As simply put by the EC, while COVID-19 has led to an increase of home consumption in wine, this has not compensated for the drop in demand in the hospitality and catering industry resulting in part from the closure of bars, restaurants and hotels. In recognition of the economic disruption faced by growers and producers of wine, and the fact that the situation is not forecasted to improve in the next 6 months, the EC has taken a rare step to adopt legislation to formally authorise certain agreements in the wine sector that may have otherwise fallen foul of EU competition law.
Article 101(1) of the Treaty on the Functioning of the European Union prohibits agreements that restrict competition. The prohibition includes, for example, agreements between market players that are aimed at limiting or controlling production. Thus, actions between suppliers seeking to agree on production volumes would typically be caught under Article 101(1) TFEU and be void, and potentially attract fines.
Under Regulation (EC) No 1308/2013 (otherwise known as the Common Markets Organisation Regulation), the EC is allowed to adopt acts that suspend the application of Article 101(1) TFEU to agreements in certain agricultural sectors during periods of “severe imbalance in markets” where the agreements strictly aim at stabilising the sector and do not impair the functioning of the internal market.
The EC has now adopted a new Regulation (2020/975) which specifically authorises farmers, farmers’ associations, associations of such associations, recognised producer organisations, associations of recognised producer organisations and recognised interbranch organisations (“operators”) to enter into agreements on the production of wine grapes and wine, including with regard to transformation and processing, storage, joint promotion, quality requirements and production planning. Provided that these agreements do not impair the functioning of the internal market, and are strictly aimed at stabilising the wine sector, they benefit from derogation from Article 101(1) TFEU. Importantly, the derogation does not apply to agreements on partitioning the market, discrimination on the basis of nationality or price-fixing. The derogation applies for period of 6 months from 8 July 2020, covering the first part of the 2020/2021 wine marketing season which starts in August.
The Regulation will increase the level of scrutiny by competition authorities in the wine sector. Already back in April last year, the French competition authority raided the premises of companies suspected of having engaged in possible anticompetitive practices involving wine and spirits. While there has been no suggestion that that particular investigation is now impacted by the EC’s measures (indeed the derogation does not have retrospective effect), the actions of operators in the wine sector will now be in the spotlight. The price of derogation from the competition rules is a reporting mechanism for operators to report on their concluded agreements, and for Member States in turn to report on those agreements to the EC. Competition authorities throughout the EU will now have to closely monitor cooperation efforts in this sector.
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Authored by May Lyn Yuen and Alexandra Bray