New EU Antitrust Guidelines for Food & Agri Sustainability Agreements

Introduction

On 7 December 2023, the European Commission (Commission) adopted guidelines on the application of an EU antitrust exemption for sustainability agreements involving producers of agricultural products (the Guidelines). Article 210a of Regulation (EU) 1308/2013 (CMO Regulation) exempts restrictions of competition in agreements in the agriculture sector that are indispensable to achieving sustainability standards higher than EU or national mandatory standards.  Article 210a was introduced in the CMO Regulation in December 2021.  

The Guidelines complement the Commission’s work on the assessment of sustainability agreements under Article 101 of the Treaty on the Functioning of the EU (TFEU), which are addressed in guidelines on the assessment of horizontal cooperation agreements adopted earlier this summer (the Horizontal Guidelines). A number of other national antitrust authorities – including the Austrian, Dutch, Japanese and UK authorities -- have been working independently on the antitrust assessment of sustainability agreements and have now adopted guidelines. The EU’s approach to sustainability agreements in the agriculture sector is unique, differing not only from the approach taken by international antitrust authorities, but also from the Commission’s own assessment of sustainability agreements outside the agricultural sector.  

The Guidelines clarify the application of Article 210a and will increase legal certainty for a wide range of businesses exploring possibilities to increase sustainability in the food and agri sector without running afoul of EU antitrust rules.

EU antitrust rules in the agricultural sector

Articles 101 and 102 TFEU do not apply directly to producers of agricultural products listed in Annex I of the TFEU, but are incorporated by reference in the TFEU’s provisions on the Common Agricultural Policy (CAP) and subject to implementing regulations adopted under the CAP, such as the CMO Regulation. This regulation applies EU antitrust rules to agricultural producers but also contains a number of carve-outs. Article 210a is broader than other potential exemptions in key respects, but narrower in others. 

Article 210a exempts agreements of producers of agricultural products that aim to apply a sustainability standard higher than mandated by EU or national law from the prohibition of anticompetitive agreements under Article 101(1) TFEU, subject to certain conditions. Article 210a defines ‘sustainability standard’ as a standard that contributes to environmental objectives such as climate change mitigation and adaptation, and the sustainable use of water and soil, the reduction of the use of pesticides or animal health and animal welfare. Article 210a is thus narrower than Article 101(3) TFEU, which could, in principle, exempt an agreement that enables compliance with mandatory standards more quickly or efficiently than would otherwise be possible.  

Article 210a covers agreements among several agricultural producers or among one or more producers and one or more operators at different levels of the production, processing, and trade in the food supply chain, including distribution. As such, Article 210a is broader than Articles 209 and 210 CMO Regulation, which cover agreements between farmers, farmers’ associations, and recognized producer organizations (Article 209) and so-called inter-branch organizations (Article 210). Thus, Article 210a is again narrower than Article 101(3) TFEU in that it applies only to agreements involving agricultural producers, but broader than other agriculture-specific exemptions in the CMO Regulation.
To be covered by Article 210a, an agreement must concern the production or trade in agricultural products and can only impose restrictions of competition that are “indispensable” to the attainment of the sustainability standard, similarly to Article 101(3) TFEU, which excludes from exemption restraints of competition that are “not indispensable” to attain pro-competitive objectives.  

On the other hand, Article 210a does not include Article 101(3) TFEU’s requirement that an exempted agreement allow “consumers a fair share of the resulting benefit”. Article 210a thus differs significantly from the Commission’s generally sceptical approach to sustainability agreements under Article 101 TFEU.  The Commission’s 2011 Guidelines on Horizontal Cooperation Agreements eliminated a chapter on environmental agreements contained in the previous version. The Commission reversed course again in March 2022, when it published draft Horizontal Guidelines. The Horizontal Guidelines (as adopted) take a strict approach that limits the availability of Article 101(3) TFEU for sustainability agreements.      

Article 210a and the Guidelines

The 71-page Guidelines describe, in great detail, the conditions under which agreements between actors in the agricultural and food chains can benefit from Article 210a’s exemption from Article 101(1) TFEU’s prohibition of anti-competitive agreements.  

The Guidelines are divided in a number of chapters, each discussing an aspect of Article 210a. These include the following:

1. Scope of the exclusion
   
   Article 210a only applies to agreements including at least one agricultural producer as a party, but Article 210a does not limit the number or type of non-producer parties to such agreements. Provided Article 210a’s other requirements are satisfied, sustainability agreements including all or any part of a food supply chain can benefit from the exclusion if at least one producer is involved.   
2. Sustainability objectives and standards
   
   Article 210a only applies to agreements that have a sustainability objective as their material scope. To clarify the scope of the notion of “sustainability objective”, the Commission states in its Guidelines that the agreement must pursue at least one of the following objectives:
   
   i) environmental protection;
   ii) reduction of pesticide use and antimicrobial resistance; and/or
   iii) animal health and welfare. 
   
   To benefit from Article 210a, a sustainability agreement must aim to achieve a sustainability standard higher than what is legally mandatory, even if only marginally. The sustainability standards covered by the agreement in question must also lead to tangible and measurable results, or, where this is not appropriate, observable and describable results. 
3. Indispensability
   
   Sustainability agreements can only benefit from Article 210a if any restrictions of competition are indispensable to achieving the sustainability standard.  The indispensability assessment includes four different elements:
   
   a. Identifying the obstacles that would prevent the parties from attaining the sustainability standard on their own and explaining why collaboration is necessary;
   b. Determining the appropriate type of agreement;
   c. Identifying indispensable restrictions to competition; and
   d. Determining the appropriate level and duration of the restriction(s).
   
   If different approaches are available to achieve the relevant sustainability objective, the parties must choose the option that is the least restrictive to competition. For example, an exclusive purchase obligation would not be indispensable to an agreement intended to offset extra costs for annual checks of the quality of water consumed by chickens, as the inspections would only marginally benefit animal welfare, the costs of the inspection would be very low and no cooperation between the producers is necessary to attain the goal (each producer would buy its own testing equipment).
4. Antitrust authorities’ role
   
   The Guidelines explain that the Commission and the national competition authorities retain the right to stop or require amendments to the sustainability agreement if necessary to prevent exclusion of competition or if the agreement is not in line with the objectives of the CAP. As of 8 December 2023, stakeholders can request the Commission’s opinion on draft agreements. Stakeholders that have sustainability agreements already in place are invited to align them with the Guidelines.

Conclusion

Article 210a CMO Regulation reflects strong EU support for more sustainable practices in the food and agri sector. Article 210a goes considerably further than the Commission has been prepared to in other contexts, bypassing the conditions in the Commission’s Horizontal Guidelines that any competitive harms suffered by consumers as a result of a sustainability agreement – normally increased prices – be more than offset by benefits for substantially the same consumers.  

Article 210a also goes further than other exemptions available to agricultural producers, potentially covering entire food supply chains provided at least one producer is included. Article 210a is non-exclusive, in that agreements not covered by Article 210a (for example because they do not aim to attain environmental standards higher than those required by law) may still qualify for other exemptions. 

Although Article 210a has been in effect since late 2021, legal uncertainty and fear of antitrust sanctions may deter companies from entering into potentially restrictive sustainability agreements in the food and agri sector. The Guidelines, combined with the possibility for companies to seek comfort from the Commission, will play an important role in providing legal certainty.