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Conclusions about the Bread Sector Inquiry

The Competition Council of Latvia (CC) has summarised its conclusions about the bread market supervision provided during 2008. The aim of this supervision was to evaluate the competition situation in the bread market and to analyse pricing mechanism, by evaluation of balance of forces among market participants in this relevant market.

In frameworks of this supervision in bread market the similar problems were identified as in milk and cottage cheese markets - the discrepancy between rise of product price and changes of raw material prices as well as dependence of producers from the buying power of big retail chains. Particular bread producers are selling until 70 % of their relevant products to these retail chains, often for price which is close to production costs or even below these costs. Similarly as it is in the milk market, also in the bread market bread producers use to compensate their non-gained profit or possible losses, created from selling their products for lower price to big retail chains, by selling certain products for higher price to smaller retailers.

The turnover period of producer stocks is short, but the terms of time, used by retailers in their payments to bread producers are considerable longer. Thus, as it was concluded by CC, these particular bread producers indirectly has acted as percentage-free creditors for retailers.

However during this market supervision violations of the Competition Law were not detected, the obtained information has affirmed the necessity to include in the Competition Law the prohibition to abuse dominant position in retail trade (the particular law amendments have entered into force by 1 October 2008). To prove whether retailers have followed provisions of these law amendments, CC has repeatedly started daily consumption goods retail market supervision in department store environment.