Sustainability in the food and agri sector: Antitrust authorities step up

Introduction

Sustainability is critical at all levels of the food and agri sector, from water conservation, fertilizer and pesticide development and usage by growers to processing, transportation, distribution and waste management. In recent years, companies throughout the value chain have recognized that promoting sustainability is an essential part of their license to operate. Changes to decades-old practices have been required at all levels, from protecting and supporting farming communities to communicating sustainability objectives to investors, lenders and other stakeholders increasingly focused on these concerns.

Demands for further progress will only increase in the coming years, not least in Europe, where the European Green Deal is the top policy priority of the Von der Leyen Commission. Companies that have so far focused on internal processes to achieve sustainability goals can be expected to explore opportunities to cooperate with competitors, customers and suppliers to achieve further improvements. But cooperation, especially among competitors, raises antitrust concerns.

Antitrust authorities in Europe and elsewhere understand that companies may be deterred from beneficial cooperation by fear of antitrust fines. In recent months, a lively debate has started on areas where better guidance on existing rules, and/or new approaches, are required to ensure that antitrust rules do not become an obstacle to meeting sustainability goals. The European Commission (the Commission) launched a consultation on competition policy supporting the European Green Deal (the EU Consultation) on October 13, close on the heels of the Dutch Competition Authority (the ACM), whose July 2020 consultation on draft guidelines (the ACM Guidelines) on the assessment of sustainability agreements (the ACM Consultation) closed on October 1. Other European authorities are also focusing on this area: the Hellenic Competition Commission (the HCC), published a working paper on competition law and sustainability on September 17, 2020 and the Bundeskartellamt convened a meeting of its Working Group on Competition Law to discuss the issue on October 5, 2020. Europe is taking the lead in this debate, which will be taken up in December 2020 at an OECD roundtable on sustainability and competition.

Sustainability agreements in the food and agri sector

Antitrust authorities’ work focuses on “sustainability agreements,” defined as agreements “aimed at the identification, prevention, restriction or mitigation of the negative impact of economic activities on people (including their working conditions), animals, the environment, or nature.” Although this definition may seem narrow, the same criteria may be applied in assessing commercial projects with environmental benefits, even if promoting sustainability is not the only (or even main) objective.  Examples of such agreements in the food and agri sector could include agreements on the use of more environmentally friendly (though potentially more expensive) irrigation or processing techniques; joint R&D on innovative processes such as the re-processing of byproducts; blockchain or other techniques to trace materials through their entire lifecycle; and cooperation to recover and recycle materials at the end of the cycle.

Many companies are understandably reluctant to engage in any cooperation with competitors because they have been trained, throughout their careers, that any contact with competitors carries antitrust risks. But many sustainability agreements are not caught by the prohibition against anti-competitive agreements at all. For example, no antitrust issues are likely to arise where agreements have negligible impacts on competition. Examples include (i) non-binding agreements where individual undertakings determine their own contributions and the way in which they wish to realize them; (ii) codes of conduct promoting environmentally or climate-conscious practices, provided the participation criteria are transparent, access is granted on the basis of reasonable and non-discriminatory criteria, and it is possible to have alternative standards or certification labels of equal standing and to sell products that fall outside of such codes; (iii) agreements aimed at removing less sustainable products from the market, provided these do not appreciably affect price and/or product diversity; and (iv) agreements whose sole purpose is to help respect local law (e.g. laws banning child labor, paying a minimum wage, protecting the environment, and respecting fair-trade rules), provided they do not unnecessarily restrict competition and that participants do not publish competitively sensitive information.

Even if a sustainability agreement could be considered to restrict competition, the agreement may be permitted if it offers efficiency gains, including sustainability benefits; the users of the products in question are allowed a fair share of those benefits; the restriction of competition is necessary for reaping the benefits, and does not go beyond what is necessary; and competition is not eliminated in respect of a substantial part of the products in question.

Identifying and quantifying sustainability benefits may be challenging, but authorities increasingly recognize that benefits to society in a broader sense need to be taken into account, not only benefits to direct consumers. Examples include the reduction of negative externalities, reducing operational costs, increasing innovation, improving quality or encouraging greater diversity of products. Benefits can be measured using so-called “environmental prices,” or “shadow prices,” which indicate the harm of, among other things, pollution and greenhouse gas emissions.

Similarly, in determining whether users are allowed a fair share of the benefits, future users can be taken into account as well as current users, and indirect users taken into account as well as direct users. In global industries like food and agriculture, difficult issues may arise where benefits do not necessarily accrue in the same jurisdictions where competitive harms – such as higher prices – are incurred.    

With respect to the necessity criterion, the parties to a sustainability agreement should be able to make a plausible case that no other, less anticompetitive alternative is available for realizing the same objective. For example, market participants may agree on more environmentally friendly standards that companies can employ voluntarily without a binding agreement to discontinue previous practices.  
Similarly, the determination of whether a sustainability agreement eliminates competition in respect of a substantial part of the products in question depends on the market share attributable to companies participating in the agreement, as well as the influence of the sustainability agreement on the key competition parameters, such as price. Again, complex issues may arise where sustainability agreements cover many jurisdictions with potentially varied competitive conditions. 
In exceptional cases, a sustainability agreement may not qualify for an exemption even under the new, broader approach to assessing efficiencies. In such cases, other solutions may be available, such as regulation at the national or international levels.

Conclusion

Promoting sustainability is a key priority for food and agri companies, as well as European and other antitrust authorities. Antitrust authorities are just beginning to consider changes to longstanding approaches to sustainability agreements, for example to broaden the scope of benefits that may offset potential competitive harms. Food and agri companies, with their focus on sustainability issues and global reach, can play a key role in educating antitrust authorities and promoting consistent approaches. The sector’s global nature will often create challenges where a number of different authorities, potentially with different approaches and levels of sophistication, may have jurisdiction.

Changing approaches to antitrust analysis of sustainability agreements, combined with the often complex jurisdictional issues, will require careful planning and active outreach to relevant authorities. On the other hand, authorities’ increased openness and global cooperation expand the perimeter of cooperative arrangements that can be considered to achieve sustainability goals in the food and agri sector.