With the examination of two sustainability cooperations concerning living wages in the banana sector as well as the expansion of an animal welfare initiative, the German Federal Cartel Office (“FCO”) provided further guidance for the implementation of sustainability initiatives in the food retail industry.[1]  In its press release, the FCO informs that it is open to examine sustainability initiatives as part of the authority’s offer to provide companies guidance “on how to ensure that sustainability strategies are embedded in competition law”.

Because sustainability initiatives are often agreements between competitors which have implications on prices and conditions, the FCO stresses the need to ensure that sustainability and public interest objectives are brought in line with competition requirements.  In this context, the FCO’s president Andreas Mundt noted that “competition law is flexible enough to support sustainability initiatives especially in setting common standards while making sure that the conditions are fair and transparent. But there are also limits to this. Cooperations have to genuinely improve sustainability and must not only aim to increase the margins of a few companies”.

The first initiative by the German retail sector and the Deutsche Gesellschaft für internationale Zusammenarbeit (“GIZ”) concerned the introduction of voluntary common standards (i.e., to promote living wages) and strategic goals along the private-label banana supply chain.  More specifically, the initiative includes a common standard of responsible procurement practices, processes to monitor transparent wages and a gradual increase of the volumes of bananas subject to this standard.  Given that the parties ensured that they will not exchange information on procurement prices, other costs, production volumes or margins nor introduce any mandatory minimum prices or markups at any point in the supply chain, the FCO did not raise any competition concerns, but requested to be kept informed about the initiative’s progress.

For the second initiative, the FCO has provided guidance on a continuous basis since 2014.  The goal of the animal welfare initiative (Initiative Tierwohl) is to reward livestock owners for improving the conditions under which animals are held and has been financed mainly by the four largest German food retailers.  The current scheme under the initiative includes payments of standard premiums to participating livestock owners via participating slaughterhouses.  The FCO’s guidance led already to adjustments to the initial scheme for pork and poultry meat, in particular with respect to a clear labelling of such meat to ensure that animal welfare conditions are transparent for consumers and with respect to the premium and financing model.  The recent expansion of this initiative intends to introduce the same model to cattle fattening.  Again, the FCO called for caution and required the parties to appropriately label the products and to further develop the existing financing model for the next phase of the initiative starting in 2024.  In particular, it suggested that instead of a standard premium, the new scheme should link the payment of cattle fattening to the actual costs of measures that improve animal welfare.

The increased focus on and call for more sustainability as well as a push for more supply chain legislation in the European Union has incentivized companies to pursue sustainability initiatives.  These sustainability goals can often only be achieved through industry-wide cooperation, e.g., to jointly invest, identify solutions, produce, and distribute sustainable products.  Competition authorities have stressed that the use of sustainability initiatives as a cover for cartels will not be tolerated.  Detailed guidance and legal certainty is needed on the circumstances in which sustainability initiatives comply with competition law.  The FCO’s publication of recent cases as well as its willingness to discuss individual initiatives are thus very welcome, [2] but still more general guidance at European level is needed to give comfort to companies seeking to cooperate to achieve sustainability goals.  The European Commission has already announced[3] to provide guidance and greater clarity in its revised Guidelines on horizontal cooperations[4] and thereby to harmonize approaches within the European Union.

[1] See FCO Press Release, dated January 18, 2022, available in English here and in German here.  The FCO’s previous—though rather limited—case law is summarized in its 2020 working paper “Offene Märkte und nachhaltiges Wirtschaften – Gemeinwohlziele als Herausforderung für die Kartellrechtspraxis”, only available in German here.

[2] Besides the FCO, also other national competition authorities have already published guidance on the application of competition law to sustainability initiatives.  For example, the Dutch Competition Authority (“ACM”) published its draft Guidelines on sustainability agreements (available here).  The Hellenic Competition Commission (“HCC”) published a draft staff discussion paper on sustainability issues and competition law in 2020 (available here) and recently launched a public consultation on a sandbox for sustainable development in the Greek market (available here).  The ACM and HCC also jointly commissioned a “Technical Report on Sustainability and Competition” on the quantification of sustainability benefits (available here).  Further, in September 2021, Austria introduced into its competition law an express exemption from the prohibition of restrictive agreements where the agreement substantially contribute to an ecologically sustainable or climate-neutral economy.

[3] See European Commission, Competition policy brief, “Competition Policy in Support of Europe’s Green Ambition”, September 2021, available here.

[4] The Commission is expected to publish a draft of the revised horizontal rules for stakeholder comments in the first half of 2022.  A key feedback by stakeholders in the public consultation on the revision of the Guidelines on horizontal cooperations was the need for clarity on when sustainability agreements are compatible with competition law; see European Commission, Staff Working Document SWD(2021) 103 final of May 6, 2021 available here.