Summary of Commission Decision of 17 December 2008 declaring a concentration compatible with the common market and the functioning of the EEA Agreement (Case COMP/M.5046 — Friesland Foods/Campina) (notified under document number C(2008) 8459) (Text with EEA relevance)
Date: 2009-03-31
Institutions: European Commission
Subjects: dairy industry, economic concentration, exchange of information, merger control

31.3.2009

EN

Official Journal of the European Union

C 75/21

SUMMARY OF COMMISSION DECISION

of 17 December 2008

declaring a concentration compatible with the common market and the functioning of the EEA
Agreement

(Case COMP/M.5046 — Friesland Foods/Campina)

(notified under document number C(2008) 8459)

(Only the English version is authentic)

(Text with EEA relevance)

(2009/C 75/06)

On 17 December 2008 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, and in particular
Article 8(2) 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. THE PARTIES

(1)

Friesland Foods counts 9 417 members (2007) and sells
dairy products for consumers in Europe, the Middle East,
Asia and Africa and ingredients for professional and indus-
trial customers worldwide.

(2) Campina is a dairy cooperative with 6 885 farmers as
members (2007), with activities in fresh dairy products,
cheese, butter, fresh and long life flavoured drinks, and
emulsions in various countries in Europe, North and South
America and Asia.

II. THE OPERATION

(3) On 12 June 2008, the Commission received a formal noti-
fication pursuant to Article 4 of the Merger Regulation by
which the cooperatives Zuivelcoöperatie Campina U.A.
(hereinafter
Friesland
Foods U.A. (hereinafter ‘Friesland Foods’) merge by way of
full legal merger. Campina and Friesland Foods are herein-
after collectively referred to as the ‘notifying parties’.

and Zuivelcoöperatie

‘Campina’)

III. SUMMARY

(4) After examination of

the notification,

the Commission
adopted on 17 July 2008 a decision where it concluded
that the operation falls within the scope of the EC Merger
Regulation and raises serious doubts as to its compatibility
with the common market and the functioning of the EEA
Agreement
to
proceedings
Article 6(1)(c) of the EC Merger Regulation.

pursuant

initiated

and

(5) On 3 October 2008, a Statement of Objections was sent
the

to the notifying parties pursuant

to Article 18 of

EC Merger Regulation. Friesland Foods and Campina
replied to the Statement of Objections on 17 October
2008. On 21 October 2008, at the request of the notifying
parties, an Oral Hearing took place.

(6) On 28 October 2008,

the notifying parties offered
commitments with a view to rendering the proposed
concentration compatible with the common market. These
commitments were modified and the final version of the
submitted to the Commission on
commitments was
27 November 2008.

IV. EXPLANATORY MEMORANDUM

(7) The dairy sector comprises a series of interrelated product
markets, reflecting the wide variety of milk-based end
products. The typical business model for dairy companies,
is to valorise the raw milk
notably dairy co-operatives,
collected from farmers
into a wide variety of dairy
products. The common raw material, raw milk, means that
prices of dairy products follow similar trends.

(8) Raw milk consists of several nutritional components: fat,
lactose (= milk sugar) and minerals. For some
proteins,
dairy products only the non-fat components (notably
proteins and lactose) are used. Other products, notably
butter and cream, are based on the fat from the milk.
Many key products such as cheese and milk contain a mix
of fat and non-fat components. Some products — in par-
ticular cream, buttermilk and whey — are in essence
by-products resulting from the production of the primary
dairy products such as drinking milk and cheese.

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A. THE RELEVANT MARKETS

market of
buttermilk and plain yoghurt.

(organic and non-organic)

fresh milk,

fresh

1. Procurement of raw milk

(9) With respect to the relevant product market, the market
investigation confirmed that on the demand side organic
raw milk and conventional raw milk are not substitutable
for milk processors. On the supply side, organic dairy
farmers do not have incentives to switch to produce
conventional raw milk, in view of the price premium they
obtain and the investments they have made to produce
organic raw milk. Switching to organic raw milk is
possible for a conventional dairy farmer but it requires
significant investments in grasslands (more extensive use)
and on average a 2-year transition period. Therefore, it has
been concluded that procurement of conventional and
procurement of organic raw milk constitute separate
product markets.

(10) In relation to the relevant geographic market

(for both
conventional and organic milk), It has been found that the
parties' activities overlap only in the Netherlands. The
volumes transported annually by Campina from Germany
and Belgium to the Netherlands are negligible in compar-
ison with the total volume of raw milk purchased by the
notifying
than
8 000 million kg per year). It has therefore been consid-
ered that the merger has no significant impact on the
procurement market
of
the Netherlands and the assessment has been focused on
the Netherlands.

the Netherlands

territory

outside

parties

(more

the

in

2. Basic dairy products

(14) Since in long-life basic dairy products the only overlap
arises in long-life milk and neither demand nor supply-side
substitutability prevail,
is
long-life milk with no distinction between private label
and branded products. A possible distinction with regard
to the distribution channel into retail/OOH is left open.
The relevant geographic market is wider than national and
includes Belgium, Germany and the Netherlands.

the relevant product market

3. Dutch type cheese

(15) In relation to the relevant product market, separate product
markets for the sale of Dutch type cheese to specialised
cheese wholesalers and to modern types of retail (super-
markets, hypermarkets, discounters) should be delineated.
Any further distinction of the sale of Dutch type cheese to
(Gouda/Maasdam/Edam,
specialised cheese wholesalers
nature/rindless, 15 day old nature cheese/other nature
cheese) and of the sale of Dutch type cheese to modern
types of retail (Gouda/Maasdam/Edam, nature/rindless) is
left open as it would not have a material impact on the
competitive assessment.

(16) With respect to the relevant geographic market, the markets
for the sale of Dutch type cheese to specialised cheese
wholesalers and modern types of
(including all
narrower segmentations except for rindless) are national in
scope while the markets for the sale of rindless Dutch type
cheese (including all narrower segmentations) to specialised
cheese wholesalers and modern types of retail are wider
than national and include at least the Netherlands and
Germany.

retail

(11) In relation to the relevant product market,

it has been
concluded that a distinction between fresh and long-life
basic dairy is necessary. Within each category, a further
distinction between organic and non-organic products can
be made.

4. Butter

(12) Within non-organic and organic fresh basic dairy products,
because of a lack of substitution by customers and the lack
of supply-side substitutability, fresh milk, fresh buttermilk,
plain yoghurt and custard are separate relevant product
markets. Custard will be discussed in the fresh dairy
desserts section,
fresh buttermilk, plain
yoghurt, private label and branded products belong to the
same product market upstream. A possible distinction,
into retail/OOH
with regard to the distribution channel,
(Out of Home),
is left open for non-organic fresh basic
dairy, while in organic fresh basic dairy OOH and retail
belong to the same market.

In fresh milk,

(13) In relation to the relevant geographic market,

it has been
concluded that such market is national for the upstream

(17) It has been found that the relevant product market for butter
should, in the first place, be divided into separate markets
for bulk butter and packet butter. Dairy bulk butter
belongs to a separate market than bulk vegetable fats. In
addition,
it can be divided in basic butter (82 % fat
content), non-fractionated butter oil (or, simply, butter oil,
with a 99,8 % fat content) and fractionated butter oil (or,
simply, fractionated butter, sorted according to its melting
point). With respect to packet butter, dairy butter and
vegetable fats belong to separate markets and the market
for dairy packet butter must be further separated into
packet butter sold to retailers and packet butter sold to
OOH customers. It has been left open whether branded
and private label packet butter belong to the same market,
as the distinction would not have an impact on the compe-
titive assessment.

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(18) As to the relevant geographic market, the markets for bulk
butter, fractionated butter oil and non-fractionated butter
oil are EEA-wide. The relevant geographic market
for
packet butter includes at least the Netherlands, Belgium
and Germany. The
relevant
geographic market for packet butter is EEA-wide can be
left open as this conclusion is not such to have a determi-
nant effect on the competitive assessment.

question whether

the

5. Value added yoghurts and quarks

(19) With respect to the relevant product market, there are sepa-
rate markets for value added yoghurt and quark according
to the distribution channel. A separation into value added
yoghurt on the one hand and quark on the other, a separa-
tion into health/indulgence as well as into private label and
branded products can be left open as it would not affect
the competitive assessment. As Friesland Foods is not
active in the health segment, health value added yoghurt
and quark have not been further discussed.

private label
long-life dairy drinks belong to different
product markets. A distinction according to the distribu-
tion channel between retail and OOH can also be left
open.

(24) With respect to the relevant geographic market, such market
is national for the upstream market of non-health related
fresh flavoured dairy drinks. For long-life flavoured dairy
drinks,
it was found that on a market including private
label and branded products, the geographic scope is wider
than national and includes the Netherlands, Belgium and
Germany.
is
limited to branded products, given that brands differ to a
large extent between countries,
these markets have a
national scope.

the product market at upstream level

If

7. Fresh dairy desserts

(20) With respect to the relevant geographic market, such market
is national
the upstream market of value added
yoghurt and quark to OOH wholesalers and wider than
national for the upstream market of value added yoghurt
and quark to retailers.

for

(25) With respect to the relevant product market, separate rele-
vant product markets exist for fresh custard, porridge and
portion pack desserts. For custard a separation into private
the
label/branded products
market has to be further separated according to the distri-
bution channel can be left open as it would not affect the
competitive assessment;

is not necessary. Whether

6. Flavoured dairy drinks

(26) In relation to the relevant geographic market, such market is

national for the markets of custard and porridge.

(21) In this market a preliminary distinction was drawn
and long-life

between fresh flavoured dairy drinks
flavoured dairy drinks.

8. Cream

(22) With respect to the relevant product market, there are sepa-
rate relevant product markets for health related fresh
flavoured dairy drinks
and non-health related fresh
flavoured dairy drinks, which can be further separated into
the supply of branded and private label products and
according to the distribution channel (retail/OOH). As the
proposed merger would not lead to an impediment of
effective competition in the market for health related fresh
flavoured dairy drinks and the private label market would
not be affected, the competitive assessment focuses on the
for fresh flavoured
branded non-health related market
dairy drinks.

(23) With respect to long-life flavoured dairy drinks, chocolate-
flavoured dairy drinks and fruit-flavoured dairy drinks
were found to belong to distinct product markets. There is
no need to conclude whether sourcing of branded and

(27) It was found that the relevant product market for cream
should, in the first place, be divided into separate markets
for liquid cream and spray cream. In relation to liquid
cream, a distinction exists between dairy and non-dairy
liquid cream and, within each segment, between liquid
cream sold through the retail, the OOH and the industrial
sales channel. The market for dairy liquid cream includes
both low fat and high fat liquid cream. Within the market
for dairy liquid cream, the distinction between fresh cream
and long-life cream has been left open, as it would not
have an impact on the competitive assessment. Similarly,
the question as to the difference between branded and
private label liquid cream has been left open as it would
not have an impact on the final conclusion on the effects
of the transaction. Finally, as the parties' activities do not
overlap in the market
the
assessment focused on dairy liquid cream.

for non-dairy liquid cream,

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Official Journal of the European Union

31.3.2009

(28) With respect to spray cream, two relevant product markets
exist: dairy spray cream sold to retail and dairy spray
cream sold to OOH customers. The retail spray market
includes both branded and private label products, while
the questions as to the distinction between branded and
private labels can be left open for the OOH market, as it
would not have an impact on the competitive assessment.

(29) The relevant geographic market for dairy liquid cream sold
to OOH, to retail and to industrial customers and for spray
cream sold to retail and OOH customers exceed the
national boundaries and include at least the Netherlands,
Belgium and Germany.

lactose, excipients such as starch, Mannitol, MCC are not
effective sources of alternative supply for the customers
and can hence not be a competitive constraint. Further-
more, as the transaction would not lead to competition
concerns on the market for pharmaceutical lactose nor on
the narrower possible markets for direct compression phar-
maceutical grade lactose and wet granulation pharmaceu-
tical lactose, should these be defined, the distinction is left
open. Ultimately, a separate relevant product market
should be defined for DPI lactose. Within DPI lactose a
separate relevant market should be defined for sophisti-
cated DPI lactose and less sophisticated DPI lactose.

9. Liquid coffee whiteners

(30) With respect to the relevant product market, there are sepa-
rate relevant product markets for coffee milk and coffee
cream. No separation into private label/branded products
is necessary for these products. A distinction with regard
to the distribution channel into retail/OOH should also be
made.

(31) With respect to the relevant geographic market, the relevant
geographic markets for coffee milk and coffee cream are
wider than national and include the Netherlands, Belgium
and Germany.

10. Spray-dried emulsions (SDEs)

(32) With respect to the relevant product market,

liquid emul-
sions and SDEs are separate product markets. In addition,
different categories of SDEs, such as creamers, foamers and
toppings belong to separate product markets. As Campina
is not active in fat concentrates and encapsulated nutri-
tional oils and Friesland Foods is not present in the batter
stabilisers segment, the precise product market definition
for these three products is not addressed.

(33) With respect to the relevant geographic market, the markets
for creamers, foamers, toppings and batter stabilisers are
EEA-wide in scope.

(35) With respect to the relevant geographic market,

arise

irrespective of

in food
it is not necessary to conclude since no
grade lactose,
competition concerns
relevant
geographic market definition. In pharmaceutical and DPI
lactose, the geographic market definition was left open.
Indeed, on the worldwide market both for pharmaceutical
grade lactose and DPI pharmaceutical lactose, the position
of the combined entity would be virtually the same as on
an EEA-wide market. The transaction would not signifi-
cantly impede effective competition on the worldwide
markets and EEA-wide markets for pharmaceutical and
DPI lactose,
irrespectively of the exact definition of the
geographic scope of the markets.

B. COMPETITIVE ASSESSMENT

1. Introduction

(36) A thorough investigation as to the structure and the func-
tioning of the dairy markets concerned by the proposed
merger was carried out. As a result of such investigation, it
was found that the merger is not likely to determine a
impediment of effective competition in the
significant
markets
long-life milk, organic fresh basic dairy
products, bulk and packet butter, liquid and spray cream,
liquid coffee whiteners, SDEs, food grade lactose, pharma-
ceutical and DPI lactose.

for

11. Lactose

(34) With respect to the relevant product market, food grade
lactose and pharmaceutical grade lactose form two distinct
In relation to pharmaceutical
relevant product markets.

(37) The proposed merger would lead to a significant impedi-
ment of effective competition in the markets for procure-
ment of raw milk, fresh basic dairy products, cheese, value
added yoghurt and quark, fresh flavoured dairy drinks,
long-life dairy drinks (‘LLDDs’) and fresh custard and
porridge.

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2. Procurement of raw milk

(38) With respect to the procurement of raw milk, the merger
would bring together the two main purchasers of raw milk
in the Netherlands which would control roughly [70-80 %]
of the market.

(39) The competitive concern is not that the merged entity
would be able to exert market power in the upstream
market and lower prices of milk paid to farmers. Rather,
the market power that the new operator would have on
downstream markets would enable it to raise additional
profits and therefore pay higher prices to farmers. Conse-
the merged entity would be in a position to
quently,
attract more farmers and maintain and/or strengthen its
farmers' base. This situation would increase barriers to
entry and/or to expansion on the primary downstream
dairy markets where Dutch raw milk is needed to compete
effectively.

3. Fresh dairy products

(40) The notion of fresh dairy products includes fresh basic
dairies (fresh milk, fresh buttermilk and plain yoghurt),
value added yoghurt and quark,
fresh flavoured dairy
drinks, fresh custard and porridge.

(41) The proposed transaction would significantly impede effec-
tive competition as a result of the creation of a dominant
position on the market for fresh milk, fresh buttermilk,
plain yoghurt in the Netherlands, a substantial part of the
Common Market regardless of whether this market should
segmented according to the distribution
be
channel. The conclusion was based,
inter alia, on the
parties' high combined market share, on the fact that they
were regarded as the closest competitors, on the difficulty
for customers to switch to alternative suppliers and on the
difficulty for customers to expand production in case of a
price increase.

further

(42) For the same reasons set out above, the notified concentra-
tion would significantly impede effective competition as a
result of
the creation of a dominant position on the
market for value added yoghurt and quark in the Nether-
lands supplied to the OOH segment and on the market for
branded non-health fresh flavoured dairy drinks in the
separated according to the distribution
Netherlands,
channel in retail and OOH.

are a substantial part of the common market, regardless of
whether
these markets need to be further segmented
according to the distribution channel. Also in this case, the
inter alia, on the parties' market
conclusion was based,
position, on the fact that they were regarded as the closest
competitors and it was thus difficult
for customers to
switch to alternative suppliers.

4. Dutch type cheese

cheese

(44) The concentration would lead to a significant impediment
of effective competition on the markets for the sale of
Dutch type
to specialised cheese wholesalers
(including narrower segmentations into nature, Gouda and
15 day old cheese) and to modern types of retail (including
narrower segmentations into nature and Gouda cheese) in
the Netherlands. Each of
these markets constitutes a
substantial part of the Common Market.

(45) As regards sales to specialised cheese wholesalers,

this
assessment is based, inter alia, on the high market shares
of the parties ([40-70 %] %), the closeness of competition
between the parties,
the limited abilities of specialised
cheese wholesalers to switch to alternative domestic or
foreign suppliers,
the limited prospects for entry and
expansion in the near future and the fact that all counter-
vailing factors put forward by the parties (e.g. decreased
demand and increase of re-imports/sales of cheese origin-
ally destined for exports in case of price increases, alleged
dependence on wholesalers' storage and maturing capacity)
are insufficient
from
increasing prices.

the merging parties

to prevent

(46) As regards sales to modern types of retail, this assessment
is based, inter alia, on the high market shares of the parties
([60-70 %]),
the closeness of competition between the
the limited degree of competition between the
parties,
parties and specialised cheese wholesalers,
the limited
possibilities of modern types of retail to switch to alterna-
tive domestic or foreign suppliers, the limited prospects for
entry and expansion in the near future and the fact that all
the parties
countervailing
(e.g. buyer power,
increase of re-imports/sales of cheese
originally destined for exports and increased use of rindless
cheese in case of price increases) are insufficient to prevent
the merging parties from increasing prices.

factors put

forward

by

(43) In the markets for fresh desserts, the notified concentration
would be likely to significantly impede effective competi-
tion on (i) the market for fresh custard in the Netherlands;
and (ii) the market for porridge in the Netherlands, which

(47) No competition concerns were identified on the markets
for the sale of Maasdam and rindless Dutch type cheese
(including narrower
to specialised
cheese wholesalers and modern types of retailers in the
Netherlands.

subsegmentations)

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5. LLDDs

(52) Subsequently, on 27 November 2008 the parties submitted

a final commitments package.

dairy

long-life

(48) With respect to the market for LLDDs, that the notified
concentration is likely to significantly impede effective
competition on the market for branded long-life chocolate-
flavoured dairy drinks in the Netherlands, the market for
branded
in
fruit-flavoured
the Netherlands, the market for branded long-life choco-
late-flavoured dairy drinks in Belgium,
for
branded long-life fruit-flavoured dairy drinks in Belgium,
the market for branded and private label long-life choco-
late-flavoured dairy drinks in the Netherlands, Belgium and
Germany and the market for branded and private label
long-life fruit-flavoured dairy drinks in the Netherlands,
Belgium and Germany, regardless of whether these markets
need to be further segmented according to the distribution
channel.

the market

drinks

(49) This conclusion rests upon the finding that,

inter alia,
merging firms have large market shares, are regarded as
closest competitors and own strong brands. In addition,
the market investigation indicated that customers are unli-
kely to switch and new entry to the market is unlikely to
occur.

6. Commitments offered by the notifying parties

(50) In order to remove the identified competition concerns
arising from the transaction, Campina and Friesland Foods
have proposed commitments under Article 8(2) of
the
EC Merger Regulation. The first set of commitments was
submitted on 28 October 2008,
complemented on
5 November 2008 with a view of obtaining a clearance of
the operation from the Commission. The remedy package
consists of divestment businesses in fresh dairy, cheese,
long-life dairy drinks and access to raw milk.

(51) Subsequently the Commission market tested the commit-
ments. The results of the first market test showed that
significant improvements were needed. As a consequence,
the parties submitted on 19 November a revised commit-
ments package, which appropriately addressed the weak-
nesses identified in the first remedy package concerning
the fresh dairy divestment business, the cheese divestment
business and the long-life dairy drinks package as such.
However, the Commission still had concerns that the lack
of access to raw milk would create a significant impedi-
ment of effective competition on the downstream markets
for fresh basic dairy products and Dutch type cheese in the
Netherlands in general and resulting in a lack of viability
for the downstream divestment businesses in particular.
The market testing of the second package confirmed that
improvements were needed in this respect.

(53) Against

the above background,

the final commitment

package includes:

(54) The entire fresh dairy business of Friesland Foods in the
Netherlands covering the products fresh milk, fresh butter-
milk, plain yoghurt, value added yoghurts and quark, fresh
custard, porridge, fresh flavoured dairy drinks, fresh cream
and organic fresh basic dairy products (hereinafter, the
‘Fresh Divestment Business’).

(55) An exclusive, renewable 5 year license to use the Friesche
Vlag brand name in the Netherlands for the current FF
Fresh product portfolio, followed by a perpetual black out
period.

(56) The ownership of Campina's Melkunie brand and the
ownership of all Friesche Vlag sub-brand names and all
brands that are specific to the products of FF Fresh (with
the exception of the Friesche Vlag brand itself) are included
in the divestiture.

(57) The divestment of Campina's Bleskensgraaf production
facility and the carve out of a sales team and other
employees for R&D, planning and logistics and general
support from the sales organisation of the merged entity
(hereinafter referred to as the Cheese Divestment Business).

(58) For long-life dairy drinks,

the divestiture of Campina's
brand in the chocolate flavoured segment Choco Choco
and the divestiture of
the fruit-flavoured brand Yogho
Yogho in the Netherlands.

assets

(59) The divestment businesses includes, inter alia, all tangible
and intangible
(including intellectual property
rights), which contribute to the current operation. Further-
more all licences, permits and authorisations issued by any
governmental organisation are included as well as all
contracts, leases, commitments and customer orders of the
divestment businesses as well as all customers, credit and
other records of the divestment businesses. The personnel
is also included.

(60) Three elements aim at ensuring access to raw milk for
including the divestment busi-
downstream competitors,
nesses. First,
there is a transitional supply agreement
ensuring raw milk for both production facilities. Under
this transitional supply agreement the Divestment Busi-
nesses can source raw milk from the merged entity at the
‘guaranteed price’
the merged
entity guarantees to its farmers) minus 1 %.

(which is the price that

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(61) Secondly, following the period covered by the transitional
supply agreement, a foundation (Dutch Milk Fund, DMF)
will be set up to ensure access to raw milk to a maximum
volume of 1,2 billion kg of raw milk per year. This will be
based on a system of drawing rights for downstream
competitors. The Fresh Divestment Business and the
Cheese Divestment Businesses will have preferential
drawing rights as set out in the improved commitments, i.
e. up to the volume representing the total production capa-
city of those businesses. Likewise, the price for raw milk
through this arrangement will be the ‘guaranteed price’
minus 1 % during the first five years.

sourcing of raw milk. It consists of an exit payment (Start
Up Payment) of EUR 5/100 kg to be paid to any member
exiting the merged entity until members representing a
left
volume of 1,2 billion kg of
FrieslandCampina.

raw milk have

V. CONCLUSION

(63) For the reasons mentioned above, the decision concludes
that
the proposed concentration will not significantly
impede effective competition in the Common Market or in
a substantial part of it.

(62) The third element aims at structural change. Exit barriers
for farmers of the merged entity are reduced, in order to
ensure (i) sourcing of raw milk independent of the merged
entity and (ii) the ability for the downstream divestment
businesses to set up a long-term structural solution for the

(64) Consequently the concentration should be declared compa-
tible with the Common Market and the functioning of the
EEA Agreement,
in accordance with Article 2(2) and
Article 8(2) of the EC Merger Regulation and Article 57 of
the EEA Agreement.