Dairy companies set to fight Spanish fines

By Jim Cornall contact

- Last updated on GMT

The companies and organizations fined more than €80m are challenging the ruling. Pic: ©Getty Images/NiroDesign
The companies and organizations fined more than €80m are challenging the ruling. Pic: ©Getty Images/NiroDesign

Related tags: Nestle, Milk, Spain, Lactalis, Danone

The CNMC (National Commission on Markets and Competition) in Spain has fined eight companies who operate in the raw cow’s milk supply market for activities between the years 2000 and 2013.

The CNMC said the illegal behavior consisted of the exchange of information that allowed for the coordination of sales strategies to the detriment of the interests of the farmers. The infringements have led to €80.6m ($90.4m) in fines, the heaviest, of almost €22m, was to Corporación Alimentaria Peñasanta.

The CNMC action resumed after the case was initially brought in 2015, when fines were introduced, but in 2016, the Spanish National Court partly upheld a judicial appeal lodged by Nestlé and partly annulled the decision made by the CNMC. 

However, DairyReporter has learned that all companies involved will appeal the new fines.

Restrictive practices

The case arose from a study into the dairy sector referred by the Castile and Leon Competition Authority. The CNMC said this showed the possible existence of restrictive practices in the raw milk supply market. There was also a complaint made by the farmers’ unions (Unión de Pequeños Agricultores, UPA) against the milk processing companies.

After an investigation, which included simultaneous raids of the headquarters of some of the main companies in the sector, and after the examination of the corresponding sanctioning case, the CNMC decided that Asociación de Empresas Lácteas de Galicia (AELGA), Calidad Pascual (formerly Grupo Leche Pascual S.A.), Central Lechera de Galicia (CELEGA), Corporación Alimentaria Peñasanta (CAPSA), Danone, Gremio de Industrias Lácteas de Cataluña (GIL), Grupo Lactalis Iberia, Nestlé España, Industrias Lácteas de Granada (Puleva) and Schreiber Food España (formerly Senoble Ibérica) had taken part in, and are responsible for, anticompetitive practices that infringe competition law.

The CNMC said also taking part in these practices were Industrias Lácteas Asturianas (ILAS), Leche Río, Feiraco Lácteos, Leche Celta, Forlactaria Operadores Lecheros and Central Lechera Asturiana, although their infringements were outside the limitation period.

Pressure on farmers

The anticompetitive practices allegedly consisted of exchanging information, at the national and regional level, about raw cow's milk purchase prices, volumes purchased from farmers and milk surpluses.

The CNMC said the exchanges of strategic information took place in different forums and involved different subject matters, although all of them had the common objective of agreeing and adopting a joint strategy to control the raw cow’s milk supply market. In addition, at certain moments there were “specific agreements to coordinate milk purchase prices and transfer farmers between producers.”

According to the CNMC, the processing companies talked about and exchanged information on the purchase prices they were offering their farmers, those that they were going to offer in the future, the identity of the farmers and the volumes purchased from them, and the identity of the farmers who were intending to switch processors and the possible measures to prevent this.

This information would have allowed the companies to adjust their behavior and avoid offering better prices and commercial conditions to the farmers, limiting competition in the raw milk supply market, the CNMC said.

It added that, as a result, the farmers were not free to set the price of their product or the company they wished to supply, distorting the normal operation of the market to the benefit of the processors.

The agreements worsened the situation in a market that was already concentrated in terms of demand and where the negotiating power of the processing industry was very strong compared to that of the farmers who, in addition to being more fragmented, are obliged to sell the production to retain their milk quotas.

Similarly, some of the companies exchanged information with the intention to control the surpluses of milk and its conversion into milk powder, therefore artificially constraining the raw milk supply price, the CNMC stated.

The CNMC said its decision not only proved the existence of behavior prohibited due to its purpose, which was to distort the normal operation of the market, but also showed that this had negative effects on the market, with the farming sector being the most harmed.

Background

The issue was already investigated and ruled upon in 2015. The CNMC produced a Specification of Facts Document in which certain offending periods for some of the companies were omitted. This led to a rectification of this information in a second document, which Nestlé appealed.

While the legal process was taking its course, the CNMC made a decision on the fines on February 26, 2015. However, on July 11, 2016 the Spanish National Court partly upheld the judicial appeal lodged by Nestlé and partly annulled the decision made by the CNMC, ordering the rescission of the procedure to the moment immediately prior to the correction of errors.

This explains why the fines and durations of the conduct are in some cases different to those imposed in 2015.

Fines

The CNMC said the conduct is considered an infringement of article 1 of Act 15/2007 on the Defence of Competition (LDC) and article 101 of the Treaty on the Functioning of the European Union, consisting in practices of exchanging sensitive commercial information.

The CNMC said two associations fined played a part in these exchanges of information: Aelga and Gil, both “accomplices to the infringement.”

Fines (in euros, highest to lowest):

Corporación Alimentaria Peñasanta 21,864,645
Danone 20,277,100
Grupo Lactalis Iberia 11,692,998
Ind. Lácteas Granada 10,269,557
Calidad Pascual 8,560,363
Nestlé España 6,860,000
Schreiber Food España 929,644
Gremio de Industrias Lácteas de Cataluña 90,000
Asoc. Emp. Lácteas Galicia 60,000
Central Lechera Galicia 53,310

No administrative appeal against the decision is possible, however, it is possible to lodge a contentious-administrative appeal before the National Court, no later than two months from the day after the date of notification.

Appeals

And those appeals are coming, from all of the companies involved.

Danone confirmed to DairyReporter that there will be an appeal launched.

Grupo Lactalis Iberia and Nestlé Spain also told DairyReporter they will appeal.

Nestlé Spain said in February 2015, the CNMC adopted an infringement decision against a group of companies active in the cow milk supply market, including Nestlé. As a result, Nestlé was fined €10,687,970, and eight other dairy companies and two sectoral associations were also sanctioned.

After the imposition of the fine, Nestlé said it filed an appeal against that decision and, in 2018, the Spanish Supreme Court issued a judgment partially upholding the appeal and also ordering the retroaction of the actions.

Following the decision of the Court, in March 2018, Nestlé Spain said the Public Treasury reimbursed to Nestlé the €10.6m already paid, together with €1.1m as interests.

Nestlé Spain said, “Furthermore, and following the mandate of the Spanish Supreme Court, the CNMC agreed the resumption of the proceedings in 2018, which decision has been recently notified to Nestlé and the group of dairy companies (July 12, 2019). This time, the Spanish Competition Authority imposes a fine of €6,860,000 to Nestlé.

“Nestlé Spain firmly disagrees with the fine of the Spanish Competition Authority considering that no infringement of the competition regulations has been committed or proven. Nestlé complies with the antitrust legislation and will appeal, once again, the decision of the Spanish Competition Commission before the competent courts.”

Calidad Pascual said the company again expressed its disagreement with the resolution.

“We reiterate that Calidad Pascual has not violated the regulations of the Antitrust Law nor has it carried out anticompetitive practices,”​ a spokesperson told DairyReporter.

“Before this resolution of the CNMC, which exhausts the administrative route, we will file a contentious-administrative appeal before the National High Court and, if necessary, a cassation before the Supreme Court.”

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