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Arla considered Finnish fresh milk exit over ‘illegal’ Valio pricing

By Mark Astley , 21-Feb-2013

Arla Ingman – Arla Foods’ Finnish business – seriously considered abandoning the country’s fresh milk market over the “unfair and illegal” pricing policy practiced by industry rival Valio.

It made the admission in a statement accompanying its “improved” financial results for 2012. The company reported net sales of €343m for the twelve months ended 31 December 2012 – a 7.2% increase on the €320m reported for 2011.

Despite the sales increase, the company finished the year at a loss of €15m - an improvement on a loss of €25m in 2011.

“We are satisfied with the improved profitability, although we continue to make losses,” said Arla Ingman CEO, Reijo Kiskola.

“We seriously considered giving up on our fresh milk business due to the unfair and illegal price competition that has been practised in the market. The purpose of this pricing has been to drive other players from the market, to create a monopoly, and then to price milk to the consumer’s detriment.”

The admission follows a Finnish Competition and Consumer Authority (FCA) investigation into allegations that Valio abused its dominant fresh milk market position in an attempt to create a market monopoly.

Valio aimed to “foreclose competition”

In December 2012 - following its investigation - the FCA ordered Valio to “cease its anti-trust violation.”

“The FCA’s investigations and evidence show that Valio’s top management made a strategic decision in February 2010 aiming to foreclose competition on the Finnish fresh milk market,” said a FCA announcement.

According to the authority, Valio dropped the wholesale prices of its fresh milk below the cost of production from March 2010 in an effort to force its rivals out of the market.

“The purpose of the under-pricing was to achieve a position close to a monopoly in the market and thereafter to raise the prices back to the level that existed before Arla Ingman had entered the market,” it said.

“Valio’s strategy has been to prevent Arla Ingman from competing on the Finnish fresh milk market. The conduct has also significant impeded the possibilities of small dairies to operate on the market.”

The authority also proposed a fine of €70m as punishment for the “violation.” The matter is currently in the hands of the Finnish Market Court.

“Lower than the cost of production”

Valio agreed to implement the measures required of it by the FCA, but maintains that it has done nothing wrong.

“The Competition Authority accuses Valio of wholesale pricing basic milk at a rate lower than the cost of production and requires that the company raises the price of its based milks without delay,” said Valio following the FCA decision.

“In Valio’s opinion, the FCA is demanding that Valio transfers the return on its special products to the price of basic milks. Valio will implement the measures required of it by the Finnish Competition Authority, but will at the same time request that the Market Court imposes a prohibition of measures, and will put an appeal process in motion.”

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