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The Danbred-system

20. december 2006

4/0106-0300-0050/FI//JF The Council meeting of 20 December 2006

On 20 December 2006, the Danish Competition Council (“DCC”) adopted a decision that renders legally binding commitments concerning Danish Pig Production’s (“DDP’s”) agreements about and administration of the Danish breeding programme, DanAvl or Danbred.

It is the expectation of the Danish Competition Authority (“DCA”) that the commitments, which will remain in force until 31 December 2010, are sufficient to meet the concerns raised by the DCA and enhance competition.

Subject matter of the case Danbred is the largest systematic breeding programme supplying genetic products to the commercial Danish pig producer. The aim of Danbred is to improve the Danish pig breeds to obtain the best possible overall economy for the industry.

In 2005 DCA received a complaint lodged by two companies exporting genetic products from Danbred. The Complainants found, that DPP discriminates between the Complainants and the company SEA (the Sales and Export Association for Breeding Pigs) in different ways. Both Complainants are competing with SEA on the export markets.

The Parties

DPP is organised by Danish Meat Association (DMA), the organisation Danish Agriculture and the organisation of Danish Pig Producers. DPP is responsible for development and management of the Danbred programme, and also holds and administers agreements with nucleus and multiplier herds participating in the Danbred programme and with exporters of genetic products from the Danbred programme.

SEA is an organisation of Danish nucleus and multiplier herds participating in the Danbred programme with the purpose of exporting genetic material from its members to customers abroad. SEA exports genetic products under the name Danbred International. SEA is organised by DMA, who nominates the chairman of the Board.

The Complainants are two separate companies incorporated in Denmark. Both export genetic products from the Danbred programme to customers abroad, and in that respect both have entered into agreements with DPP.

Previous decision by DDC about DDP

On June 16, 1999, DCC granted exemption to DPP’s standard agreements with the Danish nucleus and multiplier herds participating in the Danbred programme. The purpose of the agreements was to ensure control over the genetic breeding material. A clause in DPP’s standard agreements with the Danish nucleus and multiplier herds, that limits the extent of sales channels where pure-bred pigs and other genetic products from the Danbred programme can be sold, therefore was not found to restrict competition. Moreover, DCC found that the listing of sales channels was not necessary in relation to the sale of crossbred pigs from multipliers.

According to another clause in DPP’s standard agreement genetic products can only be sold outside the EU through SEA. This clause was found not to restrict competition either since the purpose of this exclusivity was the same as the above mentioned.

In the agreement creating SEA it was stipulated that members may export genetic products from the Danbred programme exclusively through SEA. DCC found that this clause restricted competition. However, the clause was exempted since the exclusive right would make it easier for SEA to enter into new export markets.

Exemptions were given for 5 years, later extended until the end of 2007.

Concerns raised

Exports have increased since 1999 and in 2005 this caused DDP to ensure further control over the genetic breeding material by tightening the agreements with exporters. On this basis, the Complainants claimed that DPP discriminates between SEA and other exporters.

Main issues in the claim were that DPP has given SEA exclusive rights to export pure-bred pigs and other genetic products from the Danbred programme out of the EU, and to sell genetic products from the Danbred programme to nucleus and multiplier herds in other countries within and outside the EU, while the Complainants are allowed only to sell to commercial herds, i.e., herds from which the pigs are delivered directly to slaughter. In addition to this SEA has, as the only exporter, obtained permission to enter boars from the Danbred programme at foreign AI-stations (AI = Artificial Insemination) and a broader right to use the Danbred trademarks (DanAvl, Danbred and DanZucht) in their marketing of genetic products from the Danbred programme”.

Moreover the Complainants are obliged to send information about their customers to DPP before delivery, which could pose a serious risk for illegal exchange of information, since both DPP and SEA are controlled by DMA.

Finally, the Complainants have brought up a question about DPP’s system of payment. They find that this restricts the export of genetic products from the Danbred programme.

On that basis the DCA has expressed concerns in relation to DDP’s administration of the Danbred programme.

Effect on trade between EU-states

The DCA considers that, since the conduct/agreements is affecting the export of pigs and genes from Denmark to other EU Member States, trade between EU Member States may be affected by DPP’s conduct/agreements.

Commitments

On 13 December 2006 DPP submitted a set of commitments within the meaning of Section 16a of the Danish Competition Act and Article 9 of the Council Regulation (EC) No 1/2003 of 16 December 2002. The main points of the commitments are:

  • All exporters complying with certain qualitative criteria set up by DPP will be approved as exporters of genetic products from the Danbred programme upon application. This will apply unless there are weighty and objective grounds connected with the protection of the Danbred programme for rejecting such an application.
  • As a main rule, all exporters of genetic products from the Danbred programme are treated equally, i.e., application of similar conditions to equivalent transactions.
  • The export of crossbred pigs from the Danbred programme will be free with the exception that it will not be allowed to sell crossbred boars to AI-stations. Apart from this, there are no longer any restrictions on the customer groups to whom and/or territories to which, the exporters may sell.
  • The approved exporters will all be allowed to sell purebred pigs and other genetic products from the Danbred programme to specifically defined customer groups within and outside the EU. DPP is allowed to demand that the exporters obtain a declaration (′buyer’s declaration′) from their buyers. This declaration states that the genetic products will be resold to certain customer groups only, normally slaughterhouses. Such a demand must be made to all exporters on equal, non-discriminatory terms.
  • Where an approved exporter is allowed to sell purebred pigs and other genetic products from the Danbred programme to other customer groups than the ones specifically defined, all other approved exporters shall have a similar right on equal, non-discriminatory terms. However, SEA keeps an exclusive right to sell to four by name mentioned companies in the USA/Canada, Brazil and Spain. Furthermore, SEA is not obliged to obtain a buyer’s declaration when selling to the companies mentioned above.
  • All exporters can be held liable for their buyers’ compliance with the resale-prohibition set out in the buyer’s declaration. However, this does not apply to SEA’s sale to the already mentioned four companies in the USA/Canada, Brazil and Spain, as these companies are not restricted by any resale-prohibition in their resale of Danbred genetic products to further specified customers.
  • All approved exporters will be granted a right to use the Danbred trademarks on equal, non-discriminatory terms. However, SEA keeps exclusive right to use the company name Danbred International.
  • DPP will ensure that no business secrets is exchanged between DPP and other companies, including SEA.
  • DPP will change its payment system in order to equalise the payments collected when genetic products from the Danbred programme are sold to Danish and foreign customers.

Assessment and conclusion

The commitments essentially meet the problems raised by the Complainants. Moreover, the commitments sufficiently meet the DCA’s concerns in relation to DPP’s administration of the Danbred programme.

All approved exporters are, as a main rule, treated equally. SEA’s exclusive right to sell to four mentioned companies and to use the name Danbred International is due to the considerable investments that SEA has already made in this regard.

The commitments will be applicable not only to the agreements between DPP and the exporters of genetic products from the Danbred programme, but also to all other agreements which DPP enters into in relation to the Danbred programme.

The commitments are made binding until 31 December 2010. After this period the DCA will make an evaluation of whether the commitments in practice have met the concerns expressed by the DCA.