

The FCO considered this to be an unjustifiable price cartel to the detriment of consumers, who would no longer have any options of avoiding the surcharge if the project was implemented. The FCO emphasized that, while the German competition rules recognise sustainability objectives, in this case sustainability aspects played no discernable role in the project, and the economic interest in a higher income level could not in itself justify exempting such an agreement.

Conclusion

In summary, the cases above do not come as a surprise. Although admittedly blurry at the edges, competition practice has been dealing with the concept of consumer benefits under Article 101(3) TFEU for years and sustainability just adds another layer. The new EU Commission Horizontal Guidelines are expected to acknowledge the concept of collective consumer benefits (sustainability as a benefit for the society as a whole) which will give further guidance. In the same vein, the German Ministry of Economic Affairs and Climate Action has announced in its “Agenda 2025” to provide companies with a clear legal framework for sustainability cooperations without facilitating "greenwashing" of cartels. It remains to be seen how these legislative initiatives will play out in practice. However, in any event the competition rules no longer prevent (did they ever?) companies from putting true sustainability initiatives into practice.

For more information, please contact Dr. Stephan Waldheim, Maren Steiert or Nima Astani.

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