Markets in times of COVID-19: the European commission temporarily suspends competition rules in the wine sector to boost recovery

On July 7, the European Commission adopted a package of extraordinary measures to support the European wine sector, hardly hit by the COVID-19 pandemic due to a sharp decline in demand as a result of restaurants and bars across the EU being forced to shut down, which was not offset by domestic consumption (in fact, the Spanish government has, for its part, limited grape harvesting through a Royal Decree, just as champagne producers have in France, in view of the dramatic decline in sales).

Within the measures adopted, the Commission granted a temporary derogation from competition rules, allowing operators to self-organize and reach agreements to stabilize the sector for a maximum period of six months, as reported in the press release.

This will allow grape and wine producers to reach agreements on producing, cooperating in storage, implementing joint promotional activities and other measures related to quality requirements and common production planning.

The measure adopted by the European Commission

The Commission’s exemption has been adopted under article 222 of Regulation 1308/2013 of the European Parliament and of the Council of December 17, 2013 establishing the common organization of the markets in agricultural products which allows the Commission to apply temporary exemptions to some EU competition rules in situations of serious market imbalance.

The aforementioned exemption will not apply to agreements and decisions directly or indirectly causing the allocation of markets, discrimination based on nationality or pricing, for which the ban on agreements and anticompetitive practices remains in force as provided in Article 101 of the Treaty on the Functioning of the EU and recital 17 of the Implementing Regulation declaring the exemption. 

In order to monitor that the agreements do not exceed what is allowed, they must be notified to national authorities for follow-up and control.

The European Commission’s decision is aligned with the decision adopted a few months ago by the UK government to temporarily relaxcompetition rules to support the dairy industry during the pandemic. Under this measure, agreements to share facilities and labor were allowed between producers, as well as  cooperation to temporarily reduce production, among other aspects.

Competition rules and the agricultural sector

Competition rules in the agricultural sector have gained interest since the Court of Justice of the European Union (CJEU) issued a judgment in 2017 analyzing the limits for applying competition law in the fruit and vegetable sector.

That judgment provided a preliminary ruling on a question referred by the French Court of Cassation on a decision by the French competition authority fining several endive producers €4 million for colluding by fixing the minimum sale prices for endives, agreeing to quantities sold, and exchanging sensitive information.

Although, a priori, some of these conducts could fall within the scope of the practices prohibited by competition rules, the CJEU concluded that the practices could be exempt from competition regulations if they were performed between members of a producer organization (PO) or association of producers organization (APO) recognized by a Member State, and the measures were strictly necessary to achieve the objective or objectives of the PO or APO under the regulation establishing common organization of agricultural markets.

Subsequently, in October 2018, the European Commission published its first report on applying competition rules in the agricultural sector, monitoring the main developments both at EU level and in EU Member States between January 2014 and mid-2017 and offering its interpretation on the CJEU’s judgment in the endives case.

Finally, the Spanish competition authority (CNMC) has recently closed an investigation into the agricultural sector examining certain conduct in view of the exemptions envisaged in Regulation 1379/2013 on the common organization of the markets in fishery and aquaculture products. According to the decision, the CNMC’s Competition Directorate found that an exchange of information between companies within a PO to implement a collective brand of market aquaculture products met the requirements to take advantage of the exemptions envisaged in the above regulation.

Observations

The above shows that both the European Commission as well as national competition authorities are taking an increasing interest in interactions between antitrust regulations and the agriculture, fishing, and aquaculture markets and are prepared to support the survival and development of these sectors , which are so essential to the EU economy. However, we note that, in the absence of express exemptions or derogations such as the ones mentioned above, competition rules are fully applicable and the consequences of breaching them can be costly.

Authors: Marta Simón and Alexandre Picón