Retailers eye voluntary agreements nervously after milk price-fix ruling

The government has long used voluntary agreements with manufacturers and retailers in an attempt to reduce the environmental impact of products. But the Office of Fair Trading’s recent findings on price-fixing of dairy products means retailers are nervous the agreements may be open to legal challenge, particularly if they affect prices.

Marks and Spencer has warned that last year’s ruling by the Office of Fair Trading on the price-fixing of dairy products by some of the UK’s largest retailers and dairy processors may have ramifications on the legality of voluntary environmental agreements.

Generally brokered by government with businesses and their supply chains, voluntary agreements have been increasingly used by policymakers to meet a range of environmental objectives.

Speaking on 4 March to delegates at an ENDS Report conference in London, Marks and Spencer’s sustainability manager Rowland Hill said that in light of the OFT’s decision some voluntary agreements could be considered "the common man’s cartel" especially if an agreement has an impact on the price of a product. He warned delegates that they should expect more regulation in future as a result.

The concerns stem from the "Statement of Objections" issued by the OFT in September 2007. This accused most of the UK’s largest supermarkets and dairy processors of colluding to raise prices of milk, butter and cheese. While most of those named by the OFT have collectively paid fines of £116 million, the OFT continues with its case against Morrisons and Tesco, which deny wrong-doing.

Speaking in February at the NFU’s annual conference, Tesco corporate and legal affairs director Lucy Neville-Rolfe said she could not "understand why the OFT has misinterpreted what we did." She said supermarkets had "acted unilaterally then to help dairy farmers because we were convinced by the case" and that the "consequences of the OFT’s actions could damage retailers’ relationships with farmers, and the farmers themselves in the long run."

But retailers are nervous the consequences could extend further. They are worried that it may mean some voluntary environmental agreements that restrict choice and affect pricing within the market could be open to legal challenge.

"Our lawyers are saying that if a supermarket, for example, decided on its own to charge five pence for a plastic bag then legally that is fine," said Mr Hill. "However, if the supermarkets were to sit down in a room and agree a charge, then that would be considered price-fixing." He said there were concerns among retailers over the recent agreement with government to phase out inefficient light bulbs from the market (ENDS Report 393, p 49 ).

Daniel Lawrence of legal firm Freshfields Bruckhaus Deringer’s environment, planning and regulatory group said that firms must be vigilant in respect of competition concerns when agreeing common industry standards with direct competitors. However, experience in some sectors suggests that cooperation between competitors for a common purpose that is clearly in the public interest can be achieved without exposure to liability.

"The Equator banks have been able to operate the Equator Principles with success over many years and the online gambling community has been able to develop industry standards for player protection and addiction prevention without attracting the attention of competition regulators," he said. "It may be that a similar outcome could be achieved by the major retailers."

However, further progress with retailers on voluntary agreements may be difficult until the legal position has been clarified.

The British Retail Consortium said in a statement that it is now "looking into how any scheme might work within the requirements of competition laws". The Environment Department (DEFRA) is also mulling over the implications and is currently considering guidance for officials on the matter.

While the Department refused to comment on existing agreements, it said in a statement that "it is for the businesses concerned to seek legal advice to satisfy themselves whether their actions, individually or collectively, appear to be compatible with competition law, including any exemptions that might be applied under the framework of the law."

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