INQUIRY INTO THE SUPPLY OF FRESH PROCESSED MILK TO MIDDLE GROUND RETAILERS IN SCOTLAND

COMPETITION COMMISSION CONSULTS ON POSSIBLE REMEDIES

The Competition Commission is inviting comments on a statement of possible remedies relating to its inquiry into the supply of fresh processed milk to middle ground retailers in Scotland. This follows its earlier statement of 29 April in which it indicated the issues that it wished to raise with Robert Wiseman Dairies PLC.

It is only in the event that the Commission makes any findings against the public interest that it would be necessary to recommend remedies.

It is setting out these hypothetical remedies now so that interested parties will have as much time as possible to comment on their likely effectiveness, costs and practicability, consistent with maintaining the schedule for the inquiry.

The remedies in the attached statement relate to the issues in the statement of 29 April, which is also attached.

The publication of this remedies statement is part of the Commission’s initiative to be more transparent in its work.

Notes to Editors

1. A statement of possible remedies is normally released before the Commission has reached any public interest conclusions in an inquiry. The hypothetical remedies relate to matters that the investigating group may find to operate against the public interest. Comments are invited from interested parties to help the Commission assess the wider implications of any recommendations it might wish to propose.

2. The inquiry into the supply of fresh processed milk to middle ground retailers in Scotland is being carried out under the monopoly provisions of the Fair Trading Act 1973, following a reference made by the Director General of Fair Trading on 3 February 2000 (see OFT press release 07/00).

3. Competition Commission News Release 21/00 of 2 May set out the issues that the Commission wished to consider in the inquiry. The Commission will hold further hearings before completing its report.

4. ‘Middle ground retailers’ are defined in the Commission’s terms of reference as retailers other than:

ASDA Group plc, Marks & Spencer plc, Safeway plc, J Sainsbury plc, Somerfield Stores plc, Tesco plc and each of their subsidiaries, and
those whose sole business is the delivery of fresh processed milk to households.

5. No conclusions will be reached about whether any matters may be expected to operate against the public interest until the Commission submits its report to the Secretary of State, on 2 November 2000.

6. Further information about the inquiry, and copies of the issues and remedies statements can be obtained from the Commission’s web site, www.competition-commission.org.uk/ref.htm.

7. Enquiries should be directed to:
Francis Royle, Press Officer Tel: 020 7271 0242.

REMEDIES STATEMENT

Introduction

1. On 28 April the Competition Commission wrote to Robert Wiseman Dairies indicating the issues which it wished to raise as part of its inquiry into the supply of fresh processed milk to middle ground retailers in Scotland. These issues were summarised in a statement that was made public on the following day. Yesterday, the Commission sent a further letter to Wiseman, inviting it to comment on possible remedies that could be recommended if, at the completion of the Commission’s investigation, it considered that the company was operating against the public interest.

2. This statement summarises the points on which views are being sought. In particular, comments are invited on the likely effectiveness, costs and practicability of the remedies that have been set out. It should be clearly understood that the basis on which the points listed below are being raised is entirely hypothetical. Sending such a letter is a normal part of the Commission’s procedures at this stage in an inquiry. It does not imply that the Commission has reached any conclusion as to whether any behaviour by Wiseman operates, or may be expected to operate, against the public interest. It is being published now to give interested parties as much time as possible to comment on the possible remedies that the Commission may consider, consistent with maintaining the schedule for the inquiry.

Hypothetical remedies on which views are sought

3. The Commission invites views on possible remedies under two broad headings: structural and behavioural.

Structural issues

4. A structural remedy could involve Wiseman divesting itself of part of its processing capacity in Scotland and/or part of its business with middle ground retailers. The company has been asked to describe the facilities and capacity of each of its four Scottish processing sites; to analyse what would be involved in converting the more specialised dairies to enable them to process and package milk for sale to middle ground retailers (including an estimate of any costs that an acquirer would have to meet); and to indicate what proportion of middle ground retailers in Scotland – in terms of numbers and by value of sales – lie within a 40 mile radius of each of them.

Behavioural issues

5. The Commission has been told that prices paid by middle ground retailers for fresh processed milk have fallen significantly since Express began operating in Scotland. It would like to consider ways of ensuring that prices remain at around their current levels, in real terms.

6. It has asked Wiseman to consider the implications of:

not increasing its average prices to this sector by more than some objective criterion such as the change in RPI after allowing for any change in the cost of raw milk;
being required to maintain any price reductions given to customers since December 1998 for a reasonable period of time - say for the next three years;
a straightforward price freeze, again, say, for three years;
not discriminating between middle ground retailers; and
the differential between Wiseman’s average prices to middle ground retailers and to supermarkets – in each of the three regions of Scotland into which milk supply divides: the Highlands and Islands, Grampian and the rest –being no greater than at present.

7. Another possible remedy is that Wiseman should be prohibited from acquiring any more processing plants in Scotland.

Responses

8. Comments are invited on the hypothetical remedies and related points raised in this statement. It would be helpful if responses could be sent to David Peel, Reference Secretary, Competition Commission, New Court, 48 Carey Street, London, WC2A 2JT (telephone 020 7271 0288, fax 020 7271 0203, e-mail david.peel@competition-commission.org.uk) by Tuesday, 25 July.

Last Revised 6/2000