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COVID-19: The Competition Act 1998 (Dairy Produce) (Coronavirus) (Public Policy Exclusion) Order 2020 published
Practical Law UK Legal Update w-025-3071 (Approx. 6 pages)
COVID-19: The Competition Act 1998 (Dairy Produce) (Coronavirus) (Public Policy Exclusion) Order 2020 published
| Published on 01 May 2020 • United Kingdom |
On 1 May 2020, the Competition Act 1998 (Dairy Produce) (Coronavirus) (Public Policy Exclusion) Order 2020 (SI 2020/481) was laid before Parliament and came into force.
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On 1 May 2020, the Competition Act 1998 (Dairy Produce) (Coronavirus) (Public Policy Exclusion) Order 2020 (SI 2020/481) was laid before Parliament and came into force. The Order has been made in exercise of the Secretary of State's powers under paragraph 7 of Schedule 3 of the Competition Act 1998 to exclude certain categories of agreements from the Chapter I prohibition due to exceptional and compelling reasons of public policy arising from the 2019 novel coronavirus disease outbreak (COVID-19).
The Order excludes from the Chapter I prohibition agreements between dairy produce suppliers which relate to certain specified activities (collecting and sharing information and certain coordination), and have the purpose of maximising the processing, transport and storage efficiency and the storage capacity of dairy produce, and preventing or maximising the need for the disposal of milk resulting from a disruption in demand caused by the effects of coronavirus. It also applies to certain activities which have the purpose of preventing or mitigating the need for the disposal of surplus milk or to limit the environmental impact of any disposal of surplus milk. Certain agreements between logistics services, with similar purposes are also excluded. The agreements must not relate to the sharing of information relating to costs or pricing.
The exclusions from the Chapter I prohibition apply to agreements relating to qualifying activities from 1 April 2020, until a date to be notified by the Secretary of State or when the Order expires in three months. Agreements covered by the Order must be notified to the Secretary of State within 14 days and the Secretary of State will maintain a register of such agreements.
Background
Under paragraph 7(1) of Schedule 3 of the Competition Act 1998, if the Secretary of State is satisfied that there are exceptional and compelling reasons of public policy why the Chapter I prohibition ought not to apply to:
- A particular agreement, or
- Any agreement of a particular description,
they may by order exclude the agreement, or agreements of that description, from the Chapter I prohibition.
Such an order may make provision for the exclusion of the agreement or agreements to which the order applies, or of such of them as may be specified, only in specified circumstances (paragraph 7(2) of Schedule 3). Such an order may also provide that the Chapter I prohibition is to be deemed never to have applied in relation to the agreement or agreements, or in relation to such of them as may be specified (paragraph 7(3) of Schedule 3).
In the context of the 2019 novel coronavirus disease (COVID-19) outbreak, the government has made public policy exclusion orders, excluding certain agreements in relation to health services in England and Wales, the grocery sector and Isle of Wight ferry services from the Chapter I prohibition (see Legal update, COVID-19: Orders excluding certain agreements relating to health services, groceries and Solent maritime crossings from Chapter I prohibition published and Legal update, COVID-19: Competition Act 1998 (Health Services for Patients in Wales) (Coronavirus) (Public Policy Exclusion) Order 2020 published).
On 16 April 2020, it was announced that legislation would also be laid to temporarily relax elements of competition law to support the dairy industry during the COVID-19 outbreak (see Legal update: archive, COVID-19: competition law to be relaxed to allow dairy industry to work together
The Competition Act 1998 (Dairy Produce) (Coronavirus) (Public Policy Exclusion) Order 2020
The spread of coronavirus has caused serious difficulties for many businesses in the UK’s dairy sector. Farmers sell most of their milk to processors under a contract. A processor will typically supply a specific consumer-facing sector, for example hospitality or retail. Dairy traders operate within the supply chain to buy and sell milk and logistic services providers transport or store milk or milk products. The hospitality sector’s recent downturn, which has resulted from businesses closing to prevent the spread of coronavirus in the UK, has in turn reduced demand for dairy products. As a result, producers that service demand from the hospitality sector are facing significant over-supply of raw milk, which is a perishable product with a short shelf life.
In addition, half of the milk produced in the UK is consumed as fresh milk and the dairy sector’s processing capacity is built to serve this characteristic. This means that there is limited capacity for processing raw milk into other milk products, such as butter or milk powder, which have a longer shelf life. This is compounded by increased levels of staff absence resulting from either illness or efforts to prevent the spread of coronavirus has reduced the sector’s capacity for processing surplus raw milk.
The effects of over-supply and reduced processing capacity have been made more challenging because the sector is entering the ‘Spring flush’, during which the production of cows' milk typically increases by 12% compared to the annual average. With limited options to respond to the over-supply of such a perishable product, farmers have needed to dispose of surplus milk, which can cause environmental damage.
Cross-sector co-operation is, therefore, essential to support the dairy industry’s response to these effects resulting from the spread of coronavirus. The Secretary of State is satisfied that there are exceptional and compelling reasons of public policy why the prohibition contained in Chapter I of the Competition Act 1998 ought not to apply to, or ought to be deemed never to have applied in relation to, certain agreements relating to activities by dairy suppliers and by providers and logistics services providers.
The Order provides that the Chapter I prohibition of the Competition Act does not apply to an agreement which:
- Is between two or more or is between two or more dairy produce suppliers or two or more logistics service providers.
- In relation to dairy produce suppliers relates to one of the specified qualifying activities during the "dairy produce demand disruption period", which began on 1 April 2020 and will end when notified by the Secretary of State or in three months.There are two groups of qualifying activities. The first is for activities which have the purpose of maximising the processing, transport and storage efficiency and the storage capacity of dairy produce and to prevent or mitigate the need for the disposal of milk resulting from a disruption in demand caused by a reason relating to coronavirus. The qualifying activities are:
- Collecting and sharing information on surplus milk quantities, stock levels, and aggregate customer demand for milk.
- Collecting and sharing information on the availability of milk processing, storage and drying capacity.
- Sharing of labour or coordination of the deployment of labour from other industries into the dairy produce supplier workforce.
- Coordination and sharing of facilities or coordination of the deployment of new facilities in the dairy produce supply chain.
- Coordination on the processing and storage of surplus milk
- Sharing information on services provided by logistics service providers.
The second group relates to activities the purpose of which is to prevent or mitigate the need for the disposal of surplus milk or to limit the environmental impact of any disposal of surplus milk resulting from a disruption in demand caused by a reason relating to coronavirus. The qualifying activities are:- Coordination as regards the temporary reduction of milk production insofar as it does not involve coordination with the object of excluding one or more dairy produce suppliers from the market.
- Sharing information on best practices in relation to surplus milk disposal and the environmental impact of surplus milk disposal.
The activities in each group must not involve the sharing between dairy produce suppliers of any information regarding costs or pricing. - In relation to logistics service providers relates to one of the following qualifying activities during the dairy produce demand disruption period:
- Sharing information on labour availability during the dairy produce demand disruption period.
- Sharing of labour or facilities or coordination of the deployment of labour during the dairy produce demand disruption period.
- Sharing information on delivery vehicle capacity and the size, type or destination of delivery vehicles during the dairy produce demand disruption period.
The qualifying activity must be for the purpose of maximising the processing, transport and storage efficiency and the storage capacity of dairy produce and preventing or mitigating the need for the disposal of milk resulting from a disruption in demand caused by a reason relating to coronavirus and must not involve the sharing between logistics service providers of any information regarding costs or pricing. - Is notified to the Secretary of State by providing within 14 days (of this Order or the agreement) details of the parties, the date of the agreement, the nature of the agreement and the groceries to which it relates. The Secretary of State must maintain a register of notified agreements.
- Meets the following conditions:
- The purpose of the agreement is as specified above.
- The agreement does not have as its object or effect the prevention, restriction or distortion of competition within the UK, except in relation to qualifying activities in a market for the provision of dairy produce in any part of the UK affected by a disruption in demand caused by a reason relating to coronavirus.
In addition, the prohibition contained in Chapter I of the Competition Act 1998 is to be deemed never to have applied in relation to such an agreement which was made in the period beginning on 1 April 2020 and ending the day before the day on which this Order came into force.
The Order provides that when the Secretary of State considers that there is no longer a significant disruption or a threat of significant disruption to the supply of groceries to consumers in the UK caused by a reason relating to coronavirus, the Secretary of State must publish a notice to that effect specifying the date on which the healthcare disruption period is to end. This date must not be less than 28 days after the date on which the notice is published.
Unlike the other public policy exclusion orders, this one provides for the expiry of the Order at the end of the period of three months beginning with the day on which it comes into force.