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NMa: Growers and growers’ association are not an economic unit

NMa: Growers and growers’ association are not an economic unit

In an informal opinion dated 31 October 2011 the NMa (Netherlands Competition Authority) found that growers who are members of a CMO-approved growers’ association do not constitute an economic unit with this growers’ association.

A CMO-approved growers’ association had asked the NMa whether it constituted an economic unit together with its members. The question arose because a number of growers (the exact number is undisclosed in the opinion) had indicated that they wanted to become members of the particular growers’ association. The growers had already cancelled their membership in the growers’ association of which they had been members. It cannot be gathered from the opinion which growers’ associations were involved. It was reported in the Agrarisch Dagblad of 14 October 2011 however that 78 growers who were members of Coforta (previously the Greenery) wanted to become members of FresQ. It is logical to assume that FresQ requested the informal opinion in question therefore.

The informal opinion from the NMa contains little information. It only states that based on the information supplied, the NMa came to the conclusion that the performance of a CMO-approved growers’ association as sales office is based on an agency relationship, or at least a brokering relationship. According to the NMa, the growers are autonomous and independent businesses. The fact that they conduct their sales or a substantial part thereof via a growers’ association does not change that in principle, according to the NMa’s view. For application of the Competition Act, therefore, the growers cannot in principle be regarded as part of a single economic unit headed by the growers’ association. In the NMa’s view, the growers’ membership in the growers’ association must be defined in terms of competition law as a form of cooperation between the businesses. The registration of the large number of growers for
membership in a particular growers’ association must therefore be seen as their entrance into
the cooperation.

The NMa’s opinion is rather oversimplified and that is unfortunate for practice. European case law and the European Commission decision-making practice indicate that three elements are important in deciding whether there is an economic unit:

• the market behaviour of the participating entities is the market behaviour of a unit;
• the parent entity controls the subsidiary entities;
• the participating entities have identical interests.

In its opinion, the NMa only addressed the question of whether the growers’ association controls the subsidiary entities and concludes that this is not the situation in the case at hand. This is a dubious conclusion.

If we look at the CMO rules, we must conclude that growers that are members of a CMO-approved growers’ association may not autonomously sell their products. All their products must be sold via the growers’ association. The individual members have no influence here on the way in which and price at which the products are sold. The manner of sale and the sale price are determined collectively in a certain sense. It is not logical therefore that individual members are able to autonomously determine their market behaviour. A growers’ association that does not control the sales runs the risk of being scrapped. This was the fate of growers’ association Batavia in 2010.

The articles and regulations of a CMO-approved growers’ association will also generally result in the members being under the supervision of their growers’ association. The members must follow the rules that are set by or on behalf of the growers’ association. Compliance with the aforementioned rules will be monitored and enforced by the growers’ association. Measures will be taken in the event of a violation.

Finally, it is obvious that the members of a CMO-approved growers’ association have identical interests. After all, they normally receive the same pay-out price per product/quality. This is how competition between the members is disabled. Any collection risk is also spread among the growers in this way.

Eric Janssen

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