2007/783/EC: Commission Decision of 29 March 2006 declaring a concentration compatible with the common market and the functioning of the EEA Agreement (Case COMP/M.3975 — Cargill/Degussa) (notified under document number C(2006) 1034) (Text with EEA relevance)
Date: 2006-03-29
Institutions: European Commission
Subjects: agro-industry, application of EU law, competition law, economic concentration, merger control, pharmaceutical industry, restrictive-practice authorisation

4.12.2007

EN

Official Journal of the European Union

L 316/53

(Acts adopted under the EC Treaty/Euratom Treaty whose publication is not obligatory)

II

DECISIONS

COMMISSION

COMMISSION DECISION

of 29 March 2006

declaring a concentration compatible with the common market and the functioning of the EEA
Agreement
(Case COMP/M.3975 — Cargill/Degussa)

(notified under document number C(2006) 1034)

(Only the English version is authentic)

(Text with EEA relevance)

(2007/783/EC)

On 29 March 2006 the Commission adopted a Decision in a merger case under Council Regulation
(EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings (1),
and in particular Article 8(1) of that Regulation. A non-confidential version of the full decision can be
found in the authentic language of the case and in the working languages of the Commission on the
website of the Directorate-General for Competition, at the following address:
http://ec.europa.eu/comm/competition/index_en.html

I. SUMMARY

On 21 October 2005, the Commission received a noti-
fication of a proposed concentration within the meaning
of Article 3(1)(b) of Council Regulation (EC) No
139/2004 on control of concentrations between under-
takings (the Merger Regulation).

raise concerns as to its compatibility with the
not
common market. Therefore,
it was proposed to clear
the notified transaction pursuant to Article 8(1) of the
Merger Regulation.

II. THE PARTIES AND THE OPERATION

After examination of the notification, the Commission
has concluded that the notified operation falls within
the scope of the Merger Regulation.

(5)

On 23 November 2005, the parties submitted under-
takings to the Commission. On 14 December 2005,
the Commission concluded that the concentration, even
in taking into account the undertakings submitted, raised
serious doubts as to its compatibility with the common
market, and decided therefore to initiate proceedings in
accordance with Article 6(1)(c) of the Merger Regulation.

is

feed and food and of

Cargill
company
a US-based privately owned
worldwide active as a producer and trader of agricultural
commodities, animal
financial
services related hereto. DFI is a German food ingredients
company, currently owned by Degussa AG, whose main
shareholders are RAG and E.ON. DFI’s two main business
branches are ‘DFI Texturant Systems’ and ‘DFI Flavours’.
The operation consists in the acquisition of 100 % shares
in DFI currently held by Degussa AG.

(1)

(2)

(3)

(4)

Following an in-depth investigation,
however, concluded that

the Commission,
the notified operation does

(6)

(1) OJ L 24, 29.1.2004, p. 1.

III. CONCENTRATION WITH COMMUNITY DIMENSION

The proposed transaction consists in the acquisition of
control by Cargill of
the whole of DFI within the
meaning of Article 3(1)(b) and Article 1(3) of the the
Merger Regulation.

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Official Journal of the European Union

4.12.2007

(7)

(8)

(9)

(10)

(11)

IV. THE RELEVANT PRODUCT MARKETS

The Commission’s market investigation in the present
case was particularly focussing on the markets for not
fluid lecithin and non-GM
genetically modified (non-GM)
deoiled lecithin (1). Other affected markets were genetically
modified (GM) lecithin, pectin and crude seed oil (2).

1. The different lecithin markets

Lecithin is a food ingredient which, as a ‘emulsifier’
is
used to stabilise emulsions, that is a mix of hydrophilic
(e.g. water) and hydrophobic (e.g. oil) substances. Lecithin
is used mainly in food and feed applications, but also in
cosmetics, pharmaceuticals and industrial products (such
as herbicide and leather). Although it generally represents
less than 1 % of
is usually
essential to the industrial process of end-users and can
change radically the quality of final products.

total production costs,

it

ingredients

feed and their

require labelling and traceability for genetically
that
as of
modified food,
2004 (1). Accordingly,
lecithin can only be exempted
from the labelling obligation,
if there is an established
certification process (audit trail) that covers the entire
production and supply chain, proving that the relevant
soy crop is non-GM, and that the inputs for the inter-
mediate and finished products have been kept separate
from GM material during planting, harvesting, storage,
processing and distribution.

(13)

From a supply-side perspective, the production costs of
non-GM lecithin are significantly higher than those of
the supply chain of non-GM
GM lecithin.
lecithin is different
from that of GM lecithin. As a
result, prices of GM and non-GM lecithin differ signifi-
cantly.

In fact,

(c) Fluid, deoiled and fractionated lecithin have to be assessed

separately

Lecithin is a by-product generated in the process of
crushing oilseeds, generally soybeans: the vast majority
of lecithin sold on the market is extracted from soy oil
(95 %) while other sources like rapeseed and sunflower
remain marginal. Lecithin represents less than 1 % of the
soybean content in volume and well below 5 % in value.

(14)

(a) Lecithin and synthetic emulsifiers are not on the same

product market

The Commission in addition found that different types or
grades of lecithin can be distinguished, since fluid lecithin
(as the basic product) can be further refined by a deoiling
process into ‘deoiled’
lecithin or by fractionation into
‘fractionated’ lecithin (2). Cargill is not active in the manu-
facture of fractionated lecithin. The market investigation
has
for a
elements
distinction between fluid, deoiled,
and fractionated
lecithin.

identified several

that militate

the

can be divided into natural

Emulsifiers
emulsifiers
lecithin) and synthetic emulsifiers (such as mono- or
(i.e.
extracted from
former are
diglycerides). While
the latter are artificially produced through
oilseeds,
chemical reactions. The Commission’s market
investi-
gation has established that both types of emulsifiers do
not belong to the same product market, mainly for the
following reasons:

the market

From a demand-side perspective,
test has
lecithin and synthetic emulsifiers are not
shown that
substitutable for both technological and quality reasons.
This applies to feed and food manufacturers. Virtually no
customer of non-GM lecithin has switched to synthetic
emulsifiers in the past even though prices of the non-GM
lecithin have doubled over the last two years, and the
vast majority would not switch to synthetic emulsifiers
should the price for lecithin increase by 10 % in the
future.

(b) GM and non-GM lecithin have to be assessed separately

(12)

The market investigation has also shown that separate
for GM and non-GM lecithins have to be
markets
distinguished in Europe.
Indeed, European customers
(unlike customers in other parts of the world) have a
strong opposition to genetically modified products. This
has led the European Union to adopt several regulations

(15) Nearly all customers indicated that they cannot switch
between fluid and deoiled lecithin, since the respective
lecithin type meets very specific needs of customers (e.g.
taste, processing etc.) and involves a different production
process. From a supply-side perspective, the production
of deoiled and fractionated lecithin requires additional
investment and
production facilities and a significant
involves different production know-how.

2. Pectin

(16)

The parties’ activities overlap also in the field of Pectin.
Pectin is used to gelatinize, stabilise and jellify products.
The Commission has considered a further distinction
(e.g. apple and citrius
beteen different Pectin types
pectin and according to the methoxyl content), but
could ultimately leave the market definition open since
the transaction would not
impede competition under
either market definition.

(1) Regulation (EC) No 1829/2003 of the European Parliament and the
Council on 22 September 2003 on genetically modified food and
feed (OJ L 268, 18.10.2003, p. 1) and Regulation (EC) No
1830/2003 of the European Parliament and of the Council of 22
traceability and labelling of
September 2003 concerning the
genetically modified organisms and the traceability of
food and
feed products produced from genetically modified organisms and
amended by Directive 2001/18/EC (OJ L 268, 18.10.2003, p. 24).
(2) There are also some forms of modified/customised ‘special lecithins’,
which, however, account only for a negligible part of the market.

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Official Journal of the European Union

L 316/55

V. THE RELEVANT GEOGRAPHIC MARKETS

1. Lecithin

(17)

The Commission came to the conclusion that at least the
markets for non-GM lecithin are EEA-wide in scope.

(18)

Indeed, the strong preference of European customers for
non-GM products, which is clearly limited to Europe,
leads to different market conditions in Europe. Eighty
per cent of all non-GM lecithin sales are within in the
EEA, although only 45 % of the worldwide lecithin sales
are within the EEA. What is more, customers only rarely
buy directly from suppliers outside Europe, not only
because transport costs are a relevant factor, but also
since on-time delivery and support in terms of product
for many
and production know-how are
customers. The structure of demand for lecithin in the
EEA differs therefore significantly from the rest of the
world.

crucial

(19) As regards the markets for GM lecithin (fluid and deoiled),
although some factors seem to militate for a worldwide
regulation requirements do not differ
market
significantly across the world), the Commission could,
for
exact
geographic market definition open.

the purpose of

this decision,

leave

(e.g.

the

2. Pectin

(20)

Even if the market investigation provided indications that
the geographical scope of the markets may be limited to
the EEA, the exact geographic market definition could be
left open, because no competition concerns occur under
either delineation.

VI. ASSESSMENT

1. Non-GM fluid lecithin

(21) As regards the EEA market for non-GM fluid lecithin, the
results of the in-depth market investigation effectively
removed the serious doubts as to the proposed trans-
action’s compatibility with the common market.

(22)

The investigation showed that the parties’ actual market
share (30-40 %) is smaller than estimated by the parties
(40-50 %) and confirmed that the competitive constraint
stemming from other competitors is strong enough to
effectively constrain the parties’ position on this market.
Indeed, the share of competitors to Cargill, DFI and Solae
is steadily and significantly increasing. Not only estab-
lished food ingredients distributors such as Nore Ingre-
dients
share) or Helm AG (0-10 %
market share) were able to increase their share. Also

(5-15 % market

bigger

Brazilian and Indian competitors have recently become
a more credible alternative for European customers, since
many of them have (unlike Cargill and Degussa) direct
for non-GM fluid lecithin.
access to the raw material
today
Some
already buying directly from Brazilian sources. The
leading Brazilian manufacturers have shown that they
are able to establish their own distribution and logistics
network in Europe and to compete directly with well
established players like the merged entity and Solae.

food/chocolate

customers

are

(23)

(24)

(25)

The significant price increase and the attractive margins
for non-GM fluid lecithin are a further incentive for
Brazilian and Indian manufacturers to compete more
aggressively with the parties on the European market.
in the EEA (Cargill, DFI,
Since the leading players
their non-GM raw
Solae) currently source almost all
least potential Brazilian
material
competitors,
in
the market for non-GM fluid lecithin is not likely to
change so as to create a substantive impediment of
competition.

the current competitive environment

from actual or at

The Commission’s market investigation showed also that
the merger will not
lead to anti-competitive effects
through coordinated effects. This is not only due to the
the two major players’ market shares
asymmetry of
after the merger. Also, the results of the market investi-
gation strongly indicate that the market for non-GM fluid
cannot be considered as transparent: the price for non-
GM lecithin is negotiated between the supplier and its
customers on an individual basis with no price lists being
available. As a result, prices for fluid lecithin vary sig-
nificantly between individual customers, even those of a
comparable size.

2. Non-GM deoiled lecithin

The Commission’s investigation was particularly focussed
on the market for non-GM deoiled lecithin, since the
parties hold a particularly high combined market share
in this market. However, while according to the notifi-
cation only three players were active on this market, the
in-depth investigation revealed that a number of new
suppliers have already entered or are about to enter the
non-GM deoiled market, thereby effectively constraining
the parties’ ability to behave independently form their
competitors.

(26)

The market investigation has confirmed that in 2005 DFI
was still the biggest supplier of non-GM deoiled lecithin,
with a market share of [50-60] %. Together with Cargill’s
market share of [0-10] % in 2005, the merged entity
would hold [60-70] % of the non-GM lecithin market
in the EEA.

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Official Journal of the European Union

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(27)

(28)

(29)

the investigation showed that Cargill’s
In addition,
position on the deoiled market is relatively weak, and
that its disappearance as a competitor would not signifi-
cantly change the current competitive structure of the
market. Indeed, unlike its main competitors, Cargill has
no own production facilities for deoiled lecithin, but has
its deoiled lecithin produced in a factory in Arkansas,
USA. This
factory has a relatively limited capacity,
which could not be utilised due to serious technical
investigation
problems.
revealed that the ‘low price’ strategy that Cargill chose
for the entry into the non-GM deoiled lecithin market
proved not to be sustainable, given the dramatic increase
of the costs for the raw material (non-GM fluid lecithin).

the market

Furthermore,

scope of activity. Most of

Furthermore, the investigation showed that new suppliers
of non-GM deoiled lecithin have already entered the
market or are likely to enter in a timely manner and
these
with a sufficient
suppliers (e.g. Berg & Schmidt/Sternchemie, Ruchi and
Matlani) have already built up their own deoiling lines
or will have them operational next year
(e.g. SG
the newly installed deoiling
that
Lecitinas). The fact
capacities are significant shows that Indian and South
American suppliers are highly committed to enter the
European market. The newly
available production
capacity for non-GM deoiled lecithin in India and
Brazil will exceed the volume of the entire EEA market.

The entry of a relatively large number of companies
shows that
the entry barriers to the deoiled lecithin
market may be significant but are not insurmountable:
while it is true that deoiled lecithin is no ‘commodity’
and its production involves technology and know-how,
competitors have confirmed that
this technology was
available on the market (e.g. through engineering firms)
they were able to produce non-GM deoiled
and that
lecithin of a comparable quality level
to the market
leaders. Also the fact that many food customers require
a European presence of their supplier is not a significant
them
obstacle for
cooperate with established European distributors who
can provide the necessary know-how on customers and
their
indeed,
individual need. Many customers have,
confirmed that they are interested in alternative sources
of deoiled non-GM lecithin.

these competitors, since most of

3. GM lecithin markets

(30)

The market investigation has not confirmed the existence
of competition problems in the markets for GM lecithin.
As concerns fluid lecithin, ADM will, even under the
assumption of European markets,
still be the clear
market leader with a share of [40-50] %, followed by

focus

the parties, Solae, and a number of smaller competitors.
This suggests that the new entity would have little leeway
to increase prices unilaterally or otherwise impede
competition. Furthermore Cargill does not
its
lecithin marketing strategy on GM markets. As for the
risk that the merger will elicit coordinated behaviour, the
Commission considers that such a risk is negligible,
mainly for
for non-GM fluid
lecithin (no price transparency, asymmetry of market
shares etc.). As concerns GM deoiled lecithin, Solae
would hold [50-60] % of a European market, followed
by DFI, but with a limited increment
through the
addition of Cargill. There are a number of other com-
petitors on the market (e.g. ADM). Consequently, the
overlap in the markets for GM deoiled lecithin is very
limited.

the same reasons as

4. Pectin

(31)

The parties’ combined market share for pectin does not
exceed 25 %, neither on a worldwide nor on an EEA-
wide basis, with only a very limited increment. The
position of the market leader, CP Kelco and the current
number 2 (Danisco) will not be affected by the merger.
This assessment would not change when alternative
markets (e.g. worldwide markets, markets for apple/citrus
or markets according to the methoxyl content) were to
be distinguished, because Cargill’s position on these
markets would be even weaker.

5. Vertical effects (crude seed oil)

(32) Although, on the basis of a hypothetical definition of an
upstream market
the
for crude soy oil
proposed transaction technically gives rise to a vertically
affected market, it does not raise any vertical concerns,
mainly because DFI and Cargill buy ready-made fluid
non-GM lecithin from third parties and do not use
non-GM raw material
from their own production to
produce non-GM lecithin.

in the EEA,

(33)

(34)

VII. CONCLUSION

therefore, concludes that,

the proposed
The decision,
significantly impede effective
concentration will not
competition in the Common Market or in a substantial
part of it.

the decision declares the concentration
Consequently,
compatible with the Common Market and the EEA
Agreement, in accordance with Articles 2(2) and Article
8(1) of the Merger Regulation and Article 57 of the EEA
Agreement.