German Federal Cartel Office allows cooperation between competitors in the event of a gas supply emergency – under certain conditions

According to a press release dated September 6, 2022, the German Federal Cartel Office has no objections against a production cooperation among German sugar producers to mitigate a possible gas shortage. The decision is driven by the current geopolitical situation and has cross-industry significance. We provide an overview of the conditions under which cooperation between competitors can be permissible under antitrust law during the current the energy crisis and what role industry associations can play in this.

A decision tailored to the energy crisis

Sugar producers want to provide each other with production capacity in the event of a gas supply cut and resulting production stoppage at affected factories. Normally, such cooperation would have little chance before the antitrust authorities because it touches on core areas of competition and therefore has the potential for significant anticompetitive effects.

However, in the overall view of the Federal Cartel Office, the advantages of the cooperation outweighed the disadvantages of possible restrictions of competition. This is because a production standstill caused by gas shortages would have numerous negative consequences, including an overpricing of the end product for consumers.

In addition, many sugar factories had converted to natural gas, partly due to government requirements. A rollback was no longer possible - especially within the short time window. The antitrust authority therefore decided not to make use of its discretionary powers.

Requirements for permissible cooperations

The press release contains helpful information on the requirements that a cooperation between competitors to mitigate the energy crisis must meet in order to receive the blessing of the antitrust authority:

• In any case, the cooperation must be limited in time. In the present case, the cooperation between the sugar manufacturers is limited in time to the upcoming sugar beet campaign until June 2023.
• The cooperation is on a voluntary basis.
• Production capacities are to be made available to each other only if sovereign measures lead to cuts or caps in the gas supply and, as a result, to production stoppages at a location.
• Prior to the cooperation, companies must use all their free production capacities within their group in Germany and Europe and attempt to process their products at another of the company's factory locations not operated with natural gas, provided this is "economically feasible" due to transport costs. However, difficult questions arise in detail: When exactly is a shift to another production site uneconomical? When are transportation costs in an unacceptable range for the company? The Federal Cartel Office is silent on this in its public press release.
• The flow of information between companies must be reduced to the minimum necessary for cooperation. Competitively sensitive information, such as production capacities and costs, must be requested from the companies by a neutral body and managed in compliance with antitrust law. In the present case, the sugar manufacturers have agreed that the relevant data (production costs) will be requested confidentially from the sugar companies by an independent economic consultant. This economic consultant will then provide the interested company with a total amount for the processing costs. Neither the specific calculation approach nor the data used are disclosed to the sugar companies. No information about customer relationships is exchanged either.

Associations can play an important role

The German Sugar Industry Association (VdZ) acts as a neutral control center within the Sugar Alliance. As a preparatory and implementation measure, it will request the available free processing capacities from the sugar companies and introduce ongoing monitoring of which capacities can be made available on a voluntary basis.

Associations in other sectors could play a similar supporting role in comparable cooperative ventures. They could offer their services as a neutral coordinating body and in this way make an important contribution to facilitating the necessary cooperation between competitors.

A signal effect for other sectors

The Federal Cartel Office’s decision serves as an important guide. It shows that the authority is willing, in view of the exceptional geopolitical situation, to permit cooperation agreements which are sensitive under antitrust law under certain conditions. The cartel office already adopted a similar position during the Corona pandemic. At the time, for example, it allowed crisis management measures in the automotive industry in the form of a limited exchange of information and a best practice guide that identified ways to avoid misallocation of resources when capacity was scarce. At that time, too, an industry association, the Association of the German Automotive Industry (VDA), in cooperation with the Federal Cartel Office, had provided significant support in developing the antitrust framework.

If you have any questions or would like a non-binding discussion, please do not hesitate to contact our antitrust experts.

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