On 10 January 2023, the European Commission (Commission) published draft guidelines on the application of a new EU antitrust exemption for sustainability agreements involving producers of agricultural products (the draft Guidelines). Article 210a of Regulation (EU) 1308/2013 (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. Article 210a was introduced in the CMO Regulation in 2021 and entered into effect in early 2022.
The draft Guidelines complement the Commission's work on the assessment of sustainability agreements under Article 101 of the Treaty on the Functioning of the EU (TFEU), which will be addressed in guidelines to be finalized in the coming months (the Horizontal Guidelines). A number of other national antitrust authorities – including the Austrian, Dutch, Japanese and UK authorities -- are also working independently on the antitrust assessment of sustainability agreements. The EU's approach to sustainability agreements in the agriculture sector is unique, differing not only from the approach taken by international antitrust authorities, but also from the Commission's own assessment of sustainability agreements outside the agricultural sector.
The draft Guidelines clarify the application of Article 210a and will increase legal certainty for a wide range of businesses exploring possibilities to increase sustainability in the food and agri sector without running afoul of EU antitrust rules.
EU antitrust rules in the agricultural sector
Articles 101 and 102 TFEU do not apply directly to producers of agricultural products listed in Annex I of the TFEU, but are incorporated by reference in the TFEU's provisions on the Common Agricultural Policy (CAP) and subject to implementing regulations adopted under the CAP, such as the CMO Regulation. This regulation applies EU antitrust rules to agricultural producers but also contains a number of carve-outs. Article 210a is broader than other potential exemptions in key respects, but narrower in others.
Article 210a exempts agreements of producers of agricultural products that aim to apply a sustainability standard higher than mandated by EU or national law from the prohibition of anticompetitive agreements under Article 101(1) TFEU, subject to certain conditions. Article 210a defines 'sustainability standard' as a standard that contributes to environmental objectives such as climate change mitigation and adaptation, and the sustainable use of water and soil, the reduction of the use of pesticides or animal health and animal welfare. Article 210a is thus narrower than Article 101(3) TFEU, which could, in principle, exempt an agreement that enables compliance with mandatory standards more quickly or efficiently than would otherwise be possible.
Article 210a covers agreements among several agricultural producers or among one or more producers and one or more operators at different levels of the production, processing, and trade in the food supply chain, including distribution. As such, Article 210a is broader than Articles 209 and 210 CMO Regulation, which cover agreements between farmers, farmers' associations, and recognized producer organizations (Article 209) and so-called inter-branch organizations (Article 210). Thus, Article 210a is again narrower than Article 101(3) TFEU in that it applies only to agreements involving agricultural producers, but broader than other agriculture-specific exemptions in the CMO Regulation.
To be covered by Article 210a, an agreement must concern the production or trade in agricultural products and can only impose restrictions of competition that are "indispensable" to the attainment of the sustainability standard, similarly to Article 101(3) TFEU, which excludes from exemption restraints of competition that are "not indispensable" to attain pro-competitive objectives.
On the other hand, Article 210a does not include Article 101(3) TFEU's requirement that an exempted agreement allow "consumers a fair share of the resulting benefit". Article 210a thus differs significantly from the Commission's generally sceptical approach to sustainability agreements under Article 101 TFEU. The Commission's 2011 Guidelines on Horizontal Cooperation Agreements eliminated a chapter on environmental agreements contained in the previous version. The Commission reversed course again in March 2022, when the Commission published draft Horizontal Guidelines, but this draft takes a strict approach that limits the availability of Article 101(3) TFEU for sustainability agreements.
Article 210a and the draft Guidelines
The 65-page draft Guidelines describe, in great detail, the conditions under which agreements between actors in the agricultural and food chains can benefit from Article 210a's exemption from Article 101(1) TFEU's prohibition of anti-competitive agreements.
The draft Guidelines are divided in a number of chapters, each discussing an aspect of Article 210a. These include the following:
- Scope of the exclusion
Article 210a only applies to agreements including at least one agricultural producer as a party, but Article 210a does not limit the number or type of non-producer parties to such agreements. Provided Article 210a's other requirements are satisfied, sustainability agreements including all or any part of a food supply chain can benefit from the exclusion if at least one producer is involved. - Sustainability objectives and standards
Article 210a only applies to agreements that have a sustainability objective as their material scope. To clarify the scope of the notion of "sustainability objective", the Commission states in its draft Guidelines that the agreement must pursue at least one of the following objectives:
i) environmental protection;
ii) reduction of pesticide use and antimicrobial resistance; and/or
iii) animal health and welfare.
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Indispensability
Sustainability agreements can only benefit from Article 210a if any restrictions of competition are indispensable to achieving the sustainability standard. The indispensability assessment includes four different elements:
a. Identifying the obstacles that would prevent the parties from attaining the sustainability standard on their own and explaining why collaboration is necessary;
b. Determining the appropriate type of agreement;
c. Identifying indispensable restrictions to competition; and
d. Determining the appropriate level and duration of the restriction(s). - Antitrust authorities'
role
The draft Guidelines explain that the Commission and the national competition authorities retain the right to stop or require amendments to the sustainability agreement if necessary to prevent exclusion of competition or if the agreement is not in line with the objectives of the CAP. As of from December 2023, stakeholders can request the Commission's opinion on draft agreements.
Conclusion
Article 210a CMO Regulation reflects strong EU support for more sustainable practices in the food and agri sector. Article 210a goes considerably further than the Commission has been prepared to in other contexts, bypassing the conditions in the Commission's draft Horizontal Guidelines that any competitive harms suffered by consumers as a result of a sustainability agreement – normally increased prices – be more than offset by benefits for substantially the same consumers.
Article 210a also goes further than other exemptions available to agricultural producers, potentially covering entire food supply chains provided at least one producer is included. Article 210a is non-exclusive, in that agreements not covered by Article 210a (for example because they do not aim to attain environmental standards higher than those required by law) may still qualify for other exemptions.
Although Article 210a has been in effect since early 2022, legal uncertainty and fear of antitrust sanctions may deter companies from entering into potentially restrictive sustainability agreements in the food and agricultural sector. Although Article 210a authorizes companies to seek comfort from the Commission, this mechanism only applies from December 2023.
The draft Guidelines, once finalized, will play an important role in providing legal certainty. The Commission is seeking comments on the draft Guidelines until 24 April 2023. Given the potentially broad application of Article 210a to all stakeholders in food supply chains, this consultation deserves the attention of all stakeholders from the agri-food supply chain.
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