(Restrictive agreements)


The Competition Council imposed a fine of 80 million HUF on 10 meat processers and distributors because of illegal price fixing. Three respondent undertakings were not fined.

The Market

In Hungary there are 6-800 meat-works but only 200 of them meet the legal and hygienic requirements and have authorisation for distribution. A part of the pig-meat packing is unsupervised and the illegal processer activity has an estimated share of 40-50 per cent (including the household pig keeping as well).

The pig-meet market is characterised by oversupply. Prices fall in 1999 and the undertakings are usually not able to cover their growing costs.

Nine of the respondents are processers, one respondent is a producers` association which involves 55 processers. One of the respondents is a service provider for meat producers. The others are distributors (METRO and Spar).

On 29 of February 2000 eleven of the 13 future respondents took part in a meeting, where they fixed the suggested price of certain typical seasonal meat-goods of the Easter. They agreed that they would not undercut this minimum price with more than 5 per cent. The parties applied their agreement later on.

The parties had a share of 50 per cent on the Hungarian smoked pig-meat market.
The investigation suggested altogether a fine of 100 million HUF because of the breach of Article 11 of the Act LVII. of 1996.

Arguments of the Parties

The parties argued that their agreement did not go against Article 11. Their further argument was that even if they breached Article 11, it would be exempted by Article 12 as their market share did not exceed 10 per cent on the relevant market. It is Council`s task to prove whether their share exceeds the 10 per cent threshold.

As they interpreted Article 11, the conditions involved are cumulative and the agreement and the concerted practice have to be presented parallely. They also added that the intent to restrict competition was not proved by the investigation and therefore the breach of Article 11 could not be stated. The respondents denied that the document proves the existence of the consensus among the parties, or if it had a nature of a contract than it was void because it failed to fulfill the formal requirements.
They also stressed that the text of the alleged agreement was not fit to result in a uniform price among the parties as it was only an indirect price fixing.

The parties challenged the statements of the investigation about the relevant market as well. As they submitted the relevant geographical market extends beyond Hungary as they also export their products. The relevant product market in their view was the smoked raw and cooked pig meats` and all kinds of raw and smoked poultry meats` market.

They challenged the rate of their market share established by the investigation, and submitted that the illegal meat process and the household pig keeping had a significant share on the relevant market.

The Decision of the Competition Council

The Competition Council stated that the parties` argument on the applicability of article 11 was wrong. The existence of the agreement and the exercise of a concerted practice on the basis of that agreement are not cumulative conditions, and any of these two behaviours could constitute the breach of Article 11.

The Council further stated that the meeting on 29 of February led to an agreement which involved discriminative provisions in relation the non-participating undertakings. Evidently - as it is illegal - there are no formal requirements in the Hungarian Civil Code for such agreements therefore it could not be considered as invalid on this ground. The absence of any sanctions does not mean that the parties did not considered the agreement obligatory. The Council also stated that the indirect price fixing is sufficient to establish the breach the competition rules.

The Council stated that the agreement constitutes a vertical restriction of the competition, which has a horizontal nature too, as several meat processer took part in it.

The representatives of the undertaking had the authorisation to conclude the agreement.

The relevant product market is the raw and cooked smoked pig and poultry meats` market, and the relevant geographical market is the Hungarian Republic, as the import is not significant and the parties were able to supply the whole territory of the country.

Although the proof of the intent is not required for the statement of the breach of Article 11 if it has a restrictive effect, in this case the existence of this intent is evident.

It is not the Council`s task to prove the applicability of the de minimis principle, even if the process started ex officio. However, in order to shorten the procedure the Council examined the applicability of the de minimis principle. The method of the calculation of the market share is the following:

The denominator is the total turnover of the relevant market (in this case the turnover on the Hungarian smoked, raw and cooked, pig and poultry market). The numerator is the parties` turnover on the relevant market including the turnover on the substitute products` market as well. (Therefore the parties` argument that only their turnover reached in relation to the products, directly concerned by the agreement (smoked raw pig-meat) should be taken into account, is incorrect.)

In the case of vertical cartels the turnover of the distributors should not be taken into account in order to avoid the cumulation.

As it was difficult to find exact information on the market shares, the Council, after consulting the parties and after the examination of the existing evidence on the competitors` and the parties` turnover, estimated the parties` market share at over 10 per cent. Therefore the de minimis principle is not applicable.

The investigation made it clear, that one of the respondents did not take part in the agreement, one of them did not agree in his own name, and one undertaking`s participation was not proved.

The major part of the fine was imposed on the two distributor (50 million HUF altogether). The rest was divided among the participating processers in the ratio of their responsibility.

August 23, 2000. Budapest

dr. Sólyom Eszter sk előadó
Fógel Jánosné dr. sk.
dr. Lénárd Réka sk.
Ágoston Marika