EC, December 5, 1979, No 80-234

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European Economic Community, and in particular Article 85 thereof, Having regard to Council Regulation No 17 of 6 February 1962 (1), and in particular Article 3 thereof, Having regard to the notification, on 5 March 1975, of its rules by Coöperatieve Stremsel- en Kleurselfabriek, Leeuwarden, the Netherlands, Having regard to the decision taken by the Commission on 14 February 1978 to initiate proceedings in this case, Having heard the undertakings concerned in accordance with Article 19 (1) of Regulation No 17 and with Regulation No 99-63-EEC of 25 July 1963 (2), Having regard to the opinion of the Advisory Committee on Restrictive Practices and Dominant Positions, delivered pursuant to Article 10 of Regulation No 17 on 3 April 1979, Whereas:

I. THE FACTS

The main facts of the case are the following:

1. Background 1. Rennet is a ferment which curdles milk and is found in the lining membrane of the fourth stomach of calves. After extraction and purification it is used in cheese-making. For about 10 years now synthetic rennet has also been manufactured by means of chemical processes. Rennet falls under Brussels Nomenclature heading No 35.07 covering enzymes.

2. Before 1905 only poor quality rennet was available in the Netherlands. 19 dairy cooperatives in Friesland decided to produce their own rennet and on 7 April 1905 established an association, Coöperatieve Stremselen Kleurselfabriek (hereinafter referred to as "the Cooperative"), to manufacture, or have manufactured, the rennet they required for their cheese-making. Furthermore, the Cooperative was given the task of manufacturing and selling colouring agents for cheese-making ; these are principally annatto and carotene.

3. In the ensuing years, all Dutch dairy cooperatives joined the Cooperative ; current membership numbers about 40 undertakings. Since 1966 the Cooperative has also supplied rennet and colouring agents to non-members.

4. The Cooperative's rules, drawn up in 1905, were notified to the Commission on 5 March 1975. A revised version became effective on 17 July 1979 and was sent to the Commission.

2. The Cooperative's rules

5. The rules state that the Coöperatieve Stremsel- en Kleurselfabriek is an association of undertakings, formed on a cooperative basis, with the objective of manufacturing, or having manufactured, rennet and colouring agents for cheese on behalf of its members. The Cooperative may also sell these products to third parties.

6. Article 5 (1905 version) stated that only undertakings running one or more dairies on a cooperative basis in the Netherlands could qualify for membership of the Cooperative ; since 1979, any undertaking of this type can join, wherever it is established. When a new member joins, it must enter in the association's register a signed and dated statement to the effect that it will abide by the rules of the association. Whereas under the 1905 rules each member was entitled to one vote when decisions were taken at the general meeting, under the 1979 revised rules, the number of votes for each member depends upon the quantity of rennet it has purchased during the previous year.

7. Under Article 8 (Article 14 in the 1979 version), members are required to purchase from the Cooperative the rennet and colouring agents for cheese they require for their own use. A fine of 500 guilders is imposed if there is an infringement of this obligation.

8. Article 12 (Article 9 in the 1979 version) provides that, in the event of infringement of the rules or rules of procedure or of actions contrary to the interests of the Cooperative, any member may be expelled by a decision of the general meeting passed by a two-thirds majority.

9. Article 13 (Article 10 in the 1979 version) provides that, any member which resigns its membership or is expelled shall pay to the reserve fund of the Cooperative a sum of 2 750 guilders per litre of the average annual quantity of rennet purchased from the Cooperative over the previous five years' membership. Article 10 of the 1979 rules adds that where a member resigns, but sells its undertaking to a member of the Cooperative, the general meeting can decide to exempt it totally or partially from paying this sum.

3. The Netherlands market in rennet and colouring agents for cheese

10. Production of rennet of animal origin in the Netherlands rose from 580 000 litres in 1970 to roughly 830 000 litres in 1978, and during the same period, production of colouring agents for cheese rose from about 31 000 litres to 60 000 litres.

Since 1971 the Cooperative has manufactured all rennet of animal origin produced in the Netherlands and about 90 % of colouring agents for cheese.

The following table shows developments in the Cooperative's production from 1970 to 1978 (1): >PIC FILE= "T0012768">

11. The Cooperative supplies approximately 94 % of its rennet output and 80 % of its output of colouring agents to members, who account for over 90 % of the Netherlands products, the remainder of its output is sold to non-member cheese-makers in the Netherlands.

The table below gives the trend of quantities and prices of rennet and colouring agents sold by the Cooperative since 1970. (1)In the published version of the Decision, some figures have hereinafter been omitted, pursuant to the provisions of Article 21 of Regulation No 17 concerning non-disclosure of business secrets.

>PIC FILE= "T0012769">

12. It can be seen that the price of rennet has fluctuated considerably since 1970 ; the movements are directly linked to the state of the market in calves' fourth stomachs, of which supplies vary substantially from year to year. Moreover, an Order of the Minister for Agriculture of 7 January 1970 (1) prohibited the use of synthetic rennet in cheese-making in the Netherlands. However, a number of authorizations were given by the Ministry of Agriculture to allow the use of synthetic rennet ; in 1973 in particular, the AKZO group announced that it had managed to improve the quality of its synthetic rennet and many users not belonging to the Cooperative applied to the Netherlands Minister for Agriculture for authorization to use this type of rennet.

13. These purchases can also be explained by the fact that synthetic rennet, which usually costs less than animal rennet, became particularly cheap at the beginning of the 1970's. Non-member cheese-makers felt that the difference in price was great enough to offset the slightly poorer quality of certain cheeses (notably Gouda) made with synthetic rennet.

14. Two years later, these authorizations were withdrawn on the grounds that the use of synthetic rennet made slightly bitter Gouda cheese.

15. Netherlands cheese-makers not belonging to the Cooperative may therefore no longer use synthetic rennet, but since they are not subject to the purchasing obligation laid down in the Cooperative's rules, they can still purchase rennet of animal origin produced outside the Netherlands, notably in the other Member States.

4. Production and trade in rennet and colouring agents for cheese in the Community

16. The main Community countries producing rennet of animal origin are Germany, France, Denmark and the Netherlands. Annatto and carotene are principally produced in Denmark, the Netherlands and France.

17. Trade in rennet within the Community in 1976, 1977 and 1978 is illustrated by the table below. (1)Staatscourant No 19, 28.1.1970.

Imports of liquid rennet in 1976, 1977 and 1978 >PIC FILE= "T0012770">

The table reveals that in those years only 16 tonnes of rennet were imported into the Netherlands. In contrast, other Community countries import quite large amounts, chiefly from Denmark, Germany, France and the United Kingdom.

The quantities exported by the Netherlands to other Community countries (mainly France and Germany) consist solely of synthetic rennet supplied by the AKZO group. The Cooperative has never supplied rennet of animal origin to other Member States.

18. There are no official statistics concerning trade in annatto and carotene. However, on the basis of information obtained during examination of this case, it seems that Denmark is the principal exporter and supplies in particular France, the United Kingdom, Belgium and the Netherlands.

II. APPLICABILITY OF ARTICLE 85 (1) OF THE TREATY

19. Article 85 (1) of the EEC Treaty prohibits as incompatible with the common market all agreements between undertakings, decisions by associations of undertakings and concerted practices, which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the common market.

20. The members of the Cooperative are dairy cooperatives which make and sell milk products and therefore constitute undertakings within the meaning of Article 85 of the EEC Treaty.

21. The rules were adopted on 7 April 1905 by an agreement entered into between the founder members of the Cooperative. As new members joined they gave their written agreement to the provisions of the rules, notably those which require members to purchase the whole of their requirements of rennet and colouring agents for cheese from the Cooperative. The provisions contained in the Cooperative's rules therefore constitute an agreement between undertakings within the meaning of Article 85 of the EEC Treaty.

22. The purchasing obligation, imposed on members of the Cooperative, which is enforced by the threat of a fine and reinforced by other provisions of the rules which provide, in case of infringement, for expulsion from the Cooperative and payment of a sum which is proportionate to the average quantity of rennet purchased each year, appreciably restricts competition within the common market. Because of this obligation, the dairy cooperatives belonging to the Cooperative, which represent over 90 % of the Netherlands dairy products industry, are prevented from purchasing rennet and colouring agents for cheese from other suppliers and are thus subject to a requirement to purchase the products exclusively from the Cooperative.

23. Other suppliers of rennet of animal origin, the only type of rennet authorized for cheese-making in the Netherlands, are located mainly in Germany, France and Denmark. Their rennet of animal origin is of excellent quality and their prices are comparable to those of the Cooperative. There are in the Community many other suppliers of colouring agents used in the dairy industry. The obligation of exclusive purchase laid down in Article 8 (Article 14 in the 1979 version) of the Cooperative's rules and reinforced by the provisions of Articles 12 and 13 (Articles 9 and 10 in the 1979 version) prevents members from purchasing rennet and colouring agents produced in other Community countries. Trade between Member States is therefore liable to be affected to an appreciable degree.

24. Article 13 (Article 10 in the 1979 version) of the rules provides that a member must pay to the reserve fund a sum of 2 750 guilders per litre of the average annual amount of rennet purchased from the Cooperative whether it is expelled or resigns from the Cooperative. The figures submitted by the Cooperative reveal that each year approximately ... litres of rennet are supplied to the 44 members, an average of about ... litres per member. The sum payable in case of voluntary resignation would amount therefore on average to about ... guilders. In view of the rather limited financial resources of the Netherlands dairy cooperatives, payment of such a sum could prove an appreciable burden, the size of which is increased for members having large rennet requirements because the sum is proportional to the amount of rennet purchased annually by members. This provision therefore makes resignation very difficult, if not impossible, for any member wishing to obtain supplies from some other source in the Community or produce its own rennet and thus compete with the Cooperative.

Since the members of the Cooperative account for over 90 % of the Netherlands market in rennet of animal origin and there is only one producer in the Netherlands, this provision has the object and effect of helping to preserve a non-competitive structure in a substantial part of the common market. The requirement to pay this sum on resignation constitutes an appreciable restriction of competition within the common market.

25. This restriction is also liable to appreciably affect trade between Member States. It is difficult for members to resign from the Cooperative, whether in order to purchase freely in other Community countries or to set up competing production centres which could also sell rennet in other Member States.

III. INAPPLICABILITY OF COUNCIL REGULATION No 26

26. Rennet and colouring agents for cheese are not products listed in Annex II to the EEC Treaty, so that Council Regulation No 26 of 4 April 1962 applying certain rules of competition to production of and trade in agricultural products (1) is not applicable in this case.

27. The field of application ratione materiae of that Regulation is restricted to the agricultural products listed in Annex II to the Treaty. Article 42 of the Treaty, on which that Regulation is based, provides for derogations from the rules of competition solely for production of and trade in the agricultural products listed in Annex II to the Treaty pursuant to Article 38 (1) and (3) of the Treaty. This is also confirmed by the wording of Articles 1 and 2 of Regulation No 26.

IV. INAPPLICABILITY OF ARTICLE 85 (3) OF THE TREATY

28. Under Article 85 (3) of the Treaty the provisions of Article 85 (1) may be declared inapplicable in the case of any agreement or category of agreements between undertakings, any decision or category of decisions by associations of undertakings and any concerted practice or category of concerted practices which contributes to improving production or distribution of goods or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefits, and which does not impose on the undertakings concerned restrictions which are not indispensable to the attainment of these objectives or afford such undertakings the possibility of eliminating competition in respect of a substantial part of the products in question.

29. The agreement of 7 April 1905 between the undertakings which established the Coöperatieve Stremsel- en Kleurselfabriek in order to make or have made rennet and colouring agents for cheese which they needed for the manufacture of cheese has, in particular, contributed to improving production of these products in the Netherlands. The rennet produced by the Cooperative is of a better quality than that previously available on the Netherlands market. This high quality attracted dairy cooperatives which had not initially joined, and as a result the Cooperative not only extended its membership to most dairy cooperatives but also began to supply large quantities of rennet to non-members. Furthermore, the fact that the Cooperative maintains stocks of rennet for its members' use and for the use of non-members constitutes a definite economic advantage because it allows a constant and regular supply of the products concerned ; thus by its principal object, the agreement fulfils one of the first conditions for the application of Article 85 (3).

30. Consumers, who in this case are Netherlands purchasers of rennet and colouring agents for cheese, who may or may not be members of the Cooperative, and purchasers of cheese produced by members of the Cooperative, have had a fair share of the benefit resulting from the agreement. Thus, cost savings achieved in production have always been passed on in full in the price of products sold to members and non-members, because the Cooperative makes no profit and supplies anyone who wishes to purchase the products ; for their part, final consumers have been able to purchase cheese made with better quality rennet at a low price ; for these reasons, the agreement also fulfils the second condition set out in Article 85 (3).

31. However, the above-stated restrictions laid down in the rules, that is to say on the one hand, the exclusive purchasing obligation imposed on members, and on the other hand, the obligation to pay a sum in case of resignation, are not essential in order to attain the abovementioned advantages ; these improvements in quality and the reduction in production costs, as well as the build-up of stocks and the profit thereby accruing to consumers are the result of an improved production process made possible by joint production ; it is, however, not essential, in order to achieve these favourable results, to impose upon members an obligation to purchase exclusively from the Cooperative and to lay down in the rules binding measures which prevent them from leaving it ; the undertakings concerned argued that these restrictions were essential because of the need to plan the manufacture of the products concerned ; such planning, while useful, does not make the clause concerning exclusive purchasing, or the obligation to pay a sum upon resignation essential ; this is all the more true since non-member users of rennet have been purchasing the product from the Cooperative without being subject to any purchasing obligation ; less restrictive solutions do exist, such as an obligation to purchase a limited quantity of products from the Cooperative, or an obligation to give notice of withdrawal ; these solutions would not prevent planning relating to the manufacture and stocking of the products concerned ; however, it appears from the rules as they stand now that no such solutions have been accepted by the undertakings concerned.

32. Moreover, if a given undertaking can match the manufacturing costs and selling prices of other producers, it will be able to acquire and retain a share of the market without having to impose such restrictions on its member's freedom of action. Since it was founded more than three quarters of a century ago, the producers' cooperative association has had more than enough time to test its profitability. It can therefore no longer need protecting by measures under which it supplies all its members' requirements and making it very difficult if not impossible for a member to resign, particularly since its membership is large and the demand it provides represents about 90 % of total demand in the Netherlands.

33. In the present case, the exclusive purchasing arrangements agreed between the members of the Cooperative and the payment of a sum of money on resignation provided for in Article 13 (Article 10 in the 1979 version) of the rules have the effect of virtually eliminating competition on almost the entire Netherlands market in rennet and colouring agents for cheese.

34. The agreement accordingly fails two of the tests for exemption under Article 85 (3) and cannot be exempted.

V. APPLICABILITY OF ARTICLE 3 OF COUNCIL REGULATION No 17

35. Under Article 3 (1) of Regulation No 17, where the Commission finds, upon application or upon its own initiative, that there is infringement of Article 85 of the Treaty, it may by decision require the undertakings and associations of undertakings concerned to bring such infringement to an end.

For the reasons set out above, the Coöperatieve Stremsel- en Kleurselfabriek has infringed Article 85 of the EEC Treaty, and the undertakings concerned must be required to bring such infringements to an end without delay,

HAS ADOPTED THIS DECISION:

Article 1

The exclusive purchasing arrangements laid down in Article 8 (Article 14 in the 1979 version) of the rules of the Coöperatieve Stremsel- en Kleurselfabriek and Articles 12 and 13 (Articles 9 and 10 in the 1979 version) of those rules, and the obligation laid down in Article 13 (Article 10 in the 1979 version) of such rules requiring a resigning member to pay a sum proportional to the quantity of rennet purchased each year from the Cooperative, constitute infringements of Article 85 (1) of the Treaty establishing the European Economic Community.

Article 2

The application for exemption under Article 85 (3) of the Treaty establishing the European Economic Community is hereby refused.

Article 3

The undertakings to which this Decision is addressed shall ensure that the infringements referred to in Article 1 are brought to an end without delay.

Article 4

This Decision is addressed to the Coöperatieve Stremsel- en Kleurselfabriek, Emmakade 158, Leeuwarden, The Netherlands, and to the following undertakings:

Coöperatieve Zuivelfabriek en Melkinrichting "Linge", Schoolstraat 2, Arkel,

Asser Coöperatieve Melkinr. en Melkprod. fabriek "Acmesa", Parallelstraat 8, Assen,

Coöperatieve Ver. tot Expl. van Zuivel. en Melkprod. fabrieken "De Combinatie", Rijperweg 20 M, Westbeemster,

Coöperatieve Melkproduktenbedrijven "Domo-(Bedum)", De Perk 30, Beilen,

Coöperatieve Fabriek van Melkprodukten "De Stichting", Hulsterstraat 20, Buren,

Coöperatieve Zuivelfabriek "Noord-Oostergo", Betterwird 10, Dokkum,

Coöperatieve Zuivelfabriek "Het Klaverblad", Schapendrift 1, Donkerbroek,

Coöperatieve Zuivelfabriek "Ee en Omstreken", B C Bos, Ee,

Coöperatieve Zuivelvereniging "Campina" D. Boutslaan 2, Eindhoven, Coöperatieve Zuivelfabriek "Ezinge" Swinderenweg 26, Ezinge,

Melkunie Gelderen B.V. v/h Coöperatieve Melkverw. ver. "Land van Heusden en Altena", Hoofdstraat 43, Genderen,

Coöperatieve Zuivelindustrie "Twee Provinciën", Verlaatsterweg 26, Gerkesklooster,

Coöperatieve Zuivelfabriek "Trynwalden en Omstreken", Nautaweg 3, Giekerk,

Coöperatieve Zuivelfabriek "Samenwerking", Neerpolderseweg 34, Ciessenburg,

Coöperatieve Zuivelfabriek "De Goede Verwachting", Wagenstraat 16, Gilze,

Melkunie v/h Coöperatieve Melkcentrale 1e v.d. Kunstraat 116, 's-Gravenhage,

Coöperatieve Zuivelfabriek "De Eensgezindheid", Dorpstraat 58, Den Ham,

Vecolac - v/h Coöperatieve Zuivelfabriek "Juliana", Veerweg 3, Hasselt,

Coöperatieve Zuivelfabriek "Havelte", Havelte,

Coöperatieve Zuivelfabriek "Heerde" Kanaaldijk 123, Heerde,

Coöperatieve Zuivelindustrie "De Toekomst", Heerenveen,

Coöperatieve Zuivelfabriek "Ameland", Nijenhuis, Hollum,

Coöperatieve Melkverwerkingsvereniging "DOC", Alteveerstraat 70, Hoogeveen,

Coöperatieve Zuivelfabriek "Koekange", Dorpstraat 9, Koekange,

Friesche Coöperatieve Zuivel-Export Vereeniging, Snekertrekweg 5, Leeuwarden,

Zuivelfabriek "De Vereeniging", Dusseldorperweg 38, Limmen,

Coöperatieve Zuivelfabriek "De Eendracht" Wemeweg 19, Makkinga,

Coöperatieve Zuivelfabriek "Zuidelijk Westerkwartier" Noorderringweg 33, Marum,

Coöperatieve Zuivelfabriek "De Venen", Kolderveen 28, Nijeveen,

Coöperatieve Zuivelfabriek "Norg", Eenerstraat 25, Norg,

Coöperatieve Zuivelfabriek "De Goede Verwachting", Oosterwoldseweg 56, Oldeberkoop,

Coöperatieve Zuivelfabriek en Melkinrichting "Oldewe", Bentheimerstraat 13, Oldenzaal,

Coöperatieve Zuivelindustrie "De Zuid-Oosthoek" Nanningaweg 20, Oosterwolde,

Coöperatieve Zuivelfabriek "De Eendracht" Iendrachtsingel 2, Opeinde,

Coöperatieve Ver. tot Expl. van Melkprod. fabrieken "Noord-Holland", Koninginneweg 1, Opmeer,

Coöperatieve Zuivelfabriek "Huisternoord", Husternoard 2, Oudwoude,

Coöperatieve Melkproduktenfabriek "Hovo", Kanaalstraat wz 12, Raalte,

Coöperatieve Zuivelfabriek "De Toekomst", de Kapelle 4, Rinsumageest,

Coöperatieve Fabriek van Melkprodukten "Roden-Zevenhuizen", Kanaalstraat 62, Roden,

Zuivelfabriek Campina v/h Coöperatieve Centrale Zuivelvereniging "De Maasvallei", Pre Bernhardstraat 43, Roermond,

Zuivelfabriek Campina v/h Coöperatieve Zuivelbedrijven "Brabant-Zeeland", Industriestraat 15/a, Roosendaal,

Coöperatieve Zuivelfabriek "De Vlijt" Oude rijkweg 649, Rouveen,

Coöperatieve Zuivelfabriek "De Eendracht", Fatheraatgerstraat 8, Rossum,

Coöperatieve Zuivelfabriek "De Kleine Winst", Oude Rijksweg 395, Rouveen,

Coöperatieve Zuivelfabriek "Algemeen Belang", Dijkhuizen 94, Ruinerworld,

Coöperatieve Zuivelfabriek "Ons Belang", Gemeenteweg 299, Staphorst, Coöperatieve Zuivelfabriek "De Toekomst", Pepergaweg 144, Steggerda,

Coöperatieve Biol. Zuivelveren "Skylge" v/h Coöperatieve Zuivelfabriek "Terschelling" Formrum 48, Terschelling,

Zuivelfabriek Campina v/h Coöperatieve Zuivelvereniging "Centraal Brabant", Wilhelminapark 70, Tilburg,

Coöperatieve Zuivelfabriek "De Eendracht", Markt 1, Tubbergen,

Coöperatieve Vereniging v/h Coöperatieve Zuivelindustrie "Novac", Tukseweg 148, Steenwijk,

Coöperatieve Zuivelindustrie "De Foarutgong", Twijzel,

Coöperatieve Fabr. Melk- en Zuivelpr. "Vecolac-Vollenhove", Weg v. Rollecate 19, Vollenhove,

Vordense Coöperatieve Zuivelfabriek, Burg. Galleestraat 19, Vorden,

Coöperatieve Zuivelfabriek "Wapserveen", Midden 69, Wapserveen,

Coöperatieve Zuivelfabriek "Westerbork", Westeinde 37, Westerbork,

Ver. Coöperatieve Zuivelfabriek "Combinatie O. Groningen", Grachtstraat 1, Winschoten,

Coöperatieve Zuivelindustrie "De Goede Verwachting", Spoardijk 21, Workum,

Coöperatieve Fabriek van Melkprodukten "Rogat", Rogat 12, De Wijk,

Coöperatieve Melkverwerkingsver. DOC v/h Coöperatieve Zuivelfabriek "Eendracht", Hoofdstraat 28, Zuidwolde,

Verenigde Coöperatieve Melkindustrie "Coberco", Stationplein 37, Zutphen.

(1) OJ No 13, 21.2.1962, p. 204/62.

(2) OJ No 127, 20.8.1963, p. 2268/63.

(1)OJ No 30, 20.4.1962, p. 993/62.