25/07/06
Industry perception is hindering further consolidation of the
dairy sector required to improve its competitiveness, efficiency
and marketing clout, not the Office of Fair Trading, according
to its director of mergers, Simon Pritchard.
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However other issues regarding the current demise of the dairy
sector are Parliament’s responsibility and are out side the
OFT’s narrow remit of competition policy, he said.
“The industry’s perception that the OFT is opposed
to vertical integration, the merger between farmer co-ops and processors,
is simply not true,” he said addressing members of the All
Party Parliamentary Group for Dairy Farmers in the House of Commons. “That
perception goes back to the Monopoly and Mergers Commission’s
decision in 1999 against Milk Marque which was focused on the co-op’s
market power. The case was not a precedent,” he said.
“Very few mergers raise competition issues and we only intervene
in the select minorities. In fact, the dairy sector is not subject
to stronger scrutiny than any other. Furthermore, there would be
no political opposition to the greater formation of co-ops, for
example, enlargement of existing co-ops or formation of new ones,” he
said. Since 1996, the OFT had cleared 16 proposed mergers out of
the 19 examined.
James Paice MP expressed frustration that the OFT worked within
the constraints of a legal framework which was less stringent in
mainland Europe. The OFT agreed and cited for example in Denmark,
Arla had secured an 80% market share, while the New Zealand processing
sector was dominated by Fonterra, however the OFT’s objective
was ‘to make markets work for consumers and the UK economy’.
Sir Nicholas Winterton MP argued, along with other MPs, that current
dairy prices meant dairy farming was no longer sustainable. Simon
Pritchard indicated the OFT was ‘thoroughly aware’ of
the current demise of dairy farming. However in response to a question
from Geoffrey Cox MP on introducing a crisis cartel, he said the
OFT was ‘unaware of any dispensation’. “We would
not want to see a huge relaxation of competitive pressure within
the industry, because that would eventually lead to milk price
increases. Milk is a commodity product purchased by all, including
very poor people.”
Geoffrey Cox also called for the introduction of a national interest
test to protect UK dairy farmers and prevent production being driven
overseas. “Public interest issues are often political and
referred to the Secretary of State for Trade and Industry to make
judgement,” said Mr Pritchard.
He added: “UK merger control and competition law apply to
any sector without special provision and exemptions, but periodically
industries find themselves in dire straits, and we respect the
will of Parliament to decide something that is in the best interest
of the consumer economy.”
APPG for Dairy Farmers’ secretariat, the Royal Association
of British Dairy Farmers’ chairman Tim Brigstocke commented: “We
were pleased to have the opportunity to provide a full and frank
discussion between the OFT, MPs and peers and to hear that the
OFT does not appear to be a barrier to further consolidation in
particular, to vertical mergers. We are now aware that for any
other structural changes to be made within the industry, they would
have to be agreed by Parliament.”
APPG for Dairy Farmers’ chairman, Daniel Kawczynski added: “This
group has certainly taken off and is going from strength to strength.
We will be making sure that the Government is fully aware that
there is a problem here. MPs are armed with considerable knowledge
of the matter now that we have met with the OFT and are determined
that Defra provides adequate solutions. I will be meeting shortly
with the Agriculture Minister, Lord Rooker to raise some of the
issues discussed at the meeting and also with the Secretary of
State for Environment Food and Rural Affairs, David Miliband. I
intend to make sure that the problems facing dairy farmers are
high on their agenda.”
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