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Binding Obligations set to Merger of Dairy Companies



On 28 April 2012 the Competition Council (CC) adopted a decision to approve proposed merger of dairies AS Rīgas piena kombināts and AS Valmieras piens. Thus, Thyrenos Holdings Ltd. that exercises indirect control over AS Rīgas piena kombināts was allowed to acquire control over AS Valmieras piens. To prevent the possible harm to the competition in relevant markets, the merger has been cleared with binding obligations.

The CC has stated that in many of the relevant markets (wholesale markets of cheese, cottage cheese, butter, margarine, sweet cream, sour cream, and yoghurt) the merger does not impede competition as the market shares of the merging companies are small or their production can be relatively easy replaced by production of other Latvian or foreign dairies.

Likewise no harm can be expected to wholesale markets of milk drinks, UHT-processed milk, ice-cream, cottage cheese and other desserts, soda water, cheese whey as in none of these markets both merger participants operate simultaneously.

In markets where due to the merger the two dairies would acquire substantially larger market shares than before (in wholesale market of milk and kefir (<50% of market share in Latvia), and in market of purchase of raw milk (<30% of market share in Latvia)) – there would still remain strong competition among dairies in Latvia and in market of purchase of raw milk – among dairies in Baltic region. Thus, both farmers and retailers would have a choice to cooperate with other dairies. Moreover, larger retailers historically have substantial market power in Latvia, but milk producers strengthen their market power by creating cooperatives.

However, to protect smaller milk producers and retailers, it was necessary to set the following binding obligations (remedies) to the merger participants:

  • If the merged enterprise is willing to terminate the agreement with a milk producer (farmer, cooperative), it has to forewarn in timely manner – at least 30 days beforehand (this obligation does not concern situations when contract is terminated due to milk quality problems). However, if the smaller farms (providing up to 500 kg of raw milk per day) are willing to terminate the agreement with the merged dairy, this termination of agreement cannot be delayed longer than 15 days.
  • Merger participants are obliged to apply equal conditions when applying prices and bonuses to farmers (milk producers). These conditions have to be available to farmers.
  • To prevent harm to smaller retailers, merger participants are forbid to bundle their products – both retailers and wholesalers have to be granted a possibility to buy milk and kefir (as well as tyre, buttermilk and the likes) without being forced to buy other milk products from the merger participants.

Merger participants have to comply with the binding obligations until 31 March 2015.

The decision of the CC in Latvian