The new guidelines on cooperation in the agri-food sector show a more pragmatic approach to sustainability agreements under EU competition law

On 7 December 2023, the EC published new guidelines on when farmers and agriculture related businesses can, subject to certain conditions, enter into cooperation agreements on sustainability without breaching EU competition law. The EC’s approach to sustainability agreements in the agri-food sector appears to be more lenient than its approach on sustainability cooperation in other areas as set out in the recently revised Horizontal Cooperation Guidelines, making it more feasible for agri-food businesses to work together on sustainability.  

Background

The purpose of the exemption from normal competition rules, which was introduced as part of the Common Agriculture Policy reform, is to support the transition to a sustainable food system in the EU and to strengthen the position of producers in the agri-food supply chain.

In accordance with Article 42 TFEU, production and trade of agriculture products is subject to EU competition law only indirectly, through implementing regulations adopted under the Common Agriculture Policy such as Regulation 1308/2013 (the CMO Regulation). The CMO Regulation establishes a common organization of the markets in agricultural products.

Article 210a of the CMO Regulation creates an exclusion from the general prohibition of anti-competitive practices contained in Article 101(1) TFEU. The exemption complements other exemptions that may be available to sustainability agreements including under the revised Horizontal Cooperation Guidelines¹, revised Vertical Guidelines² or more broadly under the exemption laid down in Article 101(3) TFEU.

The EC published the guidelines for sustainability agreements of agriculture producers³ (the Guidelines) to clarify the application of this exemption. The Guidelines discuss in detail conditions under which the agreement would be exempt pursuant to Article 210a and provide helpful practical examples.

Article 210a exemption

Article 210a of the CMO Regulation exempts restrictions of competition in agreements in the agriculture sector that are indispensable to achieving sustainability standards higher than EU or national mandatory standards.

1. What is the scope of the Article 210a exemption?

Article 210a covers agreements, decisions, and concentred practices of producers of agriculture products that relate to the production of or trade in agriculture products.

Unlike the revised Horizontal Cooperation Guidelines, which include a chapter on the assessment of sustainability agreements entered between competitors, the Guidelines cover both horizontal and vertical agreements. Those are (i) agreements between competitors, e.g., between producers of competing agriculture products as well as (ii) between players operating at different levels of the agri-food supply chain, e.g., between a producer and a distributor or a wholesaler and a retailer.

The sustainability agreement need not to be limited to parties based within the EU. A party to the agreement can be based also outside of the EU, provided that the sustainability agreement is implemented in the EU (even if only partially) or provided such agreement is capable of having an immediate, substantial, and foreseeable effect on competition in the EU.

There is no limitation on the number of participants to the agreement, what matters is that at least one party to the agreement must be an agriculture producer of products listed in Annex I to the TFEU other than fishery and acquaculture products.

Sustainability agreements entered into as of 8 December 2021 can already benefit from the Article 210a exemption. Sustainability agreements entered into between 8 December 2021 and publication of the Guidelines should be aligned with Article 210a and Article 101 TFEU after the date of publication of these Guidelines.

2. Which sustainability objectives and standards does the exemption cover?

The Guidelines define sustainability objectives more narrowly than the revised Horizontal Cooperation Guidelines, meaning that agreements pursuing economic and social sustainability objectives (e.g., fair remuneration for farmers and farm workers) are not covered by the Article 210a exemption.

To benefit from the exemption under the Guidelines, the sustainability agreement must pursue at least one of the following objectives related either to (i) environmental protection on which the Guidelines provide a few examples,⁴ (ii) production of agriculture products reducing pesticide use and antimicrobial resistance, or (iii) animal health and welfare, which lead to tangible and measurable results. Where it is not possible to quantify such benefits, the results should be observable in other ways. The Guidelines’ examples of the environmental objectives are illustrative and there may be more types and variations of such objectives. The examples listed in (ii) and (iii) are, however, exhaustive.

Cooperation agreements' aim should be to apply higher sustainability standards than mandated by EU or national law. In the absence of such standards, sustainability agreements aimed at increasing the level of sustainability will be generally eligible to benefit from the exemption. If the EC or a Member State passes a new more stringent sustainability standard than the one which an existing sustainability agreement pursues, such sustainability agreement will cease to be covered by the exemption and parties will need to define a different higher standard to be achieved or drop the agreement and unilaterally follow the legislative standard.

3. What is the indispensability test for the exemption to apply?

To benefit from the Article 210a exemption, sustainability agreements must contain only restrictions that are indispensable for achieving the sustainability standard.  

In a nutshell, the parties need to assess the following:

• Why it is necessary for parties to co-operate in order to achieve the sustainability standard instead of doing so individually. They also need to identify less restrictive alternatives that could achieve the sustainability standard and explain why these are not suitable, if relevant; and
• Parties must identify the nature and intensity of the restriction and determine whether such restriction is the least restrictive available to achieve the sustainability standard. This includes identifying the appropriate nature, intensity, and duration of the restriction

The Guidelines provide detailed guidance on each aspect of the indispensability analysis and include practical examples.

4. How is the Article 210a exemption different from the exemption contained in the revised Horizontal Cooperation Guidelines?

Under the revised Horizontal Cooperation Guidelines, sustainability agreements that restrict competition can benefit from the exemption under Article 101(3) TFEU. Unlike Article 101(3), the Article 210a exemption does not include the requirement that for an agreement to benefit from the exemption, the agreement must allow "consumers a fair share of the resulting benefit", which parties need to prove and quantify. This makes the Article 210a exemption more pragmatically oriented than the exemption under Article 101(3) given that the bar for passing the "fair share benefit test" is relatively high and difficult to achieve in practice.

Procedural aspects

1. Will parties to a sustainability agreement be able to obtain formal or informal comfort from the EC that the cooperation agreement is compatible with the Article 210a exemption?

Producers or an association of producers can request an opinion from the EC on the compatibility of their sustainability agreement with the Article 210a exemption any time after the sustainability agreement has been concluded, including before its implementation. The EC will send its non-binding opinion within four months of receipt of a complete request. There is no standard form to request the opinion. However, for the EC to accept the request, it should contain at least:

• The identities of all parties to the agreement,
• Details about the terms of the sustainability agreement, 
• A description of the sustainability objectives pursued,
• A description of the sustainability standard, including an explanation and evidence of why the sustainability standard is higher than what is mandated by EU or national law, and
• A detailed explanation of how each of the conditions laid down in Article 210a is satisfied.⁵

The EC may ask the applicant, other parties to the sustainability agreement, third parties or national competition authorities for additional information necessary to assess the request for the opinion. An applicant can withdraw the request at any point in time, but the EC can retain the information and may use it in any proceedings for the enforcement of Article 210a or Article101(1) TFEU. The EC may state that the opinion is valid only for a certain amount of time or subject it to conditions. A non-confidential version of the opinion will be published on the EC’s website. 

2. Ex-post interventions

The EC and national competition authorities will have ex-post intervention powers, meaning they will be able to stop or request modifications to the sustainability agreement at issue to prevent:

• The exclusion of competition, for example, when a sustainability agreement leads to the exclusion of competing products that could meet a substantial part of the demand from consumers – however, with the important caveat that the exclusion of competition must be "sufficiently serious to override the fact that the sustainability agreement fulfils the indispensability test of the Article 210a(1)", or
• The breach of the CAP's objectives laid down in Article 39 TFEU.⁶

Practical takeaways

• The EC’s approach to sustainability agreements in the agriculture sector diverges from the EC’s approach in the revised Horizontal Cooperation Guidelines in that it pays less attention to consumer welfare as a condition to qualify for the exemption under the Guidelines. Therefore, sustainability agreements may become more achievable for businesses in the agri-food sector than for companies in other sectors. However, it remains to be seen how exactly the Article 210a exemption will work in practice.
• Players in the agri-food business should assess whether a potential cooperation agreement with competitors, distributors or suppliers can benefit from the exemption. If that is unclear, they should weigh the benefits of approaching the EC for the "comfort opinion" against the risks that the EC, or a national competition authority, initiates an antitrust investigation based on the provided information.
• Companies benefiting from the exemption should put in place a compliance system to ensure that long-term sustainability cooperation does not lead to unlawful competition practices over time.
• Parties should also monitor relevant national and EU law to ensure that the standard pursued by the sustainability agreement continues to be higher than the applicable EU or national standards.

_{1 Guidelines on the applicability of Article 101 of TFEU to horizontal cooperation agreements (2023/C 258/01). 
2 Guidelines on vertical restraints (2022/C248/01).
3 Commission guidelines on the exclusion from Article 101 of the Treaty of the Functioning of the European Union for sustainability agreements of agriculture producers pursuant to Article 210a of Regulation 1 308/2013.
4 Including climate change limitation and adaptation, sustainable use and protection of landscapes, water and soil, the transition to a circular economy, pollution prevention and controls and restoration of biodiversity and ecosystems (C/2023/1446).
5 For a complete list of information requested as part of the application, see section 7.2 of the Guidelines.
6 Increasing agricultural productivity, securing a fair standard of living for the agricultural community, the stability of agricultural markets, the availability of supplies and reasonable prices of agri-food products for consumers.}

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_{This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice.}

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