Crisis management with a touch of ESG: The German Federal Cartel Office (FCO) this week again demonstrated that it can act quickly and pragmatically in response to crisis situations – of which there have been too many in the last years. Based on its experience in dealing with different kinds of competitor collaborations following supply chain bottlenecks because of the pandemic and as a result of the Ukraine war (e.g. in the automotive sector), the FCO now is the first authority reacting to possible gas shortages. On 6 September 2022, the German watchdog authorised the collaboration between four German sugar manufacturers (Nordzucker, Südzucker, Pfeifer & Langen and Cosun Beet) to provide each other with free production capacity if energy management measures imposed by the government lead to a reduced or suspended gas supply.
Criteria for capacity collaboration
The FCO’s assessment is based on the following criteria:
- The cooperation is temporary and limited to the beet processing season until June 2023.
- Companies must first use all free production capacities available to them at their own factories in Germany and Europe (including factories not powered by gas) if this is economically feasible due to transport costs.
- The German Sugar Association (VdZ) will be informed about processing capacities and will monitor available free capacities.
- There will be specific safeguards in place to limit and control information exchange on production costs.
Exchange of aggregated information through independent economic consultant
Part of the authority’s pragmatic solution is its approach towards ensuring that a certain standard of compliance is upheld. The FCO highlights that the exchange of information on production costs and customer relationships between the companies must be reduced to what is indispensable for the crisis collaboration.
How does this work? The FCO remarkably also provides guidance on what safeguards the companies should implement. The company making free capacity available will bill its service based on its production costs. However, this information will not be sent to the competitor but will be provided to an independent economic consultant – on a bilateral and confidential basis. The economic consultant will communicate processing costs as a total amount without any details on calculation method or used data. The FCO believes that when applying these measures due to the differences in procurement, the highly volatile fuel costs and additional costs incurred to the longer running times, it is impossible to retrospectively determine the specific production costs.
Further, the FCO requires that information sharing on customer relations must also be limited. Another safeguard will therefore be that the company delivering the beets collects its production share from the processor without delay at its own expense and it will be ensured that the processor will not have any details regarding the further use of the processed sugar and the subsequent supply streams.
A blueprint for other sectors?
Gas shortages will likely lead to production stoppages also in other sectors. Companies will therefore read this decision with increased interest and look for similar models to share production capacity. While the FCO provides some guidance in the present case – even including specific safeguarding options – which could help in assessing other initiatives, the authority also strongly relies on two peculiarities of the sugar market: A large part of the beet harvest used for the production of sugar will rot if not processed and excessive peaks in prices for the base product sugar will affect the entire value chain – which will not be in the consumers’ interest. Nevertheless, this example should encourage companies to openly approach the FCO to find solutions in case of crisis situations (including sustainability initiatives). The FCO’s approach could also be a role model for other authorities – the European Competition Network had at a very early stage of the Ukraine war already published a joint statement providing for guidance in relation to crisis cooperation.