Nordic Food Markets - 6. Competition in the food industry

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"Nordic Food Markets"

6. Competition in the food industry

6.1 Introduction

In the Nordic region, the food and beverage industry has a major economic and industrial importance. Compared to the total European market, the Nordic food and beverage industry is small. However, as markets are often national, the Nordic companies can hold a strong market position in one or more countries.

The Nordic food industry has grown considerably in recent years. More intensive R&D has accompanied this growth into new products and methods, a higher degree of processing, and rationalisations. In some industries large-scale operation and lower production costs have been necessary for the companies in order to be competitive in the market. Some Nordic companies have taken part in this process increasing their exports and entering into mergers and take-overs all over the world. Many acquisitions and mergers have taken place outside the companies' home market in order to secure their position on the markets. Internationalisation and globalisation is thus also a trend within the Nordic food sector.

In addition, output pr. employee has grown considerably in recent years in the Nordic countries. This relationship shows the Nordic industry's ability to adopt new methods, new products, and increasing productivity.

Legislation plays a considerable role when it comes to the Nordic food markets. The politicians have regulated the food markets heavily, among other things in order to protect consumer's health and welfare. Different national regulations and the public demand for health and food safety affects the suppliers and trade across borders.

6.2 Structure and structural changes

6.2.1 Size of the Nordic Food market

The food sector⁷⁸ includes agriculture, fishing, the food manufacturing industry and food stores.

Denmark's, Finland's, Iceland's, Norway's and Sweden's total export of foods and food products amounted to approximately 18.9 billion € in 2003, which is app. 800 € per capita.

The whole food sector's (agriculture and food manufacturing) share of GDP was 5-12 per cent, cf. table 6.1. The food sector is in particular strong in Denmark (12 per cent of GDP). The fishing industry dominates in Norway and Iceland, but plays a minor role in the other countries. The importance (i.e. share of GDP) of the food sector has been decreasing 1996-2002, cf. table 6.1; in Finland its share of GDP has declined from 8.2 to 6.4 per cent. At the same time the importance of the service sector, including IT and communications, has been growing rapidly.

Table 6.1. Food industry's share¹ of GDP (%), 1996-2002

Source: Eurostat.
Note 1. Manufacturing (incl. food, beverage, tobacco, textiles, leather, wood and paper).

The greater part of the turnover of food products stems from processed products. The degree of processing has been increasing – the value added to the agricultural products has thus increased (e.g. ready-to-go packs). Also, the development of products is continuing to meet new demand from consumers and new claims from retailers. Where supply of milk for 30-40 years ago consisted of 6-8 standard products with different fat contents, today's products are presented with different additives, shelf life and some products are even individualised after cow breed and place of origin (name of the farm).

Organic milk and organic oats, eggs, pasta, etc. have also become more and more popular in several countries (e.g. Austria, Denmark, Sweden and Germany). Organic products require special precautions during the whole production process. Organic milk has become common in several countries.

The slaughterhouses receive livestock such as pigs, cattle, chicken, and cut it up for further processing in the food processing industry. Milk needs to be heat treated shortly after the milking which makes it very difficult to export or import raw milk. Processed and heat treated products such as butter, cheese, frozen meat and bread are more easily exported and imported.

Direct output from the agriculture is to a small extent exported as barley for malt or wheat for flour. Moreover, there is some export of live animals for slaughtering plus breeding animals.

Nordic countries outside the EU

Norway and Iceland are EFTA-members.⁷⁹ In 1992 the EEA Agreement⁸⁰ was signed between Norway, Iceland and the EU. The aim of the agreement, among other things, is to guarantee free movement of goods including foodstuffs and veterinary matters.

Though the EU and EFTA coordinate their policy on these trade areas, the two countries have their own independent agricultural policies. Thus, the EEA Agreement does not apply to the Icelandic and Norwegian agricultural policies, where national trade policies based on tariffs are in force. Bilateral agreements that open up for imports at reduced tariff rates or tariff-free quotas are concluded with other countries, especially the EU.

An agreement between the EU and Norway entered into force on 1 July 2003,⁸¹ with a view to deepening bilateral trade in agricultural products on a reciprocal basis.⁸² The agreement provides for the elimination of duties on a number of tariff lines (especially plants, fruit, and vegetables); for various duty-free quotas; and for the consolidation of enlarged cheese quotas by both sides. Also bovine, pigs, chicken, turkey and fowl meat, butter, and eggs are included in the agreement.

However, Norway still has high import tariffs and tariff quotas on products that can be produced in Norway. This is, especially, true for cheese, butter and meat which are also exported. There are normally no import tariffs on products that cannot be produced due to poor farmland and climate conditions.

In Iceland transferable quota shares have played a key role in ensuring the sustainable exploitation of agriculture. Iceland's commitments under the WTO and EEA Agreements provide further momentum for the replacement of price support measures with direct income payments for agricultural production. These grants considerable support to domestic producers notably of lamb.⁸³

Iceland, the Faroe Islands and Greenland all have state funded export subsidies. Greenland's agricultural policy includes income support per kilo of lamb meat produced for the farmers and the farmer receives a mother sheep premium for each mother sheep. Despite of this, Greenland is still a net importer of lamb meat. Earlier, the farmers also received a fertilizer and fuel support, but this has been phased out.

The government of Iceland and the government of Denmark and the home government of the Faroe Islands made in 2005 a most favoured nation agreement with the purpose to eliminate an discrimination of for instance goods that are traded between Iceland and the Faroe Islands.

Major reduction of trade barriers, including the trade barriers in EU's common agriculture policy, are called for during the current WTO-negotiations (Doha-round). Especially, EU's obligations under the WTO-rules make a reform of the sugar regime necessary as it is considered illegal by the WTO-tribunal.

Some countries, for instance the Nordic countries outside the EU, have agreements that limit these trade barriers. EU's agricultural policy has an impact on the price level in the Nordic countries, as it makes imports of some products more expensive, but can not explain why foodstuffs are more expensive in the Nordic countries compared to (other) EU countries.

6.2.2 Processing

The food and beverage industry is the largest manufacturing sector within the EU, with a production of around € 745 billion (2002), which is 13.6 per cent of the total industrial production. In Norway, Iceland and Denmark the share is significantly higher, 24-53 per cent⁸⁴ of industry output, whereas it is somewhat lower in Sweden and Finland, 8-10 per cent.

Compared to the total European Union, the Nordic food and beverage industry is small with Denmark, Sweden, Norway, Iceland and Finland accounting for 7.9 per cent of this market, cf. table 6.2. In some segments of the food market, however, Nordic companies have an important position. Thus, the Danish pig industry produces more than 10 per cent of the European pig meat.

Table 6.2. GNP and share of the EU food market 2002

Source: CIAA, Eurostat, and Statistics Iceland

Among the Nordic countries, Denmark's share of the EU food industry is the highest and higher than the country's share of GNP. Norway and Sweden also have a large food industry. Compared to the other Nordic countries Denmark is well situated for agricultural production with a large share of the country being fertile soil. Both Norway and Iceland have a large fishing industry.

The food manufacturing industries' turnovers range from 9 billion € in Finland to 21,5 billion in Denmark. Sweden and Norway have a turnover of approximately 15 billion €, cf. table 6.3. More than 1/6 of the value added in the manufacturing industries in Denmark derives from food.⁸⁵

Generally, slaughterhouses is the largest industry in the Nordic food sector generating approximately 1/4 of the total turnover. In EU it is 19 per cent. Finland's dairy industry and bread factories have a high share of its food manufacturing industry (23 per cent).

Table 6.3. Development in food industry's turnover (billion €) 1996-2002

Source: Eurostat, Statistics Iceland, and own calculations.
Note 1. Greece not included.

Table 6.4. Number of enterprises in the food, beverages and tobacco industry, 2001¹

Source: Eurostat.
Note 1. The figures are based on information reported to Eurostat. The Danish food industry has indicated that the figures are too high.
Note 2. Greece is left out.

The Nordic food industry has grown considerably in the recent years with Norway at the top, cf. table 6.5. However, when you look at the structure of the food sectors there are significant differences, cf. tables 6.8 to 6.11. All the Nordic countries have a large number of food enterprises, especially bread factories. At the same time the food sector employs a lot of people with the slaughterhouses as the largest employer. Measured by the number of employed pr. enterprise, the Nordic countries are on average significantly larger than their European competitors, with the Norwegian and Danish companies clearly on top in each segment. Thus, a Norwegian brewery or dairy employs 7-8 as many persons as the European average.

Overall the food industry has become more concentrated. Turnover has grown in all countries. The number of enterprises and of employees has grown considerably less – several countries have even seen a fall, c.f. table 6.5.

Table 6.5. Development in turnover, no. of enterprises and employees in the food, beverages and tobacco industry (%), 1996-2002

Source: Eurostat and own calculations.
Note 1. The figures are based on information reported to Eurostat. The Danish food industry has indicated that the figures are too high.
Note 2. Greece is left out.

Denmark is by far the largest exporter of food and food products of the Nordic countries, cf. table 6.6. This is largely due to the export of meat and meat products and dairy products. Sweden has a relative large export of beverages as well. Fish represent the largest part of the Icelandic export – more than 98 per cent of the total export in food manufacturing is fish and fish products. Fish also represent the largest part of the Norwegian food export.

Table 6.6. The food manufacturing industry's export (million €), 2001

Source: WTO and national statistic bureaus.
Note 1. Include pig meat; bovine meat; sheep, goat and lambs meat; games meat and prepared meat.
Note 2. Include wheat; cereal preparations and preparations of flour or starch of fruits or vegetables. Note 3. Data is from 2004.
Note 4. Data is from 2002.
Note 5. Data is from 2003.

At the same time, import is considerable, cf. 6-7. Sweden and Finland are net importers of foods and food products. Denmark on the other hand, is a large net exporter of about 5 billion €. Iceland is also a large net exporter of about 900 million €. Imports are mainly products which cannot be produced in the Nordic countries, e.g. wine, tobacco, olives, etc.

Table 6.7. The food import (million €) 2002

Source: WTO and national statistic bureaus.
Note 1. Include wheat; cereal preparations and preparations of flour or starch of fruits or vegetables.
Note 2. Data is from 2002.
Note 3. Data is from 2003.

Output pr. employee has grown considerably in all the Nordic countries, cf. tables 6.8 to
6.11.

Secondly, changes in the composition of output will influence both the turnover and the number of employees but not necessarily at the same pace. If an increasing part of the slaughtered pig or cow is sold as processed food – bacon, sausages, cold cuts, special hams – turnover will most likely increase, but so will the number of employees. The net result of these two tendencies is uncertain.

To interpret the figures in the tables 6.8 to 6.11 you have to consider these aspects. New demand and rationalisations have led to adoption of numerous changes in the production system in order to optimize the output mix and this influences the results. Parts of the manufacturing process, for example labour-intensive operations as de-boning of slaughtered pigs or cows, have been out-sourced to countries with lower wage cost. Thus, growth in food output and changes in the product mix are well-established facts in all Nordic countries, but not to the same extent.

Table 6.8. Key figures for the Nordic meat sector 1997-2002

Source: Eurostat and Statistics Iceland
Note 1. Gross operating rate is profit in per centage of turnover.

In the meat and meat processing industry, the Norwegian industry has had the largest increase in the turnover/employee relation. The turnover/employee relationship in the other countries is close to each other, Danish industry having a little higher output than Finland and Sweden. This is also necessary as the Danes have the highest labour costs. Large cooperatives dominate the meat sector in all countries. The owners of the cooperate slaughterhouses are thus also suppliers and decide the prices for the animals they breed. This must be taken into account when looking at the figures for the gross operating rate.

Table 6.9. Key figures for the Nordic dairy sector 2002

Source: Eurostat
Note 1. 2001

Lower labour cost and higher turnover pr. employee suggest that the dairy industry is more automated than the meat market. Large-scale production is very important on the Nordic dairy market. The turnover/employee relationship is high in Norway and in Finland.

Agricultural cooperatives own the Nordic dairies and thus the farmers decide the price for their own raw milk. In Norway the maximum price on raw milk is negotiated by the state and the farmers' organizations, and is therefore a regulated price.

Table: 6.10. Key figures for the Nordic beverage market 2002

Source: Eurostat
Note 1. 1998 and 2001

The figures for beverages show a rapid growth in the turnover/employee relationship everywhere. This has been a period with structural changes, several mergers and take-overs. Labour cost as a per centage of turnovers has been decreasing, except for Sweden.

Table 6.11. Key figures for the Nordic bread market, 2002

Source: Eurostat

The bread market is more labour intensive than the previous branches. Turnover pr. employee is lower in Denmark, Sweden, and Finland than in the Norway. This is due to many small firms compared to Norway.

6.2.3 Conclusion

The tables show that the Nordic food industry has grown considerably in the later years measured by turnover. In some industries large-scale operation and lower production costs have been necessary in order to be competitive in the market, and some Nordic companies has taken part in this process by increasing their exports and entering into mergers and take-overs all over the world. In all of the mentioned branches, except the meat industry, labour costs as percentage of turnover have been lower in Denmark than in the other Nordic countries. This result, which industry has confirmed in interviews, is, at least for a part, due to lower social security cost paid by the industry.

The figures suggest that there has been a consolidation of the Nordic food industry. This means higher concentration and can thus lead to competition problems, if there is no import penetration on the mostly, national markets. The figures also show increasing labour costs which can be a problem for exporting companies, especially as the labour cost are higher in the Nordic countries than in the EU.

6.3 Market players in processing

From competition authorities' point of view, the Nordic food market consists of a lot of different relevant markets corresponding to the actual issue. The relevant market has a product and geographic dimension. The analyses of relevant markets are based on an assessment among other things of consumers` ability to substitute different products in each different case. The aim of market definition is to identify a relevant product group and a relevant geographic area in which it is possible to achieve market power. Therefore, the relevant market is sometimes described as ”a market worth monopolising”. The definition of the relevant food market in a specific competition case often consists of one or a small number of products produced and sold in either a local, national or international market. Sometimes markets' definitions are very different from what the market participants characterize as their competitive market. It is important to bear this in mind when we as here are talking about food industry in a more general manner.

6.3.1 Mergers and acquisitions

Most of today's producing companies have started as suppliers to local markets. So the Nordic markets used to be at least national if not regional. Some of the companies eventually grew larger and started to expand beyond their original market. This ignited a process of consolidation and expansion, especially in the last couple of decades. This meant that a number of companies merged and that some of the stronger companies took over their weaker competitors.

Mergers and acquisitions thus shift the structure of the Nordic food industry. Reasons behind mergers include continued consolidation. For instance companies build new effective plants and close down inefficient ones. Mergers have taken inefficient producers and competitors out of the market. The potential efficiency gains can provide strong incentives for firms to merge or to expand by other methods, even in the absence of cost advantages from larger size. Consolidating by mergers and take-overs can also harm competition in the markets and thereby harm consumers. This could occur if the merger leads to or strengthen market power and dominance. The competition authorities therefore have to balance or weigh the positive competitive efficiency effects against the anti-competitive effects in merger-cases.

Consolidations may be an effective way to broaden a firm's production line and expand market share in a mature slow growing domestic market. More capital-intensive technology, economics of scale and of scope, specialized production methods and efficiencies from vertical coordination continue to drive trends toward new way of organising production and distribution. Another reason is that the food industry players wish to increase their market power or selling power towards their buyers, also under large retail chains as in the Nordic region. The deliverers lacking the facility to act as suppliers to large retail chains may have to accept to sell their products to less significant, more select groups of buyers.

Numerous mergers have occurred in the Nordic industry during the last decade. One of the companies that have been most active is the Danish cooperative slaughterhouse Danish Crown. Due to the many acquisitions, Danish Crown is now the largest slaughterhouse in Europe. Carlsberg, Danisco, Orkla and Cerealia have also been involved in mergers and take-overs, and there have been several mergers and take-overs in the dairy sector through out the Nordic region in the past years.

The largest Nordic food and beverage suppliers own affiliating companies throughout Europe. Nordic owned food and beverage companies thus play an important role on the European food and beverage market. Arla Foods is the largest dairy in Europe and Danish Crown the largest slaughterhouse on the European market. Several Nordic food companies have a strong or significant position in more than one Nordic country, cf. table 6.12.

Table 6.12. Companies with a strong or significant position on more than one of the Nordic food markets (+ = strong position, - = not present, (+) = present)

Note 1. In cooperation with local companies

Some of these companies are also among the five largest food companies in the Nordic countries, cf. table 6.13.

Table 6.13. The five largest Nordic food companies 2004

Source: Annual reports

The leading players on the European markets are Nestlé, Unilever, and Diageo (cf. table
6.14). These companies also play a part on the Nordic food markets.

Table 6.14. Top 5 European food and beverage companies 2002-03

Source: CIAA

These companies are at the same time among the 12 largest food and beverage companies in the world. Nestlé is actually the largest food and beverage company in the world, and Unilever is no. 5. The rest is US-companies such as Cargill, Kraft Foods, PepsiCo, Tyson Foods, Coca-Cola, and Anheuser Busch (2002-03).

Growth is important for modern industry. Growth gives the companies new opportunities when it comes to meeting the demands from customers, consumers, and regulators. Food industry is, however, at least to some extent, a mature industry with relatively slow growth potential. Typical features that characterise mature industries include overcapacity problems, increased international competition and decreased industry profitability.

The food markets are over all only growing slightly in volumes, so the food companies have only few ways to expand. One is to broaden the markets with more export. Another is mergers and acquisitions. A third way is to invent new products. The Nordic food companies use all three ways.

6.3.2. Market concentration

As mentioned earlier Competition Authorities look at products and geographic positioning of markets when they define a relevant market for a specific issue. The relevant market is thus not always one state, but can be a region or more than one country. The EU Commission has stated this in numerous cases in the food sector⁸⁷.

Market concentration must be seen in this context. This means that concentration on a national market must be seen in relation to the openness and competition pressure on the particular national market. Key factors are thus for example the number and the capacity of the companies on the market, transport costs, public regulation and possible special demands from the consumers.

High concentration may allow firms to raise product prices above competitive levels or cut the prices they pay for agricultural inputs below competitive levels. If foreign competition is possible, high concentration in itself within the national boundary is not necessarily a sign of market power. However, the Nordic food industry has within many branches low import penetration although import has been increasing.

Import may be difficult for example when transport costs amount to a high percentage of the price or the need for freshness is important. Transport of goods to Iceland and Greenland is expensive, which gives home produced goods an advantage. The consumers' demand for freshness of for instance some dairy goods sets limits for penetration from foreign companies on this market.

Import penetration is of course not possible if the governments set limits for import (quotas) or put heavy tax on imports. This is the case in Norway and Iceland. Norwegian companies can participate in the tenders for quotas. As winning this tender will protect their market and keep competitors away, the Norwegian companies with market power will have an interest in making higher bids than their foreign competitors will. They can regain the higher price paid for the quotas by using their superior market power.

However, as it have been shown earlier, differences in demand can limit import penetration too.

Moreover, special national habits and campaigns urging customers to buy food products from their own countries can also influence import penetration.

Finally, firms may be in fierce international competition, but lack domestic competition and thus be able to pursue a pricing-to-market strategy at home. Suppliers' ability to price discriminate between different countries suggests that geographic markets are national.

This is the case for example for carbonated soft drinks, as prices for international brands differ very much between the Nordic countries and between the Nordic countries and countries in Eastern Europe. This has led to parallel import and illegal trade.

Within the Nordic region the Competition Authorities have in specific cases identified very high concentration levels, cf. table 6.15.

Table 6.15. Concentration on four national based food markets 2003

Source: The Nordic Competition Authorities
Note 1. CR1 = Market share of the leading company. CR4 = market shares of the four leading companies.
Note 2. Includes beef and mutton

High concentration rates imply that retailers and consumers have fewer suppliers with whom to negotiate their supply. High concentration may also imply that the (dominating) manufacturers do not register any pressure from competitors to rationalise, keep low prices and introduce new products and new services. On the other side, the food industry in the Nordic countries today is met by strong retail chains. This limits the possibilities for any market player with a dominating position to exploit such a position, as strong buyers are more inclined to threaten to look for alternatives and perhaps start up their own production line than smaller retailers who do not command sufficient financial resources.

Dominating players are not the only concentration aspect in the food market. On several food markets there are tendencies to oligopolicies where a few large producers cover nearly all supply. Such a market structure makes it very simple for competitors to control market developments, and therefore it may limit competition on prices and new products, as the market players expect that any new initiative will be copied very fast by the (few) competitors thus limiting any opportunity to earn an extra profit/bonus.

The answer to such a situation with a (stable) oligopoly may be to ensure entry to the markets for new or foreign companies. That is for example why Competition Authorities emphasize that public regulation must not limit entrance to the national markets, unless there are good reasons for it.

6.3.3. Conclusions

Concentration is high on most of the national Nordic food markets. The possibilities for the companies to use the strong market position depend on the possibilities for entry to the national markets, concentration in the retail sector and the demands from the consumers. If entry is easy, the relevant geographical market from a competition point of view can be considered as larger than the national state. In such cases concentration does not create a problem to attract cheap supply of all kinds of food products, and the retailers will be able to present their customers with a wide range of different products to match their demand.

The Competition Authorities thus pay a great deal of attention to barriers to entry to the market, whether these are public regulation or agreements between undertakings to keep competitors away from the market. Examples of this are shown in chapter 5's description of the battle for shelf space.

6.4. Market size

The Nordic markets are small. There are appr. 24 million inhabitants located in vast areas in the Nordic countries. In the Benelux countries for instance, the same amount of people lives in an area close to the size of Denmark alone.

The Nordic market conditions mean lower purchasing power per km², small amounts, and higher transportion costs. Thus, some has suggested that the producers cannot get enough volume to optimize production and to get sufficient means to the necessary R&D. The economic small, but huge geographical, Nordic markets are claimed to be one of the main reasons for limited supply in the Nordic shops.

Moreover, the Nordic consumers have some special preferences that are not included in foreign companies' product programmes and a critical view on foreign food and beverages.

However, looking closer at this argument, market size does not seem to limit the retail shops possibilities of buying foreign products and thus broaden the supply. The Nordic consumers buy many foreign produced goods, and the retail shops have plenty of products from foreign countries⁸⁸. This is not only true about non-food or groceries; it is also the case with food, although at a smaller scale. The foreign producers can increase their profit by producing to new larger markets. The producers will gain this higher profits as they get a larger sale to cover the fixed costs. The influence of transportion costs has decreased, which makes it possible to sell products far away from the factories. The figures below show that food imports have been increasing over the last years.

Table 6.16. Development in imports (food, livestock, tobacco and beverages 2000-2004 (2000=100)1

Source: OECD, the Danish Statistic bureau and own calculations.
Note 1. In 2000-01, the outbreak of diseases coming from meat, especially BSE, rocked the food industry of Europe. The outbreaks influence the figures from 2000-02, as the consumers in that period were more reluctant to buy foreign meat.

Table 6.16 shows that imports on food are growing faster in some Nordic countries compared to similar European countries. Sweden, Denmark, and Greenland had the highest increase in imports during the period 2000-2004, compared to an average of 9 European countries. Norway are above the average of the EU-9 countries, while Iceland and Finland is below.

Even though costs of wages and social security are high, most of the Nordic countries have an increased export of food (see table 6.17 below). Increased productivity, due to automation and rationalisations and higher focus on R&D are important elements explaining this.

Table 6.17. Development in exports (food, livestock, tobacco and beverages 2000-2004 (2000=100)

Source: OECD, the Danish Statistic bureau and own calculations.

Transportion cost do not work as a barrier to trade for most products, which use modern logistics. This means that producers can gain large-scale advantages in production even if their markets are located far away from their factory. This is especially the case with expensive high-end products. With the right marketing, the producer can sell the product to a price that can cover transportion costs.

The lower transport barriers can also lead to relocation of production. The high labour cost in the Nordic countries mean that the companies can gain by moving (part of) the production to for instance Poland or the Baltic countries. Even though the productivity is lower in these countries, the differences in costs of wages and social security can make it profitable to produce the goods there. Farmers from the Nordic countries have already settled in the new East European EU Member States.

6.5. Public regulation

When the Nordic food industries compare themselves with food industries from other parts of the world, they point at several explanations as to why the resulting prices and the range of products in the supermarkets are different from elsewhere. Some of the explanations relate to legislation, some to the geographical markets, some to costs, and some to specific relations.

Legislation sets the general framework for business, including limits on where and how to produce. A strong and efficient approach towards diseases induced by food and other health threatening issues is important to secure a high standard for food products. On the other hand, some legislation offers the companies protection against unfair business methods and against foreign competitors. The geography is important for food production and the size of the markets may limit the ability to grow. Costs including wages and social costs and rents are major factors influencing production.

6.5.1. Food protection programmes induced by industry

Food protection programmes can be based on public legislation or private companies can have their own standards. The latter may be part of a company's profile to ensure their customers products of a high standard. Several companies may have similar high standards due to their interpretation of the wishes from the consumers, for examples on GMO in food. This reaction can stem from public debates on how the human body will react on gene-manipulated products or chemicals used in the production of the product. Therefore, these demands go far beyond what is normally known from public regulations, such as control of hygiene etc.

Differences in regulation and differences in voluntary standards that the industry adapts to face the differences in consumer preferences, will affect trade across borders. This may thus have an impact on the price level.

The following examples illustrate this. The examples stem from interviews with food companies and importers and concern trade in the EEA.

Examples of private programmes

Farmers use chlormequat popularly known as straw shortening chemicals, in the production of grain. In this way, they can cut costs in harvesting a lot of straw. However, it is possible that straw-shortening chemicals can reduce men's reproductive ability, and this has started a public debate. The authorities find that there is no scientific proof of this as long as the use does not exceed certain thresholds for food production. That is why the use of chlormequat is allowed in all Nordic countries.

In Denmark, the leading retail chains with the exeption of Aldi, have demanded that – due to possible health risk of the use of chlormequat – bread sold in their shops is made of wheat or rye not treated with chlormequat. According to industry, this gives an extra cost of € 15 million pro year to industry. The Danish consumers spend € 845 million on bread per year. The cost relates only to bread sold in Denmark and the bread industry can therefore pass the cost over to the consumers. This leads to higher prices on bread in Denmark.

Chlormequat is just one example. Other special national demands have a similar influence on the price level. Bread is a good example as taste and demands differ very much between the Nordic markets. Some of the demands can lead to higher quality, but that may not always be the case. Another bread related issue is the agreement in Denmark between the farmers, the bread sector, and the retail sector about not using glyphosat in the grain production. The agreement is made to protect the Danish ground water, where the water resources are close to farm land. The other Nordic countries do not have these problems, as only a small part of the land is used for farming.

Acryl amid is developed when food is heated. Acryl amid is found in for example coffee, bread, and French fries. In addition, in home made cooking. There is no evidence on how acryl amid in food affect humans. In Sweden, there has been a heavy debate about the amount of acryl amid in food, but this has till now led to no reaction from trade or from consumers like in the Danish case on chlormequat.

Such different national approaches can have an impact on the price levels on the national market.

This is especially so where the discussions have been isolated to a single country. One reason for this could be that discussions are isolated to local newspapers and national television. There seems to be a pattern where these local discussions or national habits lead to agreements that impose higher costs, which the industry and the retailers can pass on to the consumers.

The conclusion is that some national based agreements or standards may have the same effect on prices as trade barriers. Imports are not excluded. But importers must to live up to the agreements to gain access to the market and make special products to that country. This will raise their costs and affect entry.

If the public debate reactions are the same in many countries for instance started by international recognised experts or NGO's, then there is a possibility of mutual understanding, international cooperation and a common attitude in all countries. The EU's prohibition against GMO's is an example of this.

The examples refer to cases where Nordic consumers and Nordic supermarkets have taken a special position. It must be assumed that similar reactions occur in other countries. The effects of such standards are extremely difficult to estimate.

Government programmes

The quality of food production is important to the consumers' health. Moreover, modern large scale production increases the consequences of any deficiencies in the food product process. The authorities are therefore very anxious to ensure that the companies use clean environments and raw materials that are free from bacteria and other health hazards. Furthermore, consumers take an increasing interest in healthy food, avoiding harmful additives, and in animal protection.

Legislation plays a role in many ways when it comes to food markets. Health issues are a very important aspects that really make the food market quite different from other consumer markets.

Health issues are for instance one of the very few considerations, which can allow an exception from the ban in the EU Treaty on all kinds of public regulation, which may restrict trade between member states.

Box 6.1. The EU Treaty on quantitative restrictions on imports

EU Member States thus have some possibilities to keep national legislation on health issues in food production and animal protection.

Differences in legislation between countries can be a major factor when it comes to trade across borders. Market integration in the EU has solved most of these problems in Denmark, Sweden and Finland. The Danish Veterinary and Food Administration estimate that 95 per cent of the regulations on animals and crops are close to being harmonised in the EU. One of the few regulatory areas, which have not yet been fully harmonised, is the use of pesticides – but here, too, the process towards a common harmonised set of regulations has been adopted. Nevertheless, new aspects concerning food safety and health keep coming up.

Norway and Iceland are through the EEA agreement committed to implement the EU legislation and rules related to food safety and control of production and sale of food products and inputs. The Norwegian food safety control is, for instance, to a high degree harmonized with EU, and is comparable with the systems in Nordic countries which are members of the EU. The only exceptions are legislation and rules related to use of pesticides and to plant health.

Although many rules are harmonised, there may still be differences in business conditions due to differences in control costs, financing and in the climate.

The occurrence of animal diseases is varying a lot amongst the Nordic countries. This explains to some extent the differences in control regimes, i.e. the regulations, the supervising systems and the financing of the systems.

Zoonoses are diseases that can transmit from animals to humans. One example is salmonella. Salmonella from poultry, pork and beef can infect humans. The problems with these diseases increased some ten years ago. One of the reasons for this was that the traditional way to fight salmonella, the use of antibiotics, became inefficient. There was evidence that heavy use of antibiotics could make the bacteria resistant. This was serious because it reduced the benefits from antibiotics on humans, who have been infected with the bacteria. Therefore, the health authorities did not want the use of antibiotics in the animal production any more.

Finland and Sweden were aware of the risk of salmonella in meat earlier than other countries. The early awareness has almost kept salmonella out of the animal populations in the two countries. This has given the countries a special status. Of all its member states, the EU has granted only Finland and Sweden approval for their extremely stringent national salmonella-monitoring programme, which has done a lot to eliminate the occurrence of salmonella. Finland is one of the few EU member states whose animal disease situation has not grown worse, but improved. Norway has a similar clean record on salmonella.

Denmark has had more problems with salmonella. The infection originally came mainly from poultry and eggs. The Danish government, the agricultural organisations, and the food industry made a plan of action for control of salmonella in poultry that lasted from 1996 to 2002. The plan, which today is continued by industry, has worked well, but Denmark is still some way from having the same standards as the other Nordic countries.

This means that Danish companies are under strong surveillance when they export to Norway, Sweden and Finland. Sweden, for instance, has a policy of zero tolerance. If just one piece of meat is infected the whole shipment will be refused. Products made especially for the Swedish market, such as the Swedish Christmas ham, can be risky to export, as it can be difficult to sell the non-infected remains of the shipment on other markets, as the taste differs very much from ham sold in other countries.

To detect salmonella, the experts and the authorities use several methods. The quickest and still efficient is the so-called EiaFoos method. Although the Swedish authorities use this method, they are reluctant to allow importers to use it. The EU Commission is dealing with this problem.⁸⁹

When it comes to cuttings and other bulk articles, the policy has not hit Danish exporters severely. Moreover, although Norway and Sweden are the two countries, who have rejected most Danish meat, this represents only a very small percentage of the export to these two countries.

Other zoonoses are listeria, campylobacter, yersinia and BSE. The governments have made surveillance programmes and import restrictions on meat with these diseases too.

There are advantages in governments cooperating closer on food protection. Some of the trade barriers can be well-founded, as the protection of public health is an important task for all governments, but the battle against for example zoonoses will be most efficient if all governments agree on the same (high) standards. It is then possible to omit a lot of border control. Moreover, there is a risk that import barriers may include initiatives that have nothing to do with food protection. One example is the Swedish ban on import of Norwegian livestock due to salmonella protection. The Norwegians have at least the same high degree of protection against salmonella as Sweden and the country is almost free from salmonella.

Health is an issue, too, when it comes to additives. Additives can be nitrate, nitrite, vitamins and iodine. Industry uses additives to give food the right consistency, a better look or taste and a longer shelf life. EU Member States are not allowed to take action against food with additives from the common market that is not causing health problems. One case between the EU Commission and the Danish veterinary system shows this.

The case was about the use of nitrate/nitrite in food. Denmark has stricter rules on the use of nitrite/nitrate than the rest of the EU. Nitrite/nitrate is used in meat processing for instance for sausages. Denmark won a case at the EC Court of law against the EU Commission about whether it was correct to use the environmental guarantee in this case⁹⁰.

Box 6.2. The environmental guarantee

(Source: Home site of the Danish EPA/New handbook on environmental regulations in the EU and Denmark)

The EU Commission claimed that governments could only use the environmental guarantee if the use of a chemical could raise health problems in the specific country. The Court, however, decided that this was not a necessary condition, especially in this case, because there could be raised significant questions about the validity of the scientific evidences behind the Commission's decision. The court emphasized that a Member State should prove that the national exception secured a protection higher than the harmonised community arrangements and that the national rules do not go further than necessary to reach the projected goal. The Danish government is now working for stricter rules within all the member states of EU. This will also lead to harmonisation.

The Court finds it necessary that any restrictions on trade between Member States owing to the protection of food standards and public health must be based on scientific facts. Moreover, the governments are not allowed to introduce more restrictive regulations than necessary. Protection can only be acceptable, if the government can prove that free import will worsen the situation.

Farmers use pesticides to protect vegetables and grain against fungus, insects, and other threats to crops. Pesticide residues in food can harm health, and the authorities throughout the Nordic countries and in the EU have put limitations on the allowed use. The regulations have been very different in the countries due to differences in climate. The thresholds for allowed residues have differed too. Countries with no need for the use of pesticides have often introduced a ban on any use of pesticide in food, while the countries, where pesticide can be necessary `only' have a very strict control on pesticide residues in imported goods. The EU is now on the brink of a set of common rules on the use of pesticides.

The conclusion is that the level of harmonisation within the EU now has reached a high level, and that decisions from the Court of Justice have created a solid framework for the development of future regulations. Industry and trade, however, consider that different regimes on food protection still create unnecessary barriers. Figures on trade patterns show that this is first of all a problem for much specialised products for the particular market that can be difficult to sell on other markets. Moreover, new aspects of regulations may stem up, for instance new information, new methods of production, which demand a new approach.

The governments in the Nordic countries have traditionally advocated a policy with high levels of food standards. The best way to promote such policy is international cooperation, preferably in the EU/EEA in order to facilitate international competition. Therefore, as much regulation as possible should be common for the EU/EEA countries. This will help market integration and secure the possibility of lower prices and a more diverse supply.

Trade and industry themselves are, however, also responsible for more market integration as they merge their businesses in the Nordic countries. If the retail chains and their suppliers could agree on the same standards on quality and food protection throughout the Nordic countries, they will have done much to improve market integration. Businesses and politicians throughout the Nordic countries share a high profile when it comes to food protection. Cooperation between the retail sector, food industry, and the governments in the Nordic countries about keeping high standards on food protection could be instrumental also when it comes to harmonisation and market integration in the EU.

6.5.2. Control Measures

Control measures are another area where local regulations or habits influence market conditions differently. One important example is the control of the slaughtering of pigs, cows, and poultry. In 2004, the EU introduced common rules on meat control. However, it is still the governments in the member states, who decide how to control, and who has to pay (the number of veterinary supervisors, their remuneration etc.). This influences the competition conditions for the slaughterhouses. However, it seems unlikely that this kind of costs differences can have an effect on consumer prices. Meat products ab slaughterhouses are sold on a global market. Nordic products compete with beef, pig meat and poultry from all over the EU or all over the world. With competitive market conditions, it is not possible to pass extra control measures on to the consumer on the home market.

Another aspect to this is that some countries (for instance the US and Japan) insist on an extra control by their own veterinaries on situ in the slaughterhouses, if the companies want to export their products to them. The cost of such measures applied to all exporters on a non-discriminatory basis, industry and retailers can most likely pass on to the consumers in these countries.

When it comes to protection of health, the industry can rightly claim that where the single EU country can define its own programme, it can impose higher cost on the companies. This will bring unequal competition, less market integration and thus lower competition pressure.

The conclusion is that harmonisation in the EU has solved most of the integration problems raised by industry when it comes to Denmark, Sweden, Finland, and the rest of the EU. Norway and Iceland are part of the EEA-agreement, and to some extent, the EU-harmonisation is in force in the EEA.

Greenland and the Faroe's are outside the EU. These countries can make their own food protection legislation.

6.5.3. Waste systems

In order to protect nature the environmental authorities throughout Europe have established or prescribed how to handle used packaging and waste. These regulations follow the main principle in the governments' plans for waste handling that the polluter must pay for the cleansing.

This means that industry not only must pay for the waste coming out of the production process, moreover they must in many cases pay for waste handling in the retail sector as well.

Municipal owned waste companies handle most of the waste from the food industry and from food packaging. This waste is normally domestic or industrial waste and thus part of the ordinary municipally handling of waste.

Specialised waste companies handle some kinds of industrial waste from the food industry, for instance hazardous waste from slaughterhouses.

Packages and waste represent an increasing problem in the European countries. The costumers demand consumer friendly packages and industry uses packages as a part of their marketing. With the still higher amounts of packaging, governments do not only consider this a waste problem but also an environmental challenge. Most northern European countries who keep a high environmental profile see waste packaging as an unnecessary polluter. Packaging is thus a problem that needs special treatment.

The Nordic countries have not been among the most vigorous. The German Packaging Ordinance requires manufacturers and distributors to take back, free of charge, all used sales packaging from consumers at or near the point of sale. Manufacturers and distributors, which adhere to a comprehensive collection system, are exempted from this obligation.

Private companies handle the comprehensive collection. One such company is Duales System Deutschland (DSD). For a fee, DSD secures that used packaging is collected.

The EU Commission decided in 2002 that DSD breached the EU competition rules. The problem was the payment system. DSD was paid for all articles, which wore the company's trademark Grüne Punkt. The Commission claimed this was a breach of article 82 in the EC Treaty, because customers paid DSD for the use of the brand and not for the service, the company provided⁹¹. Companies which choose to handle the waste themselves in some districts or countries would not receive any refund from DSD, but had to pay the full fee if the sold items carried the Grüne Punkt brand.

The EU found DSD's practice was most harmful for competition when DSD charged companies for brands on packaging on goods sold outside DSD's territories. Following the Commission's decision, DSD changed their agreements with industry so that DSD in the future only charges companies for packaging on goods actually collected by DSD.

The Nordic countries have a tradition of recycling empty packages. Empty packages have in particular been a problem for the beverage business. For a very long time refillable bottles have been the most common container for beer and soft drinks sold on the Nordic markets. Denmark had, for many years, a prohibition on one-way containers for beer and soft drinks. Cans and one-way bottles, however, are now allowed and common in all the Nordic countries.

This has given the foreign beverage producers a better possibility for entering the Nordic markets. There have been introduced new methods to ensure an environmentally acceptable way of disposing with one-way containers, and the beverage industry has established recycling systems that can handle one-way containers too. The frameworks for these systems are different. In Norway, each beverage producer is free to establish his own system, but if he does not reach a recycling share of at least 95 per cent, he has to pay full packaging tax. In Sweden and Denmark, companies have been established which compose a legal monopoly to collect some or all kinds of packaging.

Sweden had two kinds of return systems, one for aluminium containers (Returpack), and several for all other containers (mostly glass and PET bottles). The division was due to a legal monopoly of recycling aluminium. Konkurrensverket published in 2003 a report on the Swedish return and deposit system⁹². The conclusions were that the system led to reduced competition due to lack of clear rules and complicated public supervision, free rider problems and illegal trade. The system led to higher costs for small providers and the prohibition to put brands on PET bottles hindered cross border trade. Konkurrensverket suggested that the legal monopoly on recycling aluminium should end. Konkurrensverket, moreover, recommended that the supervision of all systems should be placed in the hands of one governmental body only. Systems with a position close to monopoly should have clear guidelines on entry to the system and fees.

The proposals in the report by Konkurrensverket have been partially implemented. The legal monopoly for aluminium cans is abolished. There is a new regulation that makes it compulsory for deposit systems with a dominant position to accept new players in the market. In addition, changes in the requirements for handling permits and fees for participation in deposits systems are implemented, together with the proposal to gather the sector responsibility within one single monitoring agency. Lastly, the relevant agency has taken steps to ensure access by foreign companies on non-discriminatory terms. The remaining proposals are not currently, as far as Konkurrensverket understands, in the process of being implemented.

Dansk Retursystem, the Danish return and deposit system, is owned by the Danish breweries and have a legal monopoly. The Danish EPA supervises the system. Each supplier, who wants to market beer, RTD-products or carbonated soft drinks on the Danish market, must register with the system and pay fees.

The system was introduced in 2000, but it really first came to work in 2002 when the government lifted the ban on one-way containers. After the introduction, a period followed where the small suppliers experienced a large increase in sales. One reason for this is supposed to be diminishing costs to the retail sector when it comes to handling of empty containers. The import of beer to Denmark has increased, and there has been a small but significant change in consumer habits away from the well-known Danish beer brands to new brands, even if these have higher prices. Moreover, at the same time, government changed taxes on beer and on packages in a way, which have made imported beer and carbonated soft drinks more competitive.

In Norway, there are two return and deposit systems. One, Resirk, for plastic bottles and cans, and the other, Bryggeri- og minneralvannforeningens, who handles glass containers. The industry runs both systems.

All the Nordic systems are well functioning as far as they have high levels of recycling. Nevertheless, the systems have not solved all the environmental problems with empty beer and soft drink containers. Moreover, all the systems are organised and administered on a national basis. This creates problems for market integration.

The problems come from different kinds of returnable bottles and lack of cooperation between the systems when it comes to one-way containers. Nordic consumers have grown accustomed to buy beer and cola in their neighbour-countries, because there are large differences in consumer prices mostly due to different tax rates.

The packages from this private import are not allowed to enter the national recycling systems on the same terms as the national containers. It is thus not possible for a Swedish consumer to get his deposit back in Sweden, when he returns the beer can, he has bought in a Danish supermarket. More alarming is the fact that the Danish consumers have no economic incitement to return the 375 million cans they buy in German shops each year neither in Denmark nor in Germany.

A return and deposit system in the Northern part of Germany is, however, to be implemented soon by the Schleswieg-Holstein government as the Bundestag has put through the necessary laws for the local governments. But for now, the problem is increasing also in Sweden as the Swedes lately have started to buy more beer from German shops.⁹³

However, even if there is deposit on the container, long distance to the nearest RVM⁹⁴ or shop can make it too troublesome for the consumer to return the bottle rather than to drop it in the dustbin. Deposits represent a relative low value to the consumers, so it must not be too difficult to get rid of the empty container⁹⁵. Successful recycling of beverage containers depends on how easy it is for the consumers to get their deposit back. If private cross border trade with beer and soft drinks continues to be high – and everything suggest it will – this will mean still more pollution from empty beverage packing.

Failure of market integration can thus also represent an environmental problem.

The Danish Competition Council have – due to the mentioned cross border trade problems, which also give problems for the small Danish providers – recommended to the Danish minister of the environment to work for the establishment of a common EU return and deposit system.

It would seem natural for the Nordic countries to start cooperation on creating a common system. All the countries have well functioning systems and long expertise in handling empty packaging and deposits. A number of companies in the brewery sector and the soft drink trade are present in several of the Nordic states. This could facilitate a joint Nordic approach to the problems. Such experiences could be exported to Germany, the Baltic's and other member states in the EU.

A simple start would be to ensure cooperation between the national systems in order to make it possible to clear deposits and bottles for non-refillable containers. Next, the environmental authorities could ask industry and trade to consider a common Nordic system with a clearing system including returnable bottles and deposits.

Such cooperation would have to include solutions to some problems.

The expenses of paying back deposits are held by another return and deposit system than the one the consumers have paid the deposit to. The used bottles and cans represent a value that might have been calculated into industry's price for using the systems. The systems that collect the used containers have expenses by doing so, and the recycling value of the used containers can be part of this payment.

Technically, the RVM's should be able to identify which system is responsible for the container and pay back the same deposit as the consumer has paid. The consumers can risk getting less money back than they have paid as deposit. This is the case when the container is returned in a country with lower deposits as in the country where the container is bought.

The return and deposit systems in countries with private export of beer will lose money, as they will have to pay back deposits for bottles or cans returned in another country. However, this is a consequence of the intended environmental solution (that all bottles and cans are to be handed back for recycling).

The exchange of deposits among the national return and deposit systems must thus include an agreement on the clearing of empty containers but also the payment for services, clearing of deposits and agreement of the value of deposits in the involved countries and currencies.

A common deposit system including Germany would make it more profitable for private consumers to buy beer and soft drinks abroad. This is especially the case when the government of Schlesweig-Holstein implements the new German law on deposits. It would solve environmental problems, which is increasing, and promote market integration. Thus, with a common European deposit system, it would be easier for supermarkets to search for their supplies abroad as their suppliers in other countries will not be obliged to register their bottles and cans in more than one country in order to secure deposit and waste handling.

6.6 Conclusions

Concentration is high on the Nordic food industry markets. They tend to be national often with a strong market leader, although recent years have seen an opening of markets and increasing imports.

Concentration is highest in the dairy and beverage sector, while it is a bit lower in the meat sector. The lowest concentration is in the bread sector, with many small bakers' shops. Even though the markets can be considered as national some Nordic food companies are active in some or all of the Nordic countries. Several Nordic food companies have important positions in more than one of the other Nordic food markets.

When a company establishes separate divisions in each country it might limit trade as the local division supplies its own territory. However, there might also be trade enhancing effects, for instance if the national divisions specialises and exchange output. Anyway, since 1999, trade in food articles in the Nordic countries has grown significantly. This reflects the integration as well as the growing influence from multinational retail chains.

The growing power of the retailers can be beneficial for the consumers if there is a high degree of competition at the shop level, and there are no limits in the chains' access to buy goods.

This chapter has focused on obstacles to market integration. Whether these are import regulations, programmes for control of diseases and other health issues, environmental issues such as policies on packaging and return systems, they make barriers to cross border trade.

A high level of disease and health control and of environmental protection is in the best interest of all consumers, but these goals are realised differently in the Nordic countries. Country-specific food regulation may hinder trade between countries and therefore limit competition. The governments in the Nordic countries should therefore carefully balance the gains of such regulation against the loss for consumers in terms of higher prices and a more limited choice.

Concentration does generally not harm competition, if there are no entry barriers to a market. Under such conditions, the companies will have to act as if they are exposed to competition.

In some Nordic food markets this is still not the case. In a number of cases, the markets are national, there are barriers to entry and the markets are concentrated. Under such conditions the companies may have appreciable market power. In these markets the competition authorities must be careful when allowing mergers and take-overs. Barriers to markets can also lead to situations where the large companies abuse their dominant market position. Moreover, concentrated markets and barriers to entry may facilitate collusion between competitors.

Fodnoter

78 The food sector includes the agricultural sector since the input for the food sector mainly stems from the agricultural production. The agricultural and food manufacturing industry in international statistics traditionally includes wood and paper, beverage, tobacco, textiles and leather industries.

79 European Free Trade Association. The other member is Lichtenstein.

80 European Economic Area Agreement.

81 Article 19 of the EEA Agreement provides for continued bilateral negotiations between the EU and Norway on trade in agricultural products.

82 Official Journal of the European Union L 341, 17 December 2002, and L 156, 25 June 2003.

83 WTO, Press release, PRESS/TPRB/125, January 25th 2000.

84 Fishing industry included.

85 Source: The agricultural Council in Denmark.

87 For instance, investigations in some cases have identified smaller geographical markets than the national state. This is especially the case in Germany. On the beer market, for instance, the Bundeskartellamt has divided the country into core sales areas, which mostly consist of Länder. The Commission has recognised this in several cases, although the Commission has never considered it necessary to make a decision with respect to the German beer market, including a definition of the geographical market. (Case No. COMP/M. 3372 – Carlsberg/Holsten, Case No. COMP/M.3289 – Interbrew/Spaten Franzikaner, and Case No. COMP/M.2569 – Interbrew/Beck's.

88 But not necessarily the same products, as the demand seems to differ in Nordic countries.

89 A recent judgment from the EC Court of Justice (second chamber) from 20 October 2005 states that it is an infringement of directive 89/662/EC if a member state imposes control on meat that have already been controlled in another member state (Case C-111/03 – The Commission of the European Communities v Kingdom of Sweden). Furthermore, the court emphasizes that `it is settled case-law that a Member State cannot rely on a possible infringement of Community law by another Member State in order to justify its own default. Therefore, a Member State may not under any circumstances unilaterally adopt, on its own authority, corrective or defensive measures designed to obviate any such failure, but is bound to act within the context of the procedures and legal remedies laid down to that effect by the Treaty.'

90 The EC Court of Justice Case no. C-3/00.

91 COMP D3/3/34493 – DSD and COMP/34.950 – Eco-Emballage

92 Pant och retur, Konkurrenceefekter av pant- och retursystem för dryckevare packninger, Konkurrensverkets rapportserie 2003:3

93 The EU Commission threatened to bring the German government to court if it did not change the rules in the German packing law for one way packing for beer and soft drinks. The Commission found that the functioning of the German deposit and return system constituted a disproportionate barrier to the free movement of packaged beverages from other member states. Press release IP/04/504 from the EU Commission The German government has now put through the necessary legislation to live up the Commission's demands.

94 Reverse Vending Machines; machines where you return empty containers and get your deposit back.

95 The correct level for the deposit depends on many things; it must be high enough to get the consumers to return the containers. Moreover, deposit on refillable containers must be at a balance with the price on new refillable containers. If they are not, suppliers will prefer either to buy new containers or to acquire the old ones. The result will be that there will be too many or too few containers circulating. Still more, it will influence trade patterns if deposits on one-way containers are not the same as on refillable containers.

Version 1.0 December 2005 • © Danish Competition Authority.
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