Investigation of Five Staple Foods Shows No Distortion of Competition
Due to the rapidly changing conditions in the agricultural and food sector, the Office limited its investigation to the entire supply chain of five selected basic agricultural products and food products, specifically dairy milk, butter, poultry (chicken meat), chicken eggs and wheat flour. Compared to proper sector inquiries, this inquiry was carried out within a shortened timeframe and a significant amount of data was assessed.
In the context of the shortened sector inquiry, the Office focused on possible infringements of the law, i.e. on possible abuse of a dominant position or conclusion of prohibited agreements, and, at the same time, its aim was to analyse the structure of individual markets, or market segments, the market power of individual entities operating in these markets, and also to take into account, for example, the role of imports and exports, within the entire supply chain. In view of the dramatic increase in consumer food prices, the Office also checked the prices and margins in various links of the supply chain and their dynamics.
As part of the investigation, the Office addressed requests for documents and information to nearly 200 undertakings operating at various levels of the supply chain, as well as to 14 professional and trade groups, unions and associations, and held online or oral meetings with selected entities.
At no level of markets and/or market segments has the Office found or received substantial indications of the existence of a prohibited cartel agreement. Of course, it cannot be said with certainty that such an agreement does not exist and the Office will therefore continue to monitor the situation in the food markets and will initiate administrative proceedings in the event of a reasonable suspicion of the existence of a prohibited cartel agreement.
No undertaking was found to be a dominant player in any of the markets. In many cases, the Office concluded that the assessed markets were multinational in nature. The possible vertical integration between producers and processors of the commodities examined also did not indicate the existence of a systemic market distortion.
Different results were obtained by analysing the evolution of average commodity prices. Some commodities show a gradual gain in the proportion of private label sales (milk), while for some it is clear that their proportion of sales is stagnating (butter). Also, for some commodities there were significant price differences between private label and branded products (flour), while for others the price was almost identical (butter).
Examination of price developments confirms that retail sales operate on an average margin and there are no separate markets for individual commodities. The investigation has shown that some commodities have been sold at very low or even negative margins at certain times (butter), while others have shown a consistently high margin (fresh dairy milk).
In terms of the evolution of the average margin, the investigation showed that this margin, particularly in the retail sector, is relatively constant for individual commodities, i.e. it is unlikely that the price increases recorded in these commodities in recent months were caused by an agreement in this respect.
Nevertheless, the investigation has also shown that all the links in the vertical chain are able to successfully pass on the increased costs to the final consumers, and, thus, maintain their margins. This behaviour, however, does not constitute an infringement of competition if it is done in an uncoordinated manner.
The analysis of the margins of individual links in the agri-food chain has yielded a number of important insights that could guide the public debate on food prices in the future. In particular, the analysis has shown that for the five selected basic commodities, the highest share of the consumer price is typically borne by the primary producer. But of course, the latter usually also incurs the highest costs associated with production, whether in terms of human labour, feed or fertiliser, farming equipment or fuel and energy. The margins of processors and traders are at similar levels, but generally slightly in favour of the traders' margins.
As to the problem of rising consumer prices, the data collected does not allow us to conclude conclusively that one particular link in the supply chain is responsible for the sharp rise in prices in recent years. As inflation has progressed in the Czech Republic, all three main links in the supply chain have experienced a gradual increase in the margin, probably as a result of rising production or trading costs. As regards price developments, the data presented also show that the situation in 2023 could already bring some stabilisation in the markets and, in some cases, a slight fall in prices. This decline has even already occurred for some products.
Overall, it can be summarised that the investigation in the markets for the commodities in question did not reveal a failure of competition or the existence of a market structure where a player would have a dominant position. In view of the fact that this structure has not changed much over the period under review, and yet there has been a recent sharp increase in prices, it is more likely to be the result of external factors leading to a steep increase in costs than a sudden failure of the markets themselves. The fact that prices in shops do not exactly follow the trend in commodity prices is due to long-term contracts and due to these prices reflecting the increased costs of the previous period, which were influenced by the economic repercussions of the COVID-19 pandemic and, in particular, the Russian aggression in Ukraine and its impact on fuel and energy prices as a whole.
In view of this, regulation in the form of, for example, the application of price caps, which could lead to a shortage of regulated commodities, cannot be recommended in the current situation.
The Office's findings in relation to the mentioned types of food products confirmed earlier findings from investigations carried out on complaints concerning the retail sale of food products in the last decade, which did not reveal anticompetitive behaviour. On the contrary, in a number of cases they have shown that there is strong competition between chains in the food retail sector. On the issue of rising food prices over the last two years, the Office's investigations showed similar conclusions to those reached lately by a number of competition authorities in other European countries. In no European country has it been confirmed that food price increases of tens of percent are due to anticompetitive behaviour. None of the European competition authorities have been able to prove cartel agreements or abuse of dominant positions in relation to food price increases. Competition between companies itself cannot erase inflationary pressures of tens or hundreds of percent. However, it certainly contributes to slower inflation and its earlier slowdown which we are already seeing in the food sector.
Full report of the investigation of food products 2.2 MB (only in Czech)
Presentation including analyses of individual commodities investigated 8 MB (only in Czech)
Press Unit of the Office for the Protection of Competition
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