The Cartel Office is destroying the German milk market

Bremen, 13 March  2017. Die Deutsche Milchkontor GmbH (DMK GROUP) and the farmers and DMK owners who work together through the production partnership Deutsches Milchkontor eG reject the attempt by the Federal Cartel Office to destroy the supply relationships between farmers and their own dairies that have developed over decades.
The Federal Cartel Office claims in an assessment report that the supply relationships between milk producers and milk processors give rise to concern from the viewpoint of competition law and should therefore be changed. In order to bring about such a change, the Federal Cartel Office has investigated, in a ‘pilot study’, the contractual obligations of the DMK towards its suppliers as an example of the milk industry as a whole.

The changes proposed by the Federal Cartel Office do not by any stretch reflect the reality of milk-producing agriculture, and also threaten the model of producer cooperatives owned by farmers which has been successful in Germany for over 150 years. They thereby represent an attack on the Raiffeisen cooperatives and the cooperative system in Germany as a whole.

The DMK’s supplier conditions are not only permissible in terms of antitrust law, they are indispensable for the survival of the rural dairy industry in Germany and for supplying the population with milk, a dietary staple.

The supply contracts of the DMK which include a ‘milk supply obligation’ for the farmers and a ‘milk purchase obligation’ for the DMK enterprise do not constitute a restriction on competition in terms of §1 of the German Restrictive Practices Act (GWB). Nor have anti-competitive effects been specifically demonstrated or proved by the Federal Cartel Office.

Dr Klaus Hein, CEO of Deutsche Milchkontor eG, states, ‘Every dairy farmer is entitled to conclude supply contracts with a dairy of their choice. In addition, particularly at DMK, which is a cooperative organisation, the milk-producing members themselves determine the terms at which the milk is supplied. A contract between the farmer and DMK is established by the farmer purchasing shares in the cooperative.’

The DMK’s contractually regulated supply conditions are customary for the dairy industry in every respect. They ensure agricultural production in rural regions as well as economically dependable planning on the part of the dairy plant, thereby safeguarding their investment and future sustainability in the interests of both parties.

Dr Klaus Hein states, ‘“Giving and taking as partners” constitutes a core principle of the German cooperative system which is now under heavy assault. The dismantling of functioning supplier relations will alter neither the volatile global dairy market nor the buying power of the retail trade.’

  • Milk cannot be produced (or not produced) at the press of a button.
  • Milk needs to be processed immediately, as it will otherwise spoil.
  • Milk is a special product, a special commodity, whose production, distribution and pricing cannot be considered with the otherwise usual provisions of competition law.

In particular, the supply contracts concluded between the DMK and its members secure significant efficiency advantages for both sides in the production of raw milk as well as the manufacture and sale of dairy products.

The manner in which these supply contracts are configured is collaboratively set by the farmers in a cooperative. Yet this has no effect on the volatility of the global market. Global trends cannot be influenced by altered supplier relations in Germany.

Only the guaranteed combination of a comprehensive and consistent sales guarantee for the farmers on the one hand and efficient plant utilisation, production and sales planning on the part of the dairy is able to ensure the high-quality supply of dairy products for the population as well as the continuity of agricultural businesses.

This is also the case at the European level. The conclusions of the Federal Cartel Office are hence in breach of European law, according to the opinion of notable legal practitioners. The agricultural committees and the executive management of the DMK would therefore also take legal action against any restrictions set by the Federal Cartel Office, including in the European Court of Justice.

The property rights of DMK and the farmers who own it who have come together in the cooperative would, moreover, be massively damaged by the planned Federal Cartel Office requirements. The unilateral relaxation of the supply contracts intended by the Cartel Office would hinder both the farmers and DMK in the refinancing options open to them in the lending market, make investments more difficult and threaten the livelihood of family farming businesses.
This threat would then also apply to the entire German milk industry, if this ‘pilot study’ were in fact to lead to a Cartel Office decision.