Sustainability considerations, i.e., ensuring animal welfare and tackling food waste, climate change, pollution, exploitation of natural resources and human rights violations, have taken a stake in the Commission’s rule book. Not only is the Commission increasingly integrating these considerations into its merger case practice[1], e.g., when assessing the market definition and the competitive landscape. The Commission has also dedicated legislative efforts.
The Revised Horizontal Guidelines, published in July 2023,[2] specifically enable Sustainability Standardization Agreements (SSA) under Article 101 TFEUto allow horizontal cooperation between competitors on sustainability standards and requirements across the supply chain. Examples would be competitors agreeing on harmonizing packaging materials, replacing non-sustainable processes, improving animal welfare, introducing quality marks or labels, all with a view to the end-consumer. In essence, SSA that do not affect the main parameters of competition (price, quantity, quality, choice and innovation) are not prohibited under Article 101. Similarly, the Revised Vertical Guidelines, published in June 2022[3], integrate sustainability objectives into vertical cooperation, such as suppliers requiring qualitative criteria in selective distribution systems (e.g., delivery of goods with sustainable means).
However, the rules on agriculture go further. Generally, the EU antitrust rules would apply indirectly through the Common Organization of Agricultural Markets (CMO) regulation. With the introduction of Article 210a CMO in 2021, the prohibition under Article 101(1) TFEU no longer applies to horizontal and vertical sustainability agreements in the agricultural sector. This should serve to encourage producers to cooperate and support the transition to a sustainable food system and strengthen their position in the agri-food supply chain.
The Commission has now, on December 7, 2023, released further guidelines on the applicability of Article 210a.[4] The scope of a “sustainability agreement” covers “any type of agreement involving producers (vertical or horizontal) that relates to the production of or trade in agricultural products, and that aims to apply a higher sustainability standard than mandated by EU or national law, irrespective of the form of cooperation”. “Sustainability standards” falling under Article 210a CMO are such that contribute to environmental objectives, like environmental protection, reduction of pesticide usage and/or animal health and welfare. Notably, competition authorities have been equipped with an ex-post intervention mechanism in case a sustainability agreement leads to unreasonable consumer prices, the elimination of a consumer-favored product from the market or similar effects – however, with the caveat that the exclusion of competition must be “sufficiently serious” to override the indispensability of the agreement to its sustainability objective.
What is remarkable is that consumer welfare is barely considered as a relevant criterion in the Commission’s Guidelines on Article 210a. Considering that sustainability objectives have been integrated into the Revised Horizontal (and Vertical) Guidelines, one would think that the Commission has struck a balance between promoting sustainability objectives while still maintaining fair and effective competition. The Article 210a exclusion with a mere ex-post intervention mechanism risk putting consumer-related competition concerns in the back seat. But wasn’t this what competition law being all about, once upon a time?
If you require assistance in the applicability of Article 210a, please get in touch with Oliver Geiss, Gorka Navea or Lea Voss.
[1] Instead of focusing on mere price-parameters guiding consumers, the Commission has taken the consumers’ preference for sustainably sourced products into consideration to define a separate market from non-sustainably sourced products. Additionally, the Commission has concluded that green R&D capabilities play a key role in assessing the closeness between merging parties and competitors. European Commission, Competition merger brief. Issue 2/2023, September, here.
[2] Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the EU to horizontal co-operation agreements, here.
[3] Guidelines on vertical restraints (2022/C 248/01), here.
[4] Commission guidelines on the exclusion from Article 101 of the Treaty on the Functioning of the European Union for sustainability agreements of agricultural producers pursuant to Article 210a of Regulation (EU) No 1308/2013, here.