Competition Authority loses beef processors' challenge

The High Court has rejected a challenge by the Competition Authority to an agreement reached between most beef processors to rationalise the industry.

Mr Justice Liam McKechnie yesterday found the authority had failed to produce credible evidence to show that the agreement, if implemented, would prevent, restrict and distort competition and ultimately harm consumers through higher beef prices.

The judge noted the industry was largely, in his view and with some exceptions, "in survival mode".

On the basis of the evidence before the court, he believed a sufficient level of competition would remain in the industry if the rationalisation plan was implemented and that it would result in cost savings.

He did, however, express a view that the Beef Industry Development Society (BIDS) had failed to adduce sufficient evidence to prove consumers would receive a "fair share" of the cost savings which he found would result from rationalisation. The proceedings were brought by the authority against (BIDS) and Barry Brothers (Carrigmore) Ltd.

The action arose after BIDS was set up in May 2002 to "rationalise" the beef industry. The principal beef processing companies, accounting for some 93 per cent of beef processors, are members of BIDS. They claimed the beef processing sector is facing such a problem of overcapacity that some degree of co-operation should be permitted.

The authority claimed the members of BIDS had reached an agreement to eliminate 25 per cent of beef slaughtering capacity here or plants which process some 420,000 animals a year. The rationalisation plan is to be implemented through a compensation system under which the beef processors who leave the industry for a two-year period and who decommission their premises and assets for a five-year period will be paid by those companies who continue in the industry. Payments by the latter will be based on agreed levies to be paid for each animal killed.

These levies, the authority claimed, will result in higher prices for beef as they eliminated any threat of entry. It claims such an exit agreement from the industry has already been agreed between BIDS and Barry Brothers. Instead of allowing ordinary market forces to apply, which would see the least competitive plants leave the market, the BIDS plan puts in place an artificial scheme under which competition between existing beef processors would be effectively restricted, it was claimed.

The action opened last November and ran for several weeks to January last before Mr Justice McKechnie, who reserved judgment and also secured the services of an independent assessor to assist in dealing with some of the issues raised.

In his 103 page judgment, the judge said the authority had failed to establish that the levies to be paid for animals killed was restrictive. While the levies might have an impact on prices and output, it was most likely those would be small, he said. The authority had also crucially failed to establish that the levies would result in any significant price increase and/or output reduction.

On the requirement to decommission plants and to refrain from their further use for beef processing for a five-year period, the judge said there was no doubt this scheme would reduce the number of competitors in the domestic market.

However, the true question was whether that would have any clear adverse effect on domestic competition.

He said the market is fragmented with changes of ownership occurring regularly if not frequently.

While he accepted that the money and time necessary to identify and develop a greenfield site was prohibitive under current circumstances, there were still, he held, other avenues for potential competitors to enter the market. The most obvious and likely option was the acquisition of domestic plants and their development to approved standards and capacity for export. This had happened with Exel Meats Ltd in 2002 and Eurofarms Ltd in 2003.

He also noted that imports represent about 25 per cent of domestic competition which, he said, is indicative of the absence of barriers or prohibitive barriers to entry.

Because the authority had failed to demonstrate by credible evidence that the objectionable features of the arrangements reached by the BIDS were likely as a matter of probability to have appreciable anti-competitive effects, the action must fail, the judge said.