I thank the committee for the opportunity to address the committee. I am joined by Mr. Fergal O’Leary, a member of the commission, who has responsibility for the CCPC’s consumer protection division and our advocacy and consumer information functions.
Since we appeared before the committee in October of last year, we have closely followed the progress of the unfair trading practices directive through the European legislative process. We have also followed the committee's debates with interest and we are aware of the wide range of issues, particularly in respect of the beef sector, that have been raised by stakeholders.
My intention in addressing the committee on both these topics is to put forward some lessons from our own experience and some positive suggestions to assist the committee in its work. The directive is vastly different from the existing grocery regulations in respect of which we have a function. In scope and size alone we estimate that it could apply to approximately 10,000 businesses in Ireland. It is a substantial directive. We will offer our considered views as to how the directive may be transposed in Ireland, in such a manner as to address some of the issues raised by stakeholders in this sector.
Before discussing those matters further in detail, I highlight the extensive nature of the Competition and Consumer Protection Commission’s legislative mandate. It has a mandate across the economy to promote consumer welfare. This involves promoting compliance with over 40 competition and consumer protection legislative instruments.
We do not specialise in any one sector; rather, we extend across the full scope of the economy. We are aware that there have been concerns and questions about competition law and the Twenty20 Beef Club, as well as concerns about potential anti-competitive behaviour in the beef sector more generally. These two areas are within our remit and it is important that I address them first.
On the Twenty20 Beef Club, we have received a small number of complaints about this arrangement and are examining them carefully. However, this type of agreement which is a vertical agreement, that is, an agreement between players at different stages in the food chain, generally is permissible under Irish and European competition law. Specifically there is the vertical block exemption
regulation in European law which exempts from competition law scrutiny vertical agreements where the market share of both the buyer and the seller is under 30%. It is only when it goes above 30% that one starts to have concerns. There might be sectors where, for instance, there are many parallel agreements that absorb the entire market and where the benefit of the block exemption potentially could be withdrawn by the Commission, but in general competition agencies are much more concerned about horizontal agreements, that is, agreements between players at the same stage in the market. We never give a clean bill of health and say, "There is nothing to see here." We will continue to make inquiries and look at complaints we receive, but at this point we do not have grounds to be concerned that a breach of competition law has occurred. We will continue to monitor its impact and if at any future stage we have concerns, we will take action.
There have been allegations about the existence of a cartel in the beef processing sector. Under Irish and European law, a cartel is an agreement between competitors to fix prices, limit output or share markets for their own benefit. It is a serious breach of the law, so much so that it carries a burden of proof similar to that for other crimes such as theft or murder. Anyone convicted of such a crime can face a maximum sentence of ten years' imprisonment. The serious nature of this type of crime frames how we investigate allegations of a cartel. An allegation does not provide a sufficient basis for us to open an investigation or obtain a warrant from a judge in order that we can search the premises of businesses suspected of being involved. We have a team of experienced senior investigators, including serving and former gardaí, whose roles are to examine the evidence and establish lines of inquiry in investigating potential cartels. We also have a dedicated cartel immunity phone number to enable anyone who has been part of a cartel to come forward with evidence in return for immunity from prosecution. To date, the CCPC’s criminal investigations team has examined a number of complaints and followed various lines of inquiry in the meat processing sector. So far, however, we have not uncovered evidence of a cartel.
Let me comment on prices. There is sometimes a feeling that because there is a market price, a common price among buyers and sellers, that it is evidence of a cartel. It is not; prices being in line is not enough. In markets which are very transparent - there are many such markets - prices tend to converge at a market level. Let me give an example. If one walks down Moore Street, the price of apples is going to be pretty much the same at the top of the street as at the bottom. The reason is all buyers and sellers can see the prices being charged. If a seller was to put up the price, he or she would lose market share because nobody would buy from him or her. If a seller was to reduce his or her prices, he or she knows that all other sellers would see that he or she had done so and that they could also reduce their prices,meaning that everybody would lose money. One tends to have convergence where prices are very transparent. That seems to be the case in the beef market. We have not uncovered any evidence of a cartel, but as with all sectors, we will continue to examine every complaint we receive. We would welcome information or evidence of this nature from anyone. A member of our investigations team is available to meet anyone in any location at any time. We do not take allegations lightly, but it is important to stress the need for tangible evidence, that is, evidence of collusion, the fact that people have come together to agree on prices, when it comes to dealing with such a serious crime.
We are aware of broader concerns about sustainability and viability in farming that are being widely discussed and debated in the sector. We listened with great interest to the end of the discussion with the representatives from Teagasc. The concerns obviously include farm income levels; farmers’ lack of power and limited ability to negotiate the price they get for their products; and a lack of transparency to see who is profiting in the food chain. These issues do not fall within our remit, but as they are all inter-related, I would like to offer our considered views on how some of them could be addressed in the transposition of the directive.
On the agriculture sector generally and the directive, in particular, it is important to consider the context. The characteristics of the agriculture sector, about which all members know a great deal more than I do, including its vulnerability to extreme weather conditions, imbalances between supply and demand and price and income fluctuations, mean that market instability is a common feature and a concern for all farmers. The majority of those who have appeared before the committee have pointed to relatively low bargaining power as one of the major issues in the sector. It has often been cited as a competition problem. We understand the desire to address the imbalance for farmers, but in our view the way to redress it is not through competition law. Attempts have been made to use exemptions from competition law to rebalance bargaining power in the sector such as by allowing vertical agreements and the development of producer organisations; however, the issue remains prevalent in the sector. The directive has also been put forward as a solution to the problem, but if the aim is to address the imbalance in farmers' power in the market, it is our considered view that, as it stands, the measure is unlikely to succeed. Many of the people to whom it has spoken have also expressed that view.
I turn to some suggestions as to what would help. Power imbalances are best addressed before contracts are signed, rather than trying to address them after the fact. To be successful, a dedicated body is required to provide real support for the sector. A critical component will be providing advice for individual farmers. Farmers need to know what is and is not allowed and to whom they can go when they have a problem.
Members will be aware that the directive requires the appointment of a competent authority or authorities. Across Europe there has been a wide range of views expressed on how the directive will be implemented and whether there should be a stand-alone body or whether various organisations should be given specific mandates. The appointment of more than one competent body is allowed for in the directive. For instance, one body may provide support, while another receives complaints. We are unaware whether such an arrangement is being considered here.
In a number of sectors, including telecoms, financial services and energy, a sectoral specific body is given a remit to ensure specific rules are adhered to. The body will have access to industry information and contacts. It can build expertise in the sector in order that it can see market trends or issues as they develop and take preventive steps or alter the rules in order that they reflect new market dynamics, as they develop. Because the legislation is industry specific, it can be both proactive and responsive and entirely focused on the sector and its needs. A body dedicated to it would develop the information structures and relationships needed to provide real support for the sector. If such a sectoral regulator or office was to be developed, its functions could include devising and implementing a strategy to support farmers in the context of CAP reform, advising on commercial and economic development of the sector and overseeing implementation of future European legislation. For instance, last week details of the EU proposal for more market transparency in the EU's food supply chain were announced. If progressed, it would require a body to capture price and market data and correlate them
It is in the nature of this industry to move quickly. Issues need to be addressed as they arise. Farmers cannot wait for lengthy investigations and face the uncertainty of legal challenges. The CCPC’s investigations are and will continue to be evidence-based and mostly retrospective. This means that they take time. We do not act or secure outcomes for individual businesses or consumers; we are not an ombudsman. Our role is to enforce the law. Under the current grocery regulations, we have not, to date, received sufficient information from suppliers to establish that a breach of the regulations has occurred or is occurring. We believe farmers, in particular, want someone on the ground who is focused on the farming sector exclusively and can act quickly on their behalf, including by offering some adjudication, rather than adopting an enforcement approach after a breach of the directive has occurred. To do this effectively, alternative approaches such as engaging in mediation or arbitration, as in the EU code, should be considered. The role of the competent authority for this directive requires a dedicated organisation on the ground, with specialised expertise, knowledge and the ability to build confidence across the sector. In return, we believe complaints about breaches and other issues would be more likely to be forthcoming.
The Competition and Consumer Protection Commission has been in existence in various forms for a very long time. We are not naive about the significance of this measure and the cost of establishing a dedicated sectoral regulator. We have not come to this conclusion lightly.
However, considering the nature of this market, the issues surrounding sustainability and viability and our experience of engaging with this sector, if the objective is to rebalance power, a substantial and more interventionist response is required.
I would like to use the last few minutes of my time to highlight some points we believe need to be considered in the transposition of the directive in Ireland, including the decision on the most appropriate competent authority or authorities. The scale and scope of the directive are vastly different from the existing grocery regulations. We estimate that the Irish legislation could apply to 10,000 traders in the food supply chain and their direct relationships with suppliers. This compares to the 22 grocery undertakings and their direct supplier relationships that are within the scope of the current regulations. There are orders of magnitude in the difference. The expanded scope will have significant cost implications and consideration needs to be given to how such a regulatory regime would be funded. Our initial ballpark estimate is that, to achieve the aims of the directive successfully, a minimum of 40 staff would be required. The necessary skill sets would include investigators, economists, legal advisers, supply chain experts and auditors. To outline a tangible benchmark for the cost, the work of the Groceries Code Adjudicator in the UK costs £2 million per year, although we understand the adjudicator does not necessarily use all of that amount every year, and is funded by a levy on the much smaller number of retailers - ten - within its scope.
A further complication is that the directive applies to commercial relationships, regardless of the place of establishment of the supplier or buyer. In the context of Brexit, this has significant implications for Ireland more than any other member state, given the interconnected nature of the Irish and UK agrifood sectors. The mechanism to promote compliance with the directive needs to be considered carefully.
The legal basis for the directive lies in Article 43(2) of the Treaty on the Functioning of the European Union which relates to the CAP and its objectives, including the safeguarding of farmers' ability to make a reasonable living. We recognise and acknowledge the importance of such objectives. Unfortunately, they can and, on occasion, will conflict with consumers' interests and welfare. It should also be said the original proposal was significantly expanded in the final directive which extended it to all actors in the food chain. We note that large processors and manufacturers are requesting that the regime be further expanded upwards to address their issues with buyer power. In contrast, others believe the directive does not go far enough and have stated a ban on below cost selling is required. That is a measure the CCPC would strongly oppose. In our view, banning below cost selling would not guarantee better prices for food producers. Instead, it would guarantee higher profits for retailers and higher prices for consumers.
Our role is focused on the welfare of consumers. It is an important job. We are aware that there is a body of work ahead in the transposition of this legislation and while we fully respect the fact that our role can be and is changed by the Oireachtas, we believe in the work we are doing across every sector of the economy and wish to be allowed to continue it. If we were to be given the role of competent authority for the directive, there is little doubt that it would drain resources and focus from across the organisation and our ability to work on consumers' behalf would be seriously compromised.
For all of these reasons, we strongly ask the committee to consider our view that a dedicated sectoral body is required. It should be empowered not only to enforce the directive but also to deliver ongoing regulatory interventions to improve the welfare of farmers. Given the transposition deadline and the fact that the committee's work is coming to a close, a decision on the issue needs to be made as a matter of urgency. The alternative would be unlikely to achieve the desired change in the sector.
We will, of course, continue to do our part in this and all other sectors. It includes continuing our work to ensure compliance with the existing grocery regulations. We would also be happy to work with any body designated with a role in the sector. We have previously worked closely with other bodies in the setting up of new regulatory systems and are ready to provide assistance in any way we can.
I thank the Chairman. We are happy to take questions and expand on our views.