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September 20, 2007

UPDATE – UK: OFT stands firm on dairy price-fixing claims

The UK’s competition watchdog has today (20 September) stood firm in its claims that the country’s retail giants and certain dairy processors colluded to raise prices on milk, butter and cheese.

The UK’s competition watchdog has today (20 September) stood firm in its claims that the country’s retail giants and certain dairy processors colluded to raise prices on milk, butter and cheese.

The Office of Fair Trading told just-food it is “confident” in its belief that price-fixing between the likes of Tesco, Asda, Dairy Crest and Arla Foods cost consumers some GBP270m (US$541.7m) over a two-year period.

The OFT has claimed that retailers and dairy processors fixed the retail prices of milk, butter and cheese in 2002 and 2003. The OFT also named retailers Morrisons, Safeway and Sainsbury’s, as well as dairy groups Lactalis McLelland, The Cheese Company and Robert Wiseman in its findings.

A spokesperson for the OFT insisted that, while no party has yet been found guilty of breaking UK competition law, it has evidence that retailers and dairy firms had acted illegally.

“We think consumers paid over and above what they should have; the price-fixing among processors and retailers cost consumers some GBP270m,” the spokesperson said. “That works out as 3p on the price of milk, 15p on half a pound of cheese and 15p on a quarter of butter.”

She added: “We have no evidence that the price hikes was passed back down to the dairy community. If that is the case, then [retailers and dairies] have been not only ripping off the dairy community but consumers too. We’re confident of our findings but the relevant parties now have every right to come forward, make representations and give evidence to us.”

Speaking on Sky News this morning, Kevin Hawkins, director of the British Retail Consortium, said it was “nonsense” to claim that retailers had acted together to raise dairy prices. “Supermarkets are extremely competitive businesses – the idea that they got together in a smoke-filled room to fix prices is sheer nonsense,” Hawkins told the UK news channel.

Hawkins was a former Safeway employee during the period under review and said the retailer – now owned by Morrisons – had unilaterally decided to increase its prices to consumers in a bid to help UK farmers.

“In spring 2002, there was a glut of milk on the market and dairy companies cut the price that they were paying to farmers,” Hawkins said. “So, in order to secure and stabilise the supply chain, Safeway, as a business, put up prices to consumers on the basis that the extra revenue would go to farmers – through the dairy companies – as higher farm gate prices. The intention was to secure the supply chain in the interest of consumers.” Hawkins, however, told Sky News that “the money never reached the farmers”.

Morrisons, which bought Safeway in 2004, said it “firmly believes” it is not directly involved in the OFT’s inquiry as the period under review fell before its acquisition of the retailer.

“At no point during its inquiry has the OFT requested any documents or information from Morrisons,” the retailer said. “The company is currently of the view that the OFT cannot have reasonable grounds for believing Morrisons might have been involved.”

Asda claimed that “price-fixing is absolutely against everything we stand for”, while Tesco said it would “vigorously defend” itself against “any allegations that we have not acted in the best interests of consumers”.

When asked by just-food if Tesco would confirm it had not colluded to raise the price of milk, butter and cheese for UK consumers, a spokesman said: “We’re not making any further comments at the moment. We need to go through the report before making any other comment.”

Sainsbury’s and three of the dairy processors named in the OFT statement – Lactalis McLelland, The Cheese Company and Arla Foods – could not be reached for immediate comment.

However, Dairy Crest issued a statement to say the company had “co-operated fully” with the OFT to date. “The next steps for Dairy Crest will be to review the OFT’s provisional findings in detail, and respond accordingly,” the company said.

Robert Wiseman Dairies, meanwhile, said it “looks forward to reviewing the detail within the [OFT’s] statement of objections, and to defending our position”.

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