Competition Law Fears – The Hidden Barrier to Living Income

Competition Law Fears – The Hidden Barrier to Living Income

Too many of the people who produce the food and drink we depend on live in abject poverty. This Fairtrade Fortnight we launched our She Deserves campaign shining a light on the challenges facing cocoa farmers in West Africa, especially women. A typical cocoa farmer lives on just 74p a day. In Côte d’Ivoire, women cocoa farmers carry out over two-thirds of the work, yet they are estimated to earn just 21% of the income generated. But if most cocoa companies recognise the problem – as they say they do – why is progress so slow?

A common complaint from business is that “first mover disadvantage” can make it hard for individual companies to take action to tackle low incomes and wages on their own, especially in a value chain like cocoa where competition is high. So, if companies in supply chains work together to pay farmers and workers living incomes and wages it could make a difference to millions in some of the world’s poorest countries. But is competition law a barrier that prevents such joint action?

The Fairtrade Foundation has been researching options for encouraging a more favourable regulatory environment for sustainability initiatives in the grocery sector. As part of this work, we wanted to better understand the impact that competition law was having on the ability of businesses to collaborate together to tackle sustainability issues, especially those aimed at tackling low incomes and wages.

Through a series of interviews with stakeholders including major brands and retailers, we gathered evidence of the attitudes of market actors towards the issue.

The key finding of the research was the near-unanimous message that competition law is perceived to be a barrier to tackling low farm-gate prices.

In January, the Fairtrade Foundation was pleased to host a roundtable discussion bringing together retailers and brands, government, legal experts, and representatives from academia and NGOs, to reflect on the research findings and discuss possible ways forward.

Participants brought their own examples to echo those highlighted in the report. All the examples shared had fallen foul of competition law – even though these were not intended to benefit companies at the expense of the consumer. Examples raised included:

  • Modern slavery in the Thai seafood supply chain: there had been calls for a collective boycott of these suppliers from UK companies but a collective boycott would have been considered anti-competitive (with some exceptions for public health risks etc.)
  • UK dairy farmers: in a well-reported historical case, companies had sought to bring about price improvements for dairy farmers. This had, however, involved sharing sensitive information about price. Although the Office of Fair Trading (OFT) agreed that the intent wasn’t to benefit retailers it was found to be anti-competitive – and retailers were fined around £50m.
  • Chicken welfare: a collaboration to improve the welfare of chickens in the Netherlands was prohibited. The regulator said it would lead to an increased producer price and therefore increased consumer price as well. A UK retailer said that this case was used in staff training on competition law as an example of the caution required in collaborative working.

Government Action

Participants agreed on the need for competition authorities to offer greater clarity on what they would and wouldn’t allow within sustainability collaborations. Discussion was in line with the recommendation from our research, for the UK’s Competition and Markets Authority (CMA) to issue clearer communications to companies and retailers on how businesses can collaborate for sustainability purposes, and in order to address low farm-gate prices in a manner that would be consistent with competition law. Specifically, this would mean providing guidance or policies that would clarify the application of the prohibition and the exemption criteria under Chapter 1 of the Competition Act 1998 and Article 101 of the Treaty on Functioning of the European Union.

Fairtrade has welcomed the opportunity for dialogue directly with the CMA at several points during our research. Our impression from these conversations is that the regulator does not want to stand in the way of sustainability collaborations and understands the concerns. There are also options for specific initiatives to seek approval from the regulator. The CMA have noted their willingness to consider issuing a ‘short form opinion’ if presented with a proposal for a specific collaborative initiative aimed at addressing low farm-gate prices, for example on cocoa.

At the same time, the CMA has indicated a number of constraints linked to their mandate regarding the provision of general guidance. In a letter to the Fairtrade Foundation in June 2018, a spokesperson stated that the CMA: “recognises the concerns you have raised over supply chains and supports the government’s action to address poor practices which could harm their sustainability and the environment” but continued, ”the legal framework within which the CMA operates is set for us by government and does not allow such factors (sustainability of supply chains) to drive our decision making (…) it is very unlikely that the CMA will issue specific guidance on how cross-business initiatives for sustainability purposes would be assessed under competition law (…) it will remain the case that it is up to individual businesses to assess whether their actions comply with the law.”

So there is an impasse here. Businesses and sustainability organisations are feeling constrained and calling for greater clarity from the regulator, but the regulator is unable or unwilling to offer general guidance. In the absence of clear guidance, and where the existing ‘case law’ is not encouraging, the tendency is of a ‘chilling effect’, a barrier to important initiatives aimed at improving wages and conditions moving forward.

A convenient excuse for inaction?

But also raised by those present at the roundtable was the fear that competition law is also used by business as a convenient excuse for inaction, and that businesses are unnecessarily risk averse in this area.

Stories were shared of lawyers at industry forum discussions shutting down even the suggestion of a discussion about low farm-gate prices, at times when these would not come close to commercially sensitive areas. A legal expert present at our discussion expressed their deep frustration at what they felt were overly cautious responses. They argued that the ‘toxic shock’ around anti-trust laws isn’t warranted, not least because participants in sustainability discussions are not going to be the involved in setting prices for consumers in their respective companies.

So it was argued that instead of asking lawyers ‘can we do this?’ – to which the answer is usually a cautious ‘no!’ – we need to be asking lawyers ‘how can we do this?’ If we see a need to work together on the challenges of low income and prices, we need to set our legal advisers the challenge of how to structure such work in a safe and legal manner.

What’s next?

So going forward, Fairtrade is planning to work with legal experts and NGOs in Europe who are looking at how stakeholders could discuss collective action to address farm gate prices in a way that is compliant with competition law as it currently is. We will also reflect on whether we, or a group of stakeholders, can bring a specific initiative focused on cocoa and living incomes before the CMA in the UK context.

Even if business and sustainability actors should be braver, we still need to challenge regulators to provide more support in finding solutions. Competition law is rightly designed to protect consumers from price-fixing and other practices that can harm consumers. However, unless farmers and workers receive higher incomes and wages, the medium to long term supply of commodities such as cocoa and bananas will be put at risk by loss of labour supply and the worsening impacts of climate change – and that’s not in the consumer interest.

Political support will also be needed. Here there are some early signs that politicians are interested in taking action. In April 2019, the European Parliament´s agriculture committee backed an amendment to new regulations for agricultural markets, enabling easier collaboration in order to work with higher standards for sustainability, especially for environment and animal welfare. Specifically, the amendment waives vertical initiatives for sustainability, in certain cases, from competition law (Art 101(1) TFEU – see below for further information).

There are few issues more complicated and complex than competition law (as we have discovered during the course of this research!) but the evidence is clear that the current constraints are blocking progress in achieving fair wages and incomes for some of the poorest people in the world.

Businesses and sustainability initiatives need to be braver in proposing ways forward but politicians and regulators need to be brave too, setting in place policy frameworks that don’t simply drive down prices for the short term, but back the fair and sustainable sourcing that is needed for the future.

We would like to acknowledge with thanks the support of the Esmee Fairbairn Foundation who sponsored this roundtable and our recent research into competition law and sustainability.

Further reading

  • Amendment proposed by MEP Jan Huitema (ALDE, NL) and MEP Fredrick Federley (ALDE, SE), AGRI committee session 1 April 2019: “Article 101(1) TFEU shall not apply to vertical agreements, decisions and concerted practices relating to the products referred to in Article 1(2) aiming to apply environmental, animal health or animal welfare standards higher than those mandatory under EU or national legislation, provided that the advantages for the public interest that they bring about outweigh the disadvantages as regards consumers and provided that they only impose the restrictions indispensable to the attainment of their objective”. Read more
  • In 2017 we published another report, Building sustainable supply chains through business collaboration – exploring the implications of competition law, which outlined the potential consumer benefits that could be gained from collaboration between businesses for sustainability purposes. The study considered a pre-competitive hypothetical collaborative sustainability initiative in the British retail market for fresh pineapples, and made the case that this initiative had a “reasonable case” for competition law-compliance. 

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