The European Commission adopted today Guidelines on how to design sustainability agreements in the field of agriculture (‘Guidelines’) using a novel exclusion from EU competition rules introduced by the recently reformed Common Agricultural Policy (‘CAP’).
The new Guidelines
Article 101 of the Treaty on the Functioning of the European Union (‘TFEU’) generally prohibits agreements between companies that restrict competition, such as those between competitors that lead to higher prices or lower quantities. However, Article 210a of Regulation 1308/2013 establishing a common organisation of the markets in agricultural products (‘CMO Regulation’) excludes certain restrictive agreements in the agricultural sector from that prohibition, when those agreements are indispensable to achieve sustainability standards going beyond the mandatory EU or national rules.
The new Guidelines aim at clarifying how operators active in the agri-food sector can design joint sustainability initiatives in line with Article 210a. In particular they:
- Define the scope of the exclusion. The exclusion only concerns agreements between different agricultural producers and agreements between agricultural producers and other actors in the agri-food chain, such as companies supplying inputs for production, distributing, transporting or packaging the product. This means that agreements concluded without including agricultural producers cannot benefit from the exclusion. In addition, the agreements must always relate to agricultural products.
- Define the eligible sustainability objectives. The Guidelines clarify the scope of the sustainability objectives that can be pursued with the agreements. These objectives are laid down in Article 210a of the CMO Regulation and can be divided in three categories: (i) environmental protection; (ii) reduction of pesticide use and antimicrobial resistance; and (iii) animal health and welfare. This means that agreements pursuing economic and social sustainability objectives (e.g., fair remuneration for farmers and farm workers) fall outside the scope of the exclusion.
- Set requirements for sustainability standards. In order to benefit from the exclusion, parties need to agree on the adoption of a sustainability standard that is higher than what is mandatory under EU or national law, even if only marginally. Such agreements should be indispensable for the achievement of the sustainability standard.
- Explain that sustainability agreements can include any type of restriction of competition provided that the restriction is indispensable to achieve a sustainability standard. The Guidelines detail how to assess in practice whether a given restriction of competition is indispensable. For instance, operators can agree on payments to producers to cover additional costs as well as a monetary incentive for producers to take the risk of adopting the standard. The exclusion of goods or operators from other Member States is in principle considered not indispensable for the purpose of achieving a sustainability standard.
- Define the scope for ex-post intervention by competition authorities. The Guidelines explain that in cases where the implementation of a sustainability agreement leads among others to unreasonable consumer prices or to the elimination from the market of a product for which there is significant consumer demand, competition authorities may intervene and require to stop or amend the sustainability agreements.
The Guidelines will enter into force following their publication in the Official Journal of the European Union. Operators that have sustainability agreements already in place are invited to align them with the Commission’s Guidelines. Operators may request an opinion from the Commission on their compatibility with EU competition rules as of 8 December 2023.
In the context of the Common Agricultural Policy reform for 2023-2027, the European Parliament and the Council of the European Union adopted in 2021 a new exclusion from competition rules for agricultural products.
The new exclusion is contained in Regulation 2021/2117, which introduced Article 210a of the CMO Regulation. This provision states that agreements aimed at achieving a set of sustainability objectives by applying standards higher than what is mandatory under EU and/or national laws are allowed, provided that any restrictions of competition that result from such agreements are indispensable for the achievement of those objectives.
The European Parliament and the Council of the European Union asked the European Commission to issue Guidelines on the application of this exclusion.
On 28 February 2022, the Commission launched a call for evidence and a public consultation inviting stakeholders to share their experience with agreements aimed at achieving sustainability objectives in the agri-food supply chains. In January 2023, the Commission published a first draft of the Guidelines for consultation and in June 2023 it organised a conference to further discuss the main issues outlined in the consultation.