On 10 June 2019, the Finnish Competition and Consumer Authority (FCCA) approved an application by Valio for a progressive decrease of its raw milk sales obligation determined in merger clearance decisions. The change will see the present 185 million litre annual maximum decrease to 125 million litres in 2020 and to 100 million litres in 2021. At the same time, the FCCA changed the interpretation of merger remedies regarding the status of the grocery retail chains. As of 1 January 2020, grocery retailers will no longer be able to purchase raw milk from the quota.
According to the merger remedies imposed on Valio in merger clearance decisions dating to 2000 and 2004, Valio was obligated to sell a maximum of 185 million litres of raw milk to its domestic competitors on annual basis. The purpose of the remedies was to ensure the supply of raw milk to Valio’s competitors and, thereby to ensure effective competition in the end-product market. The remedies imposed on Valio were a prerequisite for the merger clearance decision.
Valio has previously requested that the raw milk sales obligation would be waived. However, on the basis of the FCCA’s assessment, a complete waiver of the remedies was not possible. As a result, Valio withdrew its first application and submitted a new one to the FCCA on 31 December 2018, where it requested that the remedies would be amend enabling a progressive reduction of the quota.
“Valio is the market leader in the procurement of raw milk with a superior market position. For this reason, the complete waiver of the quota was not considered possible. On the other hand, the existence of the quota system also reduces the incentives for Valio’s competitors to compete for dairy producers, which may contribute to maintaining the existing market structure,” explains Sanna Syrjälä, Director of Merger Control at the FCCA.
The FCCA also found that significant changes have taken place in the market. “The EU milk quotas have been waived, the sale of fresh milk has decreased, and the market share of private label products has grown significantly especially in the sale of fresh milk,” Syrjälä continues.
According to the FCCA’s assessment, a progressive reduction in accordance with Valio’s application is proportionate and acts as an incentive for Valio’s competitor’s to be more active in competing in the procurement market.
Right of grocery retailers to purchase from milk quota to be waived
The FCCA took also into account that the interpretation of the merger remedies has allowed not only dairy producers and cheese manufacturers but also grocery retail chains to purchase raw milk from the quota. According to the FCCA’s findings, the share of the quota sold to grocery retailers is used solely as an instrument to tender the dairy producers against each other and the share of quota allocated to the retailers has not had a positive impact on competition in the procurement market. The purpose of the remedies is not to strengthen the negotiating power of grocery retailers in relation to dairy producers, but to ensure the sufficient supply of raw milk to Valio’s competitors.
According to the the FCCA, in the current market situation the interpretation of the remedies is not in accordance with the purpose of the remedies. The FCCA changes the interpretation of the merger remedies in question so that as of 1 January 2020, grocery retailers will no longer have the right to purchase raw milk from the quota.
Public version of the decision (in Finnish)
Senior Specialist Lauri Kirkkola, tel. +358 29 505 3073
Director Sanna Syrjälä, tel. +358 29 505 3385