The Turkish Competition Board's Ferrero Decision: A Closer Look To Commitments In The Hazelnut Market

1. Introduction

Turkish Competition Board (the “Board”) issued its decision¹ (“Decision”) regarding the investigation launched against Ferrero Fındık İthalat İhracat ve Tic. AŞ (“Ferrero Fındık”) based on the allegation that Ferrero has violated Article 4 and 6 of Law No. 4054 on the Protection of Competition (“Law No. 4054”). The investigation was terminated upon the commitments proposed by Ferrero. Below we provide a brief overview of the competitive concerns discussed and commitments proposed.

2. Background Information on the Investigation

The Board initiated a preliminary investigation upon the complaint that Ferrero International S.A. (“Ferrero”) and its subsidiaries violated Law No. 4054 through their activities across all levels from production to purchase, chopping, and export stages in the hazelnut sector.² Allegations raised via the complaint included, inter alia, the following:

1. Ferrero, as the biggest buyer of hazelnut and exporters has a strong buyer power and there are no other entities which can balance out the buyer power of Ferrero.
2. The finding pertaining to Ferrero's market share is below 40% in the hazelnut purchase market, established through the Board's decision dated December 26, 2019, and numbered 19-46/779-337, solely concerns the direct purchases of Ferrero, despite the agreements Ferrero, imposes de facto exclusivity to greengrocers (merchants) and choppers and when the purchases through other sources -containing greengrocers which de facto exclusivity imposed- are included Ferrero's market share would be much higher. Indeed, Ferrero's market share is a minimum of 50-55%. for unshelled hazelnuts.
3. Following the President of the Turkish Republic's announcement of Turkish Grain Board's (Toprak Mahsulleri Ofisi "TMO") purchase price of unshelled hazelnuts as TL 54 on July 31, 2022, the market equilibrium price stayed well below TL 54 until Ferrero announced its price. Most of the time, no price was listed on the stock exchanges. The hazelnut price was TL 44.89 in Ordu and around TL 46-47 in Giresun. One month later, Ferrero set a maximum price of TL 48, demonstrating its purchasing power and capability to act independently in the market apart from its competitors and customers.
4. Accordingly, Ferrero holds a dominant position in the chocolate and confectionery markets where hazelnut is used as an input, and its practices, such as its attempt to to lower hazelnut purchase prices to TL 40 for traders, 25% below the announced price by the President of the Turkish Republic, demonstrates Ferrero's abuse of its dominant position via predatory pricing as well as exclusionary practices and  imposition of de facto

Upon the preliminary investigation, the Board launched a fully-fledged investigation against Ferrero Fındık with its decision dated November 3, 2022, and numbered 22-50/734-M. Pursuant to its decision dated September 14, 2023, and numbered 23-43/833-M, the Board expanded its allegations and decided to include allegations that Ferrero Fındık violated Article 4 and 6 of Law No. 4054 by means of concluding toll chopping agreements and enhancing the purchase amounts of the unshelled hazelnut.

3. The Board's Assessment on the Anti-Competitive Practices of Ferrero Fındık

As per the Investigation Report and Additional Written Opinion, it has been assessed that Ferrero Fındık increased its unshelled hazelnut purchase amounts in the 2021-2022 and 2022-2023 seasons, subsequently decreasing its shelled hazelnut purchases, Ferrero Fındık's shelled hazelnut purchase price remained lower than TMO's announced purchase price in the 2021-2022 and 2022-2023 seasons, and Ferrero Fındık concentrated on its unshelled hazelnut purchases during August-December, corresponding to the high season, and limited these purchases in other periods. The Investigation Committee assessed that if these behaviours continue, they may harm the structure of the unshelled hazelnut purchase market. Within this scope, the Investigation Committee deemed notification of an opinion to the Ministry of Trade, the Ministry of Agriculture and Forestry, and Ferrero Fındık necessary.

Under the Differing Opinion of Additional Written Opinion, it has been assessed that Ferrero Fındık has changed its purchasing policy between the 2018-2019 and 2022-2023 seasons; during the relevant period, shelled hazelnut purchases decreased while unshelled hazelnut purchases of Ferrero Fındık increased. It was assessed that Ferrero Fındık's policy of increasing purchases of unshelled hazelnuts while decreasing purchases of hazelnuts could potentially lead to an anti-competitive effect by restricting market/customer access for competitors, and a violation can be identified as per Article 6 of Law No. 4054 pertaining to changes in purchasing practices adopted by Ferrero between the 2018-2019 and 2022-2023 seasons.

4. Ferrero Fındık's Commitment Proposal and its Assessment by the Board

Against the foregoing, Ferrero Fındık proposed a commitment. In this regard, the Board proposed the following:

“Please find below Ferrero's formal commitment application for submission to the Board in order to support for the efficiency of the hazelnut market in Turkiye.

1. Ferrero will persist in not purchasing unshelled hazelnuts below the intervention reference price.

…” (with redactions)

The Board has considered that the commitment proposal could address the competition concerns raised concerning low nature of Ferrero Fındık's purchase price for unshelled hazelnuts which corresponds to a lower price than the price announced by TMO for the 2021-2022 and 2022-2023 seasons. In this scenario, Ferrero Fındık, the largest and dominant purchaser in the market, would not purchase hazelnuts at a price lower than the one announced by TMO.

5. Conclusion

Against the foregoing, the Board concluded that Ferrero Fındık's commitment to not purchase hazelnuts at a price lower than TMO price will eliminate the possible competitive concerns regarding the Turkish hazelnut market, which is expected to impact the efficiency and competitiveness of the market positively. While the Investigation Committee considered providing an opinion to the Ministry of Trade, the Ministry of Agriculture and Forestry, and Ferrero Fındık through Additional Written Opinion, it is understood that the Board solely decided to accept the commitments proposed by Ferrero Fındık and rendered commitments binding for Ferrero Fındık. Consequently, the investigation has been concluded through application of the commitment mechanism.

Footnotes

1. The Board's Ferrero Fındık decision dated 07.03.2024 and numbered 24-12/213-87.

2. For the Turkish Competition Authority's announcement, please see; https://www.rekabet.gov.tr/en/Guncel/investigation-initiated-about-ferrero-fi-47a8ac74036bed11a23100505685ee05

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.