CMA guidance on competition law and sustainability – How it affects the food industry

24-Apr-2023 - Last updated on 24-Apr-2023 at 15:20 GMT

The guidance aims to help companies make agreements to be more sustainable without breaching competition law. Source: We Are/Getty Images

In February, the UK Competition and Markets Authority (CMA) released guidance on how competition laws – laws that ensure that agreements between businesses don’t stifle competition – could affect companies striving for sustainability. The guidance said that in some cases, because of the urgency of climate change, agreements with the potential to be restrictive to competition could be allowed if it helped mitigate climate change. But how does the guidance affect the food industry?

The Competition Act 1998 stipulates that competitors making agreements and deals between one another are prohibited from doing so if these deals have the object or effect of restricting competition.

Some agreements, such as two businesses agreeing to make changes to their internal policy, do not affect competition. Others, however, such as price-fixing (when companies agree not to sell goods below a certain price), do. Businesses must be vigilant.

The act, many believe, has the potential to affect agreements between businesses aimed at improving their sustainability credentials, restricting what businesses can do when collaborating to ensure that their business practices help work towards carbon neutrality. This is often something which they can do better by sharing technology and information.

The new guidance, therefore, aims to help firms understand which agreements could get an exemption from the act, due to the fact that climate change is a ‘special category of threat'.

Any agreement must have provable benefits and there must not be an easier way, or a way less restrictive to competition, to get the same results. They must demonstrate that without the agreement, there would be no possibility of achieving said results. Nevertheless, the new guidance aims to provide businesses with the knowhow to collaborate for greater sustainability without breaching competition law.

The guidance and the food industry

The guidance applies to all industries, but the food industry in particular should pay heed to it. Transforming food production is, after all, one of the keys to fighting climate change. The guidance has gone down well in the food industry, according to Kate Newman, competition law partner at Mills & Reeve.

“For some businesses, concerns that sustainability initiatives involving competitors might infringe competition laws (and therefore might expose them to potentially significant consequences) have had a chilling effect,” Newman told FoodNavigator.

“My experience is that awareness of competition law is high in the food sector, given that the sector has been subject to competition scrutiny for many years. The fear of infringing the competition rules, even if inadvertently, has meant that some businesses have been unwilling to engage in industry sustainability initiatives altogether.”

GettyImages-1417607917 — With the guidance, it will be easier for companies to collaborate to make more sustainable decisions. Source: Tom Werner/Getty Images

The guidance, therefore, provides the industry with an important boon to their efforts. “The CMA’s draft guidance provides welcome clarity and certainty for businesses (and their advisers), as the guidance sets out (with examples) the types of agreements and collaborations that will not raise competition concerns; those were more care will be needed; and the types of benefits that businesses can take into account when assessing whether an agreement qualify for exemption.”

“The CMA’s draft guidance provides welcome clarity and certainty for businesses (and their advisers), as the guidance sets out (with examples) the types of agreements and collaborations that will not raise competition concerns; those were more care will be needed; and the types of benefits that businesses can take into account when assessing whether an agreement qualify for exemption.”

Newman also praises the CMA’s open-door policy on the guidance, where they encourage companies to request advice on whether or not they’re complying with competition law.

The policy “should . . . give added comfort to businesses and in turn may help to create an environment in which more businesses are willing to innovate and progress sustainability initiatives,” Newman told us.

However, food companies have to be careful. “There are clearly opportunities for companies within the food sector to work together and the guidance clarifies some of those that would not affect how the parties compete,” Jessica Burt, a food and beverage lawyer at Mills & Reeve, told FoodNavigator.

“However, there should be clear boundaries applied at business level to ensure that this does not encroach for example on price, quality, service.

“In theoretical terms the guidance is very helpful but it will be up to the organisations concerned to police this to ensure that in practice any agreement does not infringe the prohibition against anti-competitive agreements.

“If price is affected, as is likely with, for example, any reduction of use of resources, then there is the potential for competition law to restrict efforts to collaborate for sustainability.”