Proceeding against DMK dairy discontinued

09.01.2018

The Bundeskartellamt has discontinued its proceeding on the conditions of supply for raw milk which was conducted as a sample case against Germany's largest dairy, Deutsche Milchkontor eG.

Andreas Mundt, President of the Bundeskartellamt: "We have closely examined the conditions of supply between farmers and dairies. Last year we outlined various obstacles to competition in an extensive report and prompted initial changes. Since then significantly more farmers have switched to another dairy and new types of contracts are being discussed across the sector. DMK has changed its own supply conditions and reduced its period of notice from 24 to 12 months. The new European legal framework makes it possible for national legislators to ensure that changes are made to the conditions of supply."

In March 2017 the Bundeskartellamt published an interim report on its administrative proceeding concerning conditions of supply for raw milk (see press release of 13 March 2017). In the report the authority criticises in particular the long duration and periods of notice of the supply contracts between milk producers and dairies. Along with other special market conditions such as exclusive supply obligations, ex-post pricing and certain market information systems, these could lead to a foreclosure of the market to the detriment of the producers.

Current developments in the market point to an increase in competitive activity in 2017 and 2018. For instance, a volume of more than 20% of the quantity of raw milk which is processed by DMK has been cancelled. There have also been more cancellations than before at other dairies. These developments represent a significant change over the market conditions which the authority established for the years 2013 to 2015 (only 1.0 % switching rate in 2015). It remains to be seen whether these cancellations will actually lead to more switching between dairies and are a sign of effective competition.

DMK has changed its supply conditions in reaction to the Bundeskartellamt's proceeding and has reduced its period of notice for the delivery of milk from 24 to 12 months. This represents a significant change which the authority welcomes as a step in the right direction. Although the Bundeskartellamt still has considerable doubts whether this will be sufficient, it will wait to see to what extent DMK's reduction of its period of notice to one year will stimulate competition.

The amendment of the Council Regulation establishing a Common Organisation of the Agricultural Markets (CMO) has changed the European legal framework. In particular, the revised Article 148 CMO provides the national legislators with a possibility to ensure that cooperative dairies also change their supply conditions. Meanwhile cooperative dairies have also offered a range of proposals and offers on types of contracts and fixed price contracts which the Bundeskartellamt considered desirable from a competition perspective in its interim report in March 2017.

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