Will a no-deal Brexit lead to any relaxation in competition enforcement for the food and drinks industry?
14 August 2019
Within the UK, it’s fairly well known that agreements which
“Directly or indirectly fix purchase or selling prices or any other trading conditions; limit or control production, markets, technical development or investment and share markets or sources of supply”
are generally prohibited.
The Competition and Markets Authority (CMA) enforces this prohibition, and can amongst other things, fine a business up to 10% of its worldwide turnover. For those familiar with competition regulation this is nothing new, however, as ‘exit-day’ fast approaches, the question arises as to how this prohibition fits in the context of Brexit when, for example, the Government expects businesses to work together to address potential supply issues?
Last week, the Food and Drink Federation (FDF) publicly raised concerns on this very issue by asking the government to waive certain aspects of competition law to allow firms to co-ordinate and direct supplies with each other after a no-deal Brexit.
The FDF claims that internal discussions with the government have proved difficult with the FDF believing the government has ‘played down’ the impact a no-deal Brexit would have on the overall food supply.
Tim Rycroft, the Chief Operating Officer of the FDF has stated,
“In the event of no-deal disruption, if the government wants the food supply chain to work together to tackle likely shortages – to decide where to prioritise shipments – they will have to provide cast-iron written reassurances that competition law will not be strictly applied to those discussions. Without such assurances, any such collaboration would risk incurring large fines from the CMA. We asked for these reassurances at the end of last year and, despite support from Defra, we're still waiting.”
The former head of the Office for Fair Trading (predecessor to the CMA) John Fingleton, has reinforced the seriousness of the issues by warning, "the last time something like this happened was in relation to dairy prices in 2001 when companies incorrectly thought government words about higher prices for dairy farmers would protect them from competition law. It did not." This led to supermarkets facing huge fines for being found guilty of price fixing.
The CMA’s official response to the FDF’s statement indicates a potential willingness to adopt a softer approach with Andrew Tyrie, head of the CMA saying, “this is a matter for government as the secretary of state can exempt certain agreements from competition law in the public interest. The CMA stands ready to advise government as necessary in its preparations for a no-deal exit.” Therefore, if such a problem was to arise in various industries there could potentially be scope for a softening of competition law. It wouldn’t be the first time that the government or competition authorities have had to act in such a way naming four examples – three in relation to the defense industry and one regarding the supply of oil and petroleum product.
However, the government’s response is that half of the food consumed is produced in the UK therefore, there will not be an overall shortage of food in the UK after leaving the EU. It remains to be seen then what steps the Government will take, whether any relaxation will be permitted, if any, and if so, if this is confined to the food industry?
Due to continuing uncertainty, we are actively advising a number of our clients on the potential risk areas and mitigating steps available. In advance of any further communication from the Government, it would be prudent to keep an eye on the following web-link for any updates: https://www.gov.uk/government/organisations/competition-and-markets-authority.