The Bundeskartellamt has published its final report on its milk sector inquiry. In the report the authority presents an in-depth assessment of the business relationships in the milk sector.

In its sector inquiry the Bundeskartellamt has conducted an extensive analysis of the milk sector, ranging from the procurement of raw milk through the dairy to the retail sector. Whereas its interim report in January 2010 (available on the Bundeskartellamt's website – German version) focused on competition structures and power relationships between the individual market levels, the final report concentrates on the classification under competition law of the competition problems identified and on the authority's case practice. In addition to a comprehensive survey of the sector and numerous discussions with representatives of the various market participants, associations and interest groups, the final report is also based on the large number of comments on the interim report and the results of a two-day hearing of the sector at the Bundeskartellamt.

Andreas Mundt, President of the Bundeskartellamt, stated: "We wish to further the increasing liberalisation in the milk sector. The forthcoming end to European milk quotas will lead to a certain reorganisation of the markets. The sector is subject to a number of special regulations and traditional structures which require assessment from a competition perspective in the course of this reorganisation. The final report can also help market players to gauge whether their actions are relevant under antitrust rules."

The Bundeskartellamt sees need for action, for example, in the area of market transparency, in particular with regard to market information systems which publish current and dairy-specific data on the price of raw milk. The exchange of these data facilitates the standardisation of such prices by dairies competing with one another in the same region.

The final report illustrates that the issue of power imbalances between dairies and the food retail sector must be addressed individually. The market position of a dairy depends strongly on the size of its share of supply to retailers, its product portfolio and whether it has distribution alternatives. The Bundeskartellamt intends to have a closer look at the long payment terms retailers have demanded from dairies, which would de facto constitute systematic supplier credits.

The final report on the sector inquiry also analyses the proposals that have been made at European level with regard to the amendment of the legal framework conditions in the milk sector. The provisions of the so-called milk package will expand the exemptions from competition law for the milk sector and thus be detrimental to the liberalisation of the milk markets. The intended strengthening of producer organisations will extend opportunities for milk producers to engage in cartel agreements. These are quite pronounced in Germany as it is. One of the intended measures is to introduce the possibility for states to regulate the production quantities of cheese with a registered designation of origin. This would constitute a significant intervention into the competitive processes in the sector.

Andreas Mundt: "We are quite sceptical about some of the regulations in the European milk package. The German legislator will have to use what discretion he has in the implementation of the package for the benefit of competition. In particular now that the sector is undergoing a dynamic development, the markets should remain open to ensure effective competition and make the liberalisation process a success. Where necessary we will support this process with proceedings to remove restraints of competition."

With the sector inquiry the Bundeskartellamt has further defined its screening system to determine and assess competition conditions in the milk sector. It will continue to provide input to the German and European legislative process in this sector to advocate an effective competitive system.

The final report is available (in German) on the website of the Bundeskartellamt. An English summary of the report's findings will follow.