Practical tools for applying sustainability exemption cartel prohibition: Article 210a CMO

The agri-food and retail sector is more in the public eye than ever. With a view to the outlook of accelerating sustainability, it is generally assumed that cooperation (also in the chain) is needed to achieve that aim. Read more about it in this blog. Since the end of 2021, a new exemption from the cartel prohibition applies to sustainability initiatives within the agri-food and retail sector. Article 210a of CMO Regulation 1308/2013 (CMO) provides that agreements within the agri-food and retail sector that pursue a sustainability objective do fall under the cartel prohibition. The European Commission (the Commission) has now published draft guidelines on the application of Article 210a CMO. But although the final guidelines are not expected until the end of this year, sustainability initiatives can already benefit from the sustainability exemption. The Bundeskartellamt (BKa), for instance, has assessed two sustainability initiatives from the milk industry under Article 210a CMO. It has approved one of those initiatives. This blog provides practical tips and tools to make use of this sustainability exemption independently. It takes into account the frameworks that the Commission has imposed to date on Article 210a CMO, as well as the recent BKa cases.

Sustainability exemption: Article 210a CMO

Although companies have been encouraged for years to cooperate in order to contribute to sustainability, many of such initiatives have stranded in the past when assessed in light of the cartel prohibition. ACM prohibited, for instance, the Kip van Morgen initiative and a sustainability initiative for shrimp fishing. It did so by rejecting the efficiency defence (Article 6(3) of the Competition Act/Article 101(3) TFEU) that was put forward. According to ACM, the initiative was detrimental to the consumer welfare of the consumers in question, because it would lead to a higher price for the product in question.

The introduction of Article 210a CMO changes this. As soon as this exemption can be relied on, assessment under the cartel prohibition (and reliance on the efficiency defence) will no longer be necessary. This will save market parties a great deal of time and costs. Sustainability initiatives may then also be permissible under the regime of Article 210a CMO if they lead to a (consumer) price increase. In practice, Article 210a CMO therefore makes it much easier to rapidly develop domestic, international and sector-wide sustainability initiatives in the agri-food and retail sector.

In Germany, several sustainability initiatives have now been assessed by the BKa. In this blog, we address (i) an initiative related to wage increases in the banana sector (Living wages in the banana sector) and (ii) an initiative on a markup for pork, poultry and beef (Tierwohl). More information is provided in this blog about two initiatives that the BKa specifically assessed under Article 210a CMO: (i) a sector-wide system of markups for milk (Agrardialog Milch) and (ii) a label to improve animal welfare in milk production (QM Milch).

The question is which conditions apply when relying on Article 210a CMO. They are presented in the diagram below.

Article 210a CMO in practice: roadmap

1. To whom does the exemption from the cartel prohibition apply?

First, the key question is whether your company is eligible for the sustainability exemption in Article 210a CMO. That depends on the following conditions.

Type of company	Conditions
Producer of agricultural products	At least one other company (of the type listed in this table) is involved
Operator on “production level” Suppliers of inputs (e.g. seeds, pesticides and equipment) and suppliers of packaging	At least one producer of agricultural products is involved
	Operator contributes to achieving the sustainability standard by implementing the sustainability agreement
Operator on “processing level” Operators that process agricultural products to produce other products not listed in the CMO Regulation (see below)	At least one producer of agricultural products is involved
	Operator contributes to achieving the sustainability standard by implementing the sustainability agreement
Operator on “trade level, including distribution” Traders, wholesalers, retailers and food service suppliers and transport and logistics companies	At least one producer of agricultural products is involved
	Operator contributes to achieving the sustainability standard by implementing the sustainability agreement

This means that the sustainability exemption applies both to an agreement between competing agricultural producers (horizontal agreement) and to an agreement between producers and buyers, such as retailers (vertical agreement). An agreement between competing producers (obviously) requires a minimum of two producers. An agreement between companies at different levels of the agricultural and food supply chain always requires the involvement in the initiative of at least one producer of agricultural products.

2. Material scope of exemption in Article 210a CMO

The exemption applies only if an initiative concerns agricultural products. The CMO Regulation (Annex 1) contains an exhaustive list of products covered by the term ‘agricultural products’. An initiative falls under the sustainability exemption if it relates to one of the following product categories:

Categories of agricultural products: CMO Regulation Annex
Bananas	Milk and dairy products	Tobacco
Eggs	Olive oil and table olives	Pork
Ethyl alcohol of agricultural origin	Poultry meat	Processed vegetables and processed fruit
Dried fodder	Apiculture products	Flax and hemp
Cereals	Rice	Wine
Fruit and vegetables	Beef	Seed
Hops	Sheep and goat meat	Silkworms
Live plants and floriculture products	Sugar

The CMO Regulation also includes a category of other products. This is an exhaustive list that includes animals, other edible products of animal origin, exotic fruits and vegetables, spices and fats and oils. These products also come under the term ‘agricultural products’. Only fishery and aquaculture products are excluded from the application of Article 210a CMO.

3. Sustainability standard of Article 210a CMO

In order to benefit from Article 210a CMO, cooperation must be aimed at achieving a sustainability standard higher than those mandatory under Union or national legislation. This means that the initiative must primarily focus on one of the following three (exhaustive) sustainability objectives:

Sustainability standard higher than the relevant mandatory standard
Environmental objectives	Environmental objectives, including climate change mitigation and adaptation, the sustainable use and protection of landscapes, water and soil, the transition to a circular economy, including the reduction of food waste, pollution prevention and control, and the protection and restoration of biodiversity and ecosystems
Pesticide reduction	The production of agricultural products in ways that reduce the use of pesticides and manage risks resulting from such use, or that reduce the danger of antimicrobial resistance in agricultural production
Animal health and welfare

The following further conditions apply to the sustainability standard. The standard:

• may include a new r an existing sustainability standard;
• may als relate to specific technologies or production methods;
• may create a (vluntary) sustainability label for participants;
• may fcus on quantifiable targets (such as production limitation); and
• must deliver tangible and measurable results.

The condition that a sustainability standard must be ‘higher than the relevant mandatory standard’ can be interpreted as follows:

• the standard must exceed a sustainability standard set by law at a Eurpean or national level;
• this des nt take int account a sustainability standard that applies nly to EU Member States and nt t individual companies; and
• in the absence f a statutory standard, sustainability agreements aimed at increasing the de fact level f sustainability will go beyond mandatory EU or national standards.

4. Necessary and indispensable under Article 210a CMO

A sustainability standard must furthermore be necessary or indispensable. In this context, companies must:

• identify the bstacles that would prevent the parties from attaining the sustainability standard on their own and explain why collaboration is necessary;
• determine the apprpriate type of agreement (e.g. an agreement on price or quantity);
• identify indispensable restrictin(s) to competition as a result of the agreement (e.g. a fixed or minimum price); and
• determine the apprpriate level and duration of the restriction (the parties must choose the option that is the least restrictive to competition).

5. No complete elimination of competition under Article 210a CMO

The sustainability standard may not go so far as to eliminate all competition in the market. This condition does not follow from Article 210a CMO itself. Nevertheless, the European Commission does seem to be pushing for this; it also follows from the BKa’s decision on the QM Milch initiative (more on which in this blog). The BKa approved this initiative because, among other things, consumers may still opt for the non-sustainable alternative after the initiative has been introduced. Briefly stated, the following conditions apply in this context:

• Als in the case of a necessary or indispensable restriction of competition, a sustainability standard may trigger the complete elimination of competition.
• In this cntext, it must be demonstrated that there is no significant unmet demand for the non-sustainable alternative among consumers as a result of the agreement.

If all the above conditions are met, the way is clear to benefit from the sustainability exemption under Article 210a CMO. Parties may carry out a self-assessment in this context. This means that parties themselves review their sustainability initiative under the cartel prohibition, without prior review (or approval) by a competition authority. In the event of doubt as to whether the initiative meets the conditions, parties may informally submit an initiative to a regulator for its assessment.

Information on Article 210a CMO by the Commission and role of national competition authorities

The Commission published its draft guidelines for the application of Article 210a CMO on 10 January 2023. Citizens, organisations and public authorities have until 24 April 2023 to comment on the draft guidelines. Although the final version of the guidelines is expected to be published by 8 December 2023 at the latest, the draft guidelines are certainly desirable to give organisations assurance in assessing their sustainability agreements independently (self-assessment). Organisations may furthermore take into account the examples of sustainability initiatives that have been assessed against Article 210a CMO by the BKa.

Although ACM, unlike the BKa, has not yet posted on its website that it has assessed sustainability initiatives under Article 210a CMO, it is expected that it will do so in the future. ACM published its Guidelines regarding Collaborations between Farmers in September 2022. Those Guidelines focus on the collaboration possibilities of producers of agricultural products (exhaustive list) that are allowed under competition law. According to ACM, Article 210a CMO offers “wider opportunities for sustainability initiatives of farmers’. We can well imagine that ACM is willing to share its thoughts as to whether and to what extent an initiative may benefit from Article 210a CMO. For the present, it is helpful that ACM (and other national competition authorities) are encouraging market players to submit sustainability initiatives to them for their assessment (see here and here for recent examples).

Other sustainability developments in the agri-food sector

Other relevant developments include the following:

• the publication by the Commission, under the Green Deal, of its proposals for the new block exemptions and guidelines on horizontal agreements in March 2022. This block exemption covering cooperation among competitors entered into force on 1 January 2023. It includes a new soft safe harbour provision for sustainability initiatives. Read more about it in this and this blog;
• the publication by ACM of its third Agro-Nutri Monitor in October 2022, which identifies specific bottlenecks in the Dutch food chain. ACM also makes a number of concrete recommendations to the Ministry of Agriculture, Nature and Food Quality. Read more about it in this blog; and,
• one of those recommendations is to reduce the number of sustainability labels in the Netherlands. Different labels cause confusion among consumers, according to ACM. ACM therefore called for the creation of a clear label for sustainable Dutch products.

Maverick Advocaten will address Article 210a CMO on 1 February 2023 at the Cooperation in the Agricultural Chain What is possible within the competition rules? symposium organised by the Ministry of Agriculture, Nature and Food Quality.

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