8 August 2019

Will the government waive competition law if there’s no deal?

By John Schmidt

The Food and Drink Federation (FDF) has asked the UK government to consider a waiving of competition law to allow food retailers to coordinate in the case of a potential no deal Brexit.

The FDF’s reasons seem intuitive: the government wants us to plan for a no deal Brexit. The FDF believes that such a no deal Brexit will lead to supply disruptions. If the government wants us to minimise these disruptions there may be a need for food companies to speak to each other. This could avoid empty supermarket shelves and might help ensure supplies to remote areas such as the Scottish Highlands and Islands and that vulnerable groups continue to get their essential supplies.

Similarly, if lorries are backed up for miles at Dover and Calais and they carry perishable food products, why shouldn’t one company say to other: ‘the tomatoes we’ve got in our lorries will last another two days and yours will last five, so we’ll deliver to your shops around London and you tell your drivers to go to Scotland.’

The premise of competition law is that competitors compete for customers rather than cooperate, and competition authorities are suspicious of industry initiatives to align behaviour.

The food industry was burnt in 2011 in the case of dairy products, when companies tried to agree minimum prices for dairy products with the stated aim of ensuring that farmers received a minimum price for their milk. The competition authority at the time intervened and fined the companies a total of £50m. The effect of the decision was to take the view that the stated intention to push the 2p price increase to the farmers through the supply chain was not a justification for this behaviour, and in any event there was debate around whether all of that price increase actually made it to the farmers.

By contrast, the UK’s competition authority at the time granted a formal exemption from the application of UK competition law to some oil companies’ cooperation in respect of the fuel crisis of 2000. Then, the UK Government brokered a deal between oil fuel suppliers which allowed them to cooperate to ensure continuity of supply, particularly to ensure that essential services such as emergency services did not run out of fuel. The exemption was granted on the basis that it was necessary, proportionate and that it only applied to the government’s requirements for fuel and not to the market for privately bought fuel (ie. any surplus).

Making predictions around Brexit is fraught with pitfalls.  Nevertheless, it seems unlikely that competition law would be suspended or waived wholesale for a particular industry.  If a hard Brexit results in shortages and disruption, there might be a justification for some level of cooperation around deliveries and supplies in order to ensure essential supplies throughout the four nations are protected from such disruption: remote areas need supplies, babies need milk powder and nappies, the elderly need food and medicine. There might also be a case to ensure that perishable goods – whether essential or not – get to supermarket shelves rather than ending up as compost.

It seems less obvious that this could apply to all activities in the food and drink sector and to all products. Moreover, the food industry is not the only industry which provides vital and urgent products whose supply chain is at risk of being disrupted by a no deal Brexit. The pharmaceutical and energy industries are in a similar situation and are similarly affected.  The question will be: how much cooperation is really necessary to achieve continuity of supply or can this also be achieved without such coordination.

If this notion is entertained, then a distinction would likely have to be drawn in all these cases between essential and non-essential supplies and potentially between perishable and non-perishable items. In some cases cooperation may be justified but this likely to be limited to the absolutely necessary.

There is also the risk that any cooperation between food companies before 31 October – if that indeed is the Brexit date – will also be subject to EU competition law, rather than only UK competition law. This would open up the possibility of intervention by the European Commission or appeals to the European Court.

The irony, of course, is that any such crisis would be entirely of the government’s own making.

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John Schmidt is a partner at law firm Arnold & Porter