1. Introduction

On 19 December last year, the Hungarian Competition Authority (GVH) has put an end to a long investigation into a possible cartel infringement of the competition law by Hungarian sugar producers.[1] The investigation started after a leniency application by the Nordzucker Group, the parent company of leading Hungarian sugar producers and distributors that time, Matra Cukor and Eurosugar. The alleged infringement also concerned the two other main sugar producers in Hungary, Südzucker (including Magyar Cukor and Agrana) and Eastern Sugar.

2. Description of the case

The investigation lasted from April 2009 to December last year and involved dawn-raids of the alleged cartel members.

According to the GVH, its investigation did not bring to light sufficient evidence for the existence of a cartel. In the published case summary, the GVH also refers to legislative developments as one of the reasons to put an end to the investigation: the Hungarian parliament has recently passed a law that, under specific conditions, allows the Minister of Rural Development to permit producer cartels in the agricultural sector.[2]

The summary of the case indicates that the GVH found evidence showing that representatives of the sugar producers had regular meetings and exchanged recent sales data.[3] The GVH found, however, that the information exchange between the parties did not amount to a restriction of competition between them.

An important element of the Hungarian sugar market is the use of tender procedures by larger customers. The GVH, amongst others, named Coca-Cola Pepsi, Nestle – customers buying sugar for own production; and Tesco, Plus, Penny Market as retailers.

Apparently the GVH did assess the development of prices and found that the prices of the sugar producers “moved together in the investigated period”[4] (but this, according to the GVH, may have been due to the the special regulated environment in the sugar market).

3. Comment

The conclusions of the GVH are surprising, at least on the basis of the publicly available information.

  • First, the Hungarian sugar market has several characteristics that would facilitate collusion.[5] Sugar is a homogeneous product and there were only a few producers active in the market during the period investigated. From 2003 to 2007 there were five manufacturers and distributors owned by three company groups: Magyar Cukor and Agrana (the latter active until 2005) owned by the Südzucker Group, Matra Cukor and Eurosugar owned by the Nordzucker Group and Eastern Sugar. From the end of 2007 to April 2009 there were only two company groups (Magyar Cukor and the Nordzucker Group) active in the Hungarian market, Eastern Sugar left the Hungarian market. In both periods the manufacturers accounted for 80% of Hungarian sugar production. There was no other manufacturer active in the market (import accounted for 5-20% of the volumes in the investigated period).
  • Second, absent evidence of legitimate purposes of the meetings of the representatives and the exchange of information between them, the meetings and the exchange of information appear highly suspicious.
  • Third, the fact that sugar markets are conducive to cartel behaviour is evident from past cartel cases: in 1975 the Commission found a sugar cartel functioning in multiple EU-countries[6]; in 1998 the Spanish Competition Authority revealed a sugar cartel at work in Spain during 1995-1996[7]; the Commission imposed fines on the cartel members of the British Sugar case[8]. But most relevant to the Hungarian case, the Austrian Competition Authority revealed that there was a cartel operating from 2004 to 2008 involving Austrian sugar manufacturers.[9] One of the cartel members in the Austrian case is Südzucker – a company also investigated by the GVH.

One would have expected therefore that the GVH would not only have used the investigation to assess the documents seized during the dawn-raids, but would also have undertaken an economic assessment of the market.

Considering the importance of tender procedures, it would have been particularly relevant for the GVH to investigate potential bid-rigging between the producers. The information exchange for which the GVH did find evidence may have been used in order for the cartel to monitor the behaviour of the members. According to the GVH however, there was no evidence of bid rigging because most of the large customers buy from multiple producers. This does not however prove the absence of bid-rigging and hence does not prove the absence of a cartel. In order to establish this, the GVH should have undertaken a careful assessment of the relevant tender procedures and the bids of the individual sugar producers.

Also the fact that prices have moved together over time does not disprove the cartel. Prices are likely to move together over time both in a competitive market and in a market that is cartelised.

A meaningful pricing analysis should have compared the alleged cartel period with the period before or after in order to find indications for the absence or the presence of a cartel. Moreover, the information apparently exchanged included volume data, which may hint at an enforcement mechanism for market sharing and/or bid rigging rather than price fixing. It would therefore have been useful if the GVH would also have undertaken an assessment of the development of market shares over time. In a market characterised by tenders, one would typically expect market shares to be volatile (depending on the size of the tenders).

The assessment of the GVH hence does not seem to be conclusive and shows a lack of economics in the assessment, even though the evidence of the meetings and the exchange of information would have warranted a thorough investigation (indeed, the European Commission has imposed fines for information exchanges that appear less far reaching than the one found by the GVH[10]).

The reference in the summary of the case provided by the GVH to legislation allowing for cartels in the agricultural sector under certain conditions does not help to convince that the Hungarian sugar producers did not operate a cartel. The GVH might argue that the legislation is to be applied to ongoing cases. However, it is clear from the decision that the Authority’s conclusions are based on the evidences found (and not found) during the investigation.

To be clear, there may well be a legitimate lack of evidence and indeed, a cartel may indeed not have existed, but the information available on the case does not indicate that the GVH has done enough to be sure of its conclusions.

Akos Reger, RBB Economics

[1] GVH decision no Vj/050-226/2009.

[2] CLXXVI / 2012

[3] See e.g. para 106 of the decision

[4] Idem, para 116

[5] On coordinated effects see e.g. The Economics of Tacit Collusion (IDEI Working Paper) by Ivaldi et. al. prepared for the European Commission.

[6] 73/109/EEC

[7] Case no 426/98 of the Spanish Competition Authority.

[8] 1999/210/EC

[9] BWB/K-191 Zuckerkartell.

[10] E.g. British Sugar case (1999/210/EC)

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