Green is for go - first agreement proceeds under UK competition and sustainability rules

The CMA has published its first piece of informal guidance under its Green Agreements Guidance, giving the Fairtrade Foundation UK the green light (pun intended) for a sustainability collaboration for sourcing Fairtrade bananas, coffee and cocoa products.

The Green Agreements Guidance which was published in October this year (see here) has already given sustainability professionals more confidence in what is and isn’t permitted under the competition rules (see our survey results here). This is the first of a number of collaborations which we understand the CMA is considering to be published. As more informal guidance is made available, it will (hopefully) create a virtuous circle with higher levels of certainty giving more businesses the confidence to work together on sustainability projects. 

The Fairtrade co-operation

Under the Shared Impact Initiative, which expands on the existing Fairtrade Initiative, UK grocery retailers will commit to purchasing additional Fairtrade bananas, coffee and/or cocoa products over a 3-5 year period. The retailers will independently choose which products and the additional volumes they purchase, pay the Fairtrade minimum price and premium, and publish their commitment to purchase. 

The initiative has the aim of helping suppliers working with Fairtrade by giving them longer-term purchasing commitments. Fairtrade told the CMA that it would allow suppliers to invest in more environmentally sustainable farming and production methods because they would have greater security of supply. Environmental benefits included reducing deforestation, tackling biodiversity loss and reducing emissions. 

The CMA’s guidance

The CMA determined that the Shared Impact Initiative qualified as an Environmental Sustainability Agreement and, therefore, qualified for guidance under the CMA’s open-door policy. 

The CMA assessed the impact of the agreement on competition at different levels of the market and concluded that it is unlikely to raise competition concerns:

• It is unlikely to affect competition between the grocery retailers because it does not involve coordination of retail prices or volumes. Retailers continue to act unilaterally in negotiating price (subject to paying the Fairtrade minimum price and premium) and how much of the premium they pass on to consumer. The retailers also unilaterally determine the products that they offer and the volumes they purchase.
• The scheme would not restrict quantity, quality or choice of products and was likely to result in increased choice and availability of Fairtrade products. Retailers would continue to be free to source Fairtrade goods outside the scheme as well as non-Fairtrade goods.
• The scheme did involve exchange of information relating to future commitment to purchase an additional volume of Fairtrade products in future, but the CMA found that this was unlikely to restrict competition because it covered only a small part of the affected markets, the actual information exchanged was limited and did not cover e.g. actual volumes of products that would be purchased. In any event, the information exchange was necessary to achieve the purpose and additional safeguards around handling the information were in place to avoid disclosure of commercially sensitive information. 
• Obligations around core volume and duration did restrict the commercial autonomy of the retailers, but these were ancillary to the overall cooperation and were objectively necessary to achieve the objective. 
• The CMA also found that there would be no restriction on competition between producers as the agreement would have limited market coverage and the producers that participate in the scheme will be selected on fair, objective and non-discriminatory terms.  

The CMA has confirmed the position in its Guidance that if it decided it necessary to reconsider the Shared Impact Initiative in future and found it infringed competition law, the CMA would not issue fines against either Fairtrade or the parties that had implemented the agreement (provided they had provided all relevant information to the CMA). We would hope the CMA’s approach provides further impetus for firms who are unsure how to mitigate competition issues. On the flip side, the CMA also stressed the importance of the parties keeping the agreement under review as it evolves (e.g. if new products are added) and as circumstances change. 

What we can learn

The CMA has (unsurprisingly) closely followed its own Guidance in analysing the structure of the agreement, its impact on competition and the effect of ancillary restraints. In this case, the conclusion that the agreement is unlikely to restrict competition has meant that the CMA has not needed to consider whether sustainability benefits may outweigh harm to competition or engage in detailed analysis of economic evidence. Given the facts, the conclusion in this case is perhaps not surprising but it nonetheless serves as a useful blueprint for how the CMA is going to approach such collaboration going forward. 

We understand that the overall review period lasted a number of months in this case. However, future reviews may be quicker because (i) this was the first case of informal guidance under the new sustainability rules; and (ii) the review period coincided with the CMA team finalising the Green Agreements Guidance. That said, if detailed economic assessment were required, timelines would probably be longer so timing will be highly case specific.  

Parties who have concerns about the publication of informal guidance will be interested in the level of detail in the CMA’s opinion. Whilst details of the cooperation are set out together with the CMA’s assessment, there are also redactions for confidentiality. The CMA has been keen to stress that whilst their preference is to publish guidance, there is scope for negotiation. We would expect that the CMA would be particularly sympathetic to parties concerned about the impact of a published notice on their position in any US litigation (actual or threatened).