The German Monopolies Commission has begun to investigate the market structures in the food sector and food retailing (LEH). The investigation was initiated by the German government in response to the farmers’ protests. An initial preliminary report (“Policy Brief”) recognizes signs of competition problems and market power. The Monopolies Commission is very reluctant or opposed to political measures to curb this market power. However, this stance does not appear to be convincingly justified in some cases. It is good that the Monopolies Commission is continuing to investigate concentration and buyer power in the food retail and food sector. But it is strange that it is already publishing such substantive determinations before the actual investigation. It is to be hoped that the further process will be open enough.
Signs of competition problems and market power
In its policy brief, the Monopolies Commission concludes that there are signs of competition problems and market power in the food supply chains. Among other things, it sees evidence of this in the high, increasing concentration of food retailers and a further decline in agriculture’s share of food revenues. In addition, agricultural production costs are rising faster than producer prices for agricultural products. The analysis remains very concise. For example, the paper does not address the verticalization of food retailing, i.e. the tendency for discounters and supermarket chains such as Edeka to become increasingly involved in food production themselves. In recent years, for example, they have bought up mineral water sources, juice producers and pasta companies. This further increases their bargaining power.
With regard to farmers, the Monopolies Commission briefly discusses the decline in the number of farms (“farm death”). This shows the Monopolies Commission’s focus on concentration processes: It writes that this concentration process can also be associated with “efficiency advantages”. In addition, larger farms could form a stronger counterweight against powerful market players in the food industry and trade. However, efficiency is a controversial justification for market concentration. It also seems questionable to what extent the increase in the average farm area from 55.8 to 63.1 hectares can seriously reduce the imbalance of power with large food producers and food retailers. This is likely to significantly underestimate the power and size of these companies and the distance between them and most farms.
In the second part, the policy brief briefly describes existing measures to strengthen farmers: on the one hand, the opportunities to market their products jointly (supplier power) and the restriction of the demand market, especially of supermarket chains, by prohibiting abusive and unfair trading practices, for example in the Agricultural Organizations and Supply Chain Act (AgrarOLkG).
Defensive stance on political measures
On the issue of additional measures in the third part, the Monopolies Commission remains very defensive: new interventions should only be made cautiously and on a clear “factual basis”. A good justification of political interventions is fundamentally sensible, as is the comment that undesirable side effects should also be considered.
However, there is another aspect that should be taken into account when taking measures against power imbalances: Players with market power can use their influence to weaken or circumvent regulations. “Cautious” is therefore not always the right selection criterion. Interventions should above all be effective and this may require them to be extensive. A few effective interventions can be better than several cautious measures that are weakened by powerful market players.
At a concrete level, the policy brief is quite explicitly opposed to the measures currently under discussion. The question can be asked whether this is a sensible position to take at the beginning of an investigation and what the reasons are for this negative stance. For example, the Monopolies Commission is putting the brakes on the further development of the Agricultural Organizations and Supply Chains Act (AgrarOLkG). This law is intended to prevent unfair trading practices in the food sector. A debate is currently underway to improve the law. The Federal Ministry of Food and Agriculture presented an evaluation report on this in November.
The policy brief brushes this aside as having only limited significance, as the law has only been in force since June 2022 and there have only been five proceedings. It fails to mention that the Agricultural Unfair Trading Act is an implementation of a European directive and that experience from other countries is also being incorporated into the debate. The low number of proceedings on unfair trading practices is rather a reason for improvements: It is an expression of many stakeholders’ fear of the power of supermarkets and discounters and shows that advisory services such as the Austrian Fairness Office can be useful.
The Monopolies Commission’s position on unfair trading practices is remarkable because the topic is not addressed in its own analytical section. The frequent occurrence of unfair trading practices is closely linked to the market concentration of food retailers.
Further investigation planned
The Monopolies Commission is aiming to carry out an in-depth investigation into food supply chains. This is to be completed before the end of the current legislative period. It will also address the question of whether to recommend a sector inquiry into food to the Federal Cartel Office. However, the Federal Cartel Office is free to decide on sector inquiries.
It makes sense for the Monopolies Commission to take up the issue and further scrutinize the concentration of power in the food sector. The dominant position of the four large supermarkets and discounters (Aldi, Edeka, Lidl, Rewe) is at the forefront of this. However, the food industry and processing companies are also highly concentrated in many areas. More analysis of the interaction between these two levels is important – including possible cascade effects, where downward price pressure is passed on to farmers.
Openness and exchange make sense
At the same time, it is clear that the Monopolies Commission’s investigation can only be one building block in the political response to farmers’ protests and high food costs. It is questionable whether such a strongly negative position on concrete measures before the actual investigation begins is helpful. Hopefully the further investigation will be conducted openly and measures will not be ruled out prematurely.
Perhaps it would have made more sense to combine the first brief analysis with hypotheses and possible key questions for the study rather than a political position. This would have allowed the Monopolies Commission to enter into an exchange with various market players, civil society and the public. This would be helpful for the further investigation – also for the question of where the Monopolies Commission should set its priorities in view of scarce resources. The question of cascading effects could be a worthwhile focus.
In contrast, there is a long and extensive debate on unfair trading practices and a broad evidence base. It makes sense for the political process to continue here. From a civil society perspective, there is a clear need for improvements to the Agricultural Organizations and Supply Chain Act (AgrarOLkG). Together with the Initiative Konzernmacht beschränken, Rebalance Now has submitted a statement calling for improvements to the AgrarOLkG, a sector inquiry by the Federal Cartel Office and an expert opinion by the Monopolies Commission. All three approaches are sensible and should be pursued in parallel.
Further information
- Statement by the Initiative Konzernmacht beschränken “Price pressure from supermarkets endangers agriculture: Federal Cartel Office must take action against monopolization!” (pdf)
- DUH background paper on supermarket power and unfair trading practices (pdf)
- Monopolies Commission: Policy Brief on competition in the food supply chain
Photo of tractors at farmers’ protests in Berlin: Membeth, Creative Commons CC0 1.0 Universal Public Domain Dedication. (own montage)
