COVID-19: The relaxation of competition law in the food and drink industry

In times of crisis, affected sectors usually ask governments to suspend competition law. These requests are rarely followed. In the UK in 2019, the British food and drink industry asked the UK Government to suspend competition law in the event of a no-deal Brexit so that, if there were food shortages, companies could work together to direct food supplies to areas of greater need.

Governments and competition authorities are usually very wary of allowing any relaxation of the rules given the danger associated with opening a floodgate of requests from different sectors if they grant any type of exemption.

With the COVID-19 outbreak, all has changed. UK supermarkets recently requested again a relaxation of the rules, to allow them to cooperate on deliveries in remote areas and to ensure supplies if shops were forced to close down because of the pandemic.

But this time, the UK Government has, in response to the crisis, issued a statutory instrument allowing certain cooperation in the grocery sector. And the UK competition authority – as well as the EU Commission in Brussels – has issued guidance that is applicable to the sector.

Government measures to allow UK supermarkets to cooperate

On 19 March 2020, the UK Government announced that it would temporarily relax elements of competition law as part of the package of measures to allow supermarkets to work together to feed the nation.

Shortly after, on 27 March, the UK Government published a statutory instrument in relation to groceries: The Competition Act 1998 (Groceries) (Coronavirus) (Public Policy Exclusion) Order 2020 (the Order). The Order relaxes competition law rules in agreements between grocery chain suppliers or between logistic service providers which are needed to address the effects of the COVID-19 pandemic.

"Groceries" is defined to mean food, pharmaceuticals, pet food, drinks, cleaning products, toiletries and household goods. A "logistic service provider" is a business that provides services to the groceries chain suppliers (such as delivery, storage or maintenance).

Those companies are allowed to:

• limit purchases of specific products
• share labour or facilities
• exchange information on the day-to-day stock and shortages
• coordinate on assistance of vulnerable consumers and critical workers
• coordinate on closure of stores and stores' opening hours
• coordinate on the supply of groceries in areas which are vulnerable to shortages during the crisis.

Interestingly, the agreements have to be notified to the Secretary of State. In any case, companies are not permitted to exchange information on costs or pricing or other information not related to the crisis.

The UK competition authority's actions to tackle COVID-19 issues

The Competition and Markets Authority (CMA), the UK competition authority, issued guidance on 25 March that seems to go beyond the Government's position relating to groceries. The CMA has confirmed that, where competing businesses coordinate their behaviour to assist in tackling the consequences of the pandemic and such coordination is undertaken solely to address concerns arising from the current crisis and does not go further or last longer than necessary, the CMA will not take action against it.

The guidance relates solely to issues arising out of the crisis and sets out specific behaviours that will be exempt from enforcement action during this time. The CMA has outlined that the key issue it will take account of is whether the behaviour is detrimental to consumers or the wider economy.

To be exempt, the actions taken by businesses in response to the crisis must be "appropriate and necessary, clearly in the public interest, [and] contribute to the benefit and well-being of consumers, deal with critical issues that arise as a result of the pandemic and last no longer than necessary".

Types of coordination that will not give rise to enforcement action include coordination in relation to that which is necessary to:

• avoid a shortage or ensure security of supply
• ensure a fair distribution of scarce products
• continue essential services, or
• provide new services such as food delivery to vulnerable consumers.

In these cases, the CMA is of the view that the coordination is highly unlikely to lead to consumer harm. That being said, the CMA has made it clear that any other type of collusion –  such as exchanging information on longer term pricing or business strategy which is not necessary to handle the current crisis – will not be tolerated.

Indeed, the situation will be monitored to ensure that its position is as fluid as the ongoing crisis and if necessary will update the guidance if it becomes necessary. Further, the CMA will withdraw the guidance when it considers that it is no longer necessary.

On 20 March 2020, the CMA announced it had created a COVID-19 taskforce in charge of monitoring the market and identifying firms exploiting the situation, for example by charging excessive prices. The CMA will take action if companies breach competition or consumer protection law.

In line with this, the CMA confirmed that it will also consider whether to advise the Government to regulate prices for the benefit of consumers, in order to combat the problem of opportunistic retailers that have been increasing substantially the price of certain sought-after products such as hand sanitisers.

On the same day, the CMA sent an open letter to the food and drink industry stating the importance of the sector, but also highlighting that it has received reports that some firms are taking advantage of the situation by charging unjustifiably high price. The CMA acknowledges that some price rises might result in constraints further up the supply chain. In such cases, wholesalers and suppliers have been invited to inform the CMA.

However, to keep the market under review, the CMA has published a page on its website where anybody can report unfair behaviours or prices by companies in the context of the pandemic.

The European Commission's guidance

On 8 April, the European Commission has issued a Temporary Framework communication to provide guidance to companies that intend to cooperate. The Commission acknowledges that there is a risk of shortages of products which are essential to tackle the crisis and some companies may need to cooperate.

While the communication covers medicines and medical equipment used to treat COVID-19 patients, it is relevant to other sectors as well (such as the food and drink industry) as the Commission stated, and it may be amended to include other forms of cooperation.

The communication explains that coordination is likely to comply with competition law if it is:

• necessary to address shortage of supply of essential products
• temporary, and
• not exceeding what is strictly necessary.

Under EU competition law, companies must self-assess the legality of their agreements. The Commission, given the exceptional circumstances, will be happy to provide guidance in relation to specific projects. The same day of the publication of the communication, the Commission issued a comfort letter addressed to a trade association of generic medicines. We are likely to see more examples of this type of guidance.

The Commission has a page dedicated to the pandemic on its website.

Other EU countries

Competition authorities across the EU took the exceptional step on 23 March 2020 to issue a joint statement that they will not intervene against any necessary and temporary cooperation by companies in order to avoid a shortage of product supply. If companies have doubts about the legality of such initiative, they have been invited to contact the Commission or national competition authorities for advice.

The authorities also state that essential products – such as face masks and sanitising gels – should remain available at competitive prices and they will not hesitate to take action if companies cartelise or abuse their dominant position.

What next?

Such relaxation of competition law in Europe is unprecedented. We are likely to see more initiatives by governments and competition authorities while they struggle with the crisis. But, notwithstanding such relaxation of competition rules, companies should be aware that not all forms of cooperation will be allowed. Any coordination that is not necessary to handle the current crisis will not be tolerated and authorities will not hesitate to intervene if consumers are being exploited.

Our Competition, EU and Trade team has advised and continues to advise business clients and in-house lawyers on all these matters. We would be delighted to discuss with you how to help you to address these issues.