05 December 2001
EUROPEAN COMMISSION FINES FIVE COMPANIES IN CITRIC ACID CARTEL
Subsidiary company of Bayer AG involved
The European Commission fined Hoffmann-La Roche AG, Archer Daniels Midland Co (ADM), Jungbunzlauer AG, Haarmann & Reimer Corp and Cerestar Bioproducts B.V. a total of $120.5 million for participating in a price-fixing and market-sharing cartel in citric acid. After a careful investigation which started in 1997, the European Commission found that US companies Archer Daniels Midland (ADM) and Haarmann & Reimer (H&R), the latter ultimately owned by Bayer AG, Dutch company Cerestar Bioproducts B.V., Hoffmann-La Roche and Jungbunzlauer (JBL), both Swiss, participated in a worldwide cartel between 1991 and 1995, through which they fixed the price and shared out the market for citric acid. Citric acid is one of the most widely used additives in the food and beverage industry both as an acidulent and preservative. It is found in non-alcoholic beverages as well as in jams, gelatine-based deserts and tinned vegetables and fruit. Citric acid is also used in household detergent products especially as a substitute for phosphates considered harmful for the environment.
The cartel started on March 6, 1991 at the Hotel Plaza in Basle (Switzerland), as stated by the companies in documents submitted to the Commission. There, and following on previous informal contacts, the founding members — ADM, H&R, Roche and JBL — agreed on the main features of their plan to eliminate competition between them. The cartel continued until May 1995 and pursued four main objectives:
1. Allocation of specific sales quotas for each member and adherence to these quotas;
2. Fixing ‚target‘ and ‚floor prices‘ for citric acid;
3. Exchanging specific customer information, and
4. Eliminating price discounts.
A limited exception was made to the last objective in relation to the five major consumers of citric acid world-wide, since it was considered unrealistic by the cartel members to expect them to pay the price published on the public price lists. It was, however, agreed that a discount of no more than three percent would be offered to these larger consumers. The companies held regular and frequent meetings, which were the hallmark of the cartel‚s organization. After 1993 and in order to resolve certain grievances and market „difficulties“ additional, more technically oriented, meetings were organized that become known as ‘Sherpa‚ meetings in contrast to the more high-level and strategic ‘Masters‚ meetings.
A sophisticated monitoring system was established, whereby each company would report its monthly sales figures to a previously agreed member, who would then ensure the distribution of the confidential information to all the others. In order to ensure that each player would stick to the quotas assigned, a compensation scheme was created, obliging any member that over-sold its allocated quota to provide compensation to the others.
A further feature of the cartel was the concerted action taken by the companies against Chinese manufacturers, who had increased their exports to the European market as a result of the significant rise in prices for citric acid during the time the cartel operated. The cartel participants tried to regain some of the customers lost to the Chinese suppliers through a concerted and carefully targeted price war. The list of the clients lost and targeted by the cartel for „recovery“ came to be known as the ‘Serbia List‚ and was regularly monitored during the ‘Sherpa‚ meetings.
Source: CORPORATE CRIME REPORTER, Washington D.C., USA
Commission fines five companies in citric acid cartel
The European Commission today fined Hoffmann-La Roche AG, Archer Daniels Midland Co (ADM), Jungbunzlauer AG, Haarmann & Reimer Corp and Cerestar Bioproducts B.V. a total of 135.22 million for participating in a price-fixing and market-sharing cartel in citric acid, the world‘s most widespread acidulent and preservative used mainly in non-alcoholic beverages and in preserved food such as jams, gelatine-based deserts and tinned fruit. „As with the vitamins case, the behaviour of ADM, Hoffmann-La Roche and others shows a disregard for their customers and, ultimately, the consumers which paid more for the products concerned than if the companies had engaged in healthy price competition,“ said Competition Commissioner Mario Monti. „The fact that some of the companies have only recently been sanctioned for similar conduct, ADM and Jungbunzlauer in the Sodium Gluconate case; Roche in the Vitamins case, illustrates how widespread these secret practices are, or at least used to be. I am confident that the message is now being clearly received. Companies must by now be fully aware of the risks they are taking should they be tempted to collude.“
After a careful investigation which started in 1997, the European Commission has found that US companies Archer Daniels Midland (ADM) and Haarmann & Reimer (H&R), the latter ultimately owned by Bayer AG, Dutch company Cerestar Bioproducts B.V., Hoffmann-La Roche and Jungbunzlauer (JBL), both Swiss, participated in a worldwide cartel between 1991 and 1995, through which they fixed the price and shared out the market for citric acid.
Citric acid is one of the most widely used additives in the food and beverage industry both as an acidulent and preservative. It is found in non-alcoholic beverages as well as in jams, gelatine-based deserts and tinned vegetables and fruit. Citric acid is also used in household detergent products especially as a substitute for phosphates considered harmful for the environment. Citric acid also enters in the composition of dissolving tablets in the pharmaceuticals industry and is used in the cosmetics industry.
During the infringement period, the annual market was worth around 320 million in the European Economic Area the 15 EU member states plus Norway, Iceland and Liechtenstein.
The cartel started on 6 March 1991 at the Hotel Plaza in Basle (Switzerland), as stated by the companies in documents submitted to the Commission. There, and following on previous informal contacts, the founding members ADM, H&R, Roche and JBL agreed on the main features of their plan to eliminate competition between them. Cerestar joined the group in May 1992, shortly after it entered the citric acid market. The cartel continued until May 1995 and pursued four main objectives:
Allocation of specific sales quotas for each member and adherence to these quotas;
Fixing ‚target‘ and ‚floor prices‘ for citric acid;
Exchanging specific customer information, and
Eliminating price discounts.
A limited exception was made to the last objective in relation to the five major consumers of citric acid world-wide, since it was considered unrealistic by the cartel members to expect them to pay the price published on the public price lists. It was, however, agreed that a discount of no more than 3% would be offered to these larger consumers.
The companies held regular and frequent meetings, which were the hallmark of the cartel‚s organisation. After 1993 and in order to resolve certain grievances and market „difficulties“ additional, more technically oriented, meetings were organised that become known as ‘Sherpa‚ meetings in contrast to the more high-level and strategic ‘Masters‚ meetings.
A sophisticated monitoring system was established, whereby each company would report its monthly sales figures to a previously agreed member, who would then ensure the distribution of the confidential information to all the others. In order to ensure that each player would stick to the quotas assigned, a compensation scheme was created, obliging any member that over-sold its allocated quota to provide compensation to the others.
A further striking feature of the cartel was the concerted action taken by the companies against Chinese manufacturers, who had increased their exports to the European market as a result of the significant rise in prices for citric acid during the time the cartel operated. The cartel participants tried to regain some of the customers lost to the Chinese suppliers through a concerted and carefully targeted price war. The list of the clients lost and targeted by the cartel for „recovery“ came to be known as the ‘Serbia List‚ and was regularly monitored during the ‘Sherpa‚ meetings.
The companies‘ conduct was a very serious infringement of the competition rules, as set out in Article 81 of the European Union Treaty and Article 53 of the EEA-Agreement.
The following is a list of the individual fines (in million Euro):
F. Hoffmann-La Roche AG : 63.5
Archer Daniels Midland Company Inc : 39.69
Jungbunzlauer AG (JBL) : 17.64
Haarmann & Reimer Corp. : 14.22
Cerestar Bioproducts B.V.: 0.17
Competition Commissioner Mario Monti again said: „This Decision sets out and punishes inadmissible and illegal behaviour by apparent competitors to raise prices and deceive consumers in a product essential for the food industry and illustrates how a few companies can be determined in their attempt to bypass competition, an essential pillar of a market economy.“
Background
The Commission started to investigate the case in 1997, when it became aware that some of the addressees of the present decision had been charged by the US authorities with participating in an international conspiracy The parties to the cartel pleaded guilty and paid fines in the US and/or in Canada.
Calculation of the fines
To calculate fines in cartel behaviour the Commission takes account of the gravity of the infringement, its duration and the existence of any aggravating or mitigating circumstances. It also takes account of a companies‚ share of the market concerned and its overall size to ensure that the punishment is proportional and has a deterrence effect. The calculation of the fines is, therefore, not made solely with reference to a company‘s turnover, although the fine can never go beyond 10 percent of a company‚s total annual turnover, as set out in Regulation 17/62.
The citric acid cartel was a very serious violation of EU competition law, but was of a medium duration (between one and five years).
Because they acted as co-leaders of the cartel — an aggravating factor, the basic fines on ADM and Roche were increased by 35 percent. This figure is below the level applied for a leadership role in previous cartel cases, which is usually 50%, but takes account of the fact that, whilst these two companies clearly had an outstanding role in the infringement, other members of the cartel also carried out activities usually associated with a leadership role (like chairing meetings or centralising data distribution).
Application of the Leniency notice
Part of the evidence on the cartel was provided to the Commission by the companies involved, under EU rules providing for full or partial immunity from fines for companies that co-operate with the Commission in cartel cases. See Leniency Notice on http://europa.eu.int/comm/competition/antitrust/legislation/96c207_en.html.
Cerestar Bioproducts was the first undertaking to provide the Commission with decisive information. But because its application for Leniency was not entirely spontaneous, and since it approached the Commission only after it was fully aware that the citric acid cartel was object of an on-going investigation by the Commission, it was granted a 90 percent reduction of the fine rather than full immunity.
All the other participants co-operated in one way or another with the Commission and were granted appropriate reductions. ADM provided detailed information, which together with that obtained from Cerestar Bioproducts was used to draft requests for information that largely contributed to trigger the admission by H&R, Roche and JBL of their participation in the citric acid cartel. ADM was able to provide the Commission with documents contemporaneous to the infringement, including inter alia hand-written notes taken during cartel meetings and price instructions related to the decisions taken by the cartel. On these grounds, ADM was granted a 50 percent reduction.
JBL and H&R confirmed the vast majority of the meetings, the identity of the participants, as well as the facts in question. JBL also submitted to the Commission a number of tables created contemporaneously to the time of the infringement, indicating the quotas that were allocated to each of the cartel participants. Nevertheless, a large part of the information submitted by both companies was provided in reply to detailed requests for information and therefore fell within the ambit of an undertaking‘s duty to fully reply to these requests as set out in Article 11 of Regulation 17. The Commission granted these two companies a reduction of 40% and 30 percent of their respective fines.
Roche confirmed its participation in the cartel and the purpose of the meetings related to it prior to the receipt of the Commission’s Statement of Objections, which was sent on March 28, 2000. The Commission therefore granted Hoffmann-La Roche a 20 percent reduction of its fine.
10 largest cartel fines: Total amount per case
Year Case Total amount ( million)
2001 Vitamins 855.23
1998 TACA 272.940
2001 Graphite Electrodes 218.8
2001 Citric Acid 135.22
1994 Cartonboard* 117.08
2000 Amino acids 109.990
1994 Cement* 109.335
1999 Seamless steel tubes 99.000
1998 Pre-insulated pipes 92.210
2001 Belgian beer 91.655
*fines reduced by Court judgments