Global Food Value Chains and Competition Law - BRICS Draft Report

Abstract

This draft report, prepared In the context of the BRICS competition authorities' cooperation, launched by the MoU signed between the BRICS authorities in May 2016, aims to provide the first in-depth analysis of the regulation, from a competition policy perspective, of the food industry by the BRICS countries, and selected developed countries (European Union, United States). Our aim has been to map the structure of the food value chain globally, as well as in the various jurisdictions we examine, focusing on the balance of power between the various actors in the value chain: retailers, farmers, processors and suppliers, traders, agro-industry, consumers, in the current context of technological and societal transformation, and assessing the impact of these power relations on the governance of these global food value chains. We present the broader contours of competition law enforcement and regulation in the various segments of global food value chains, and the various values that seem to animate public authorities when interfering with the private governance regimes put in place in this context.

The report puts forward a new perspective and methodology in performing competition law analysis by introducing new concepts and tools, such as the "Global Value Chain" approach, the focus on "vertical competition", the concept of "polycentric competition law", the re-conceptualization of superior bargaining power in competition law and its interaction with the use of this concept in other areas of law. The report also promotes new approaches in understanding the anticompetitive effects of common ownership and of the growing financialisation of the food sector, and discusses the way the impact of mergers on innovation has been and could be assessed.

The draft report, which is still a work in progress, is divided in six parts.

Part I introduces the methodology and the conceptual framework of this study, in particular the concepts of "global value chain", "vertical competition", "multi-lever competition policy" and "polycentric competition law", which constitute some of the conceptual innovations brought by this study.

Part II engages with a description of the industry structure and of the major economic and technological transformations that have marked global food value chains in recent decades, in particular focusing on the most recent agro-chem merger wave.

Part III engages with the legal framework. We start by exploring the competition law enforcement activity of BRICS competition authorities in general, before turning to the recent agro-chem and seed mergers, the process of review being still ongoing in some jurisdictions and for some merger transactions. Then, we turn our attention to the concept of superior bargaining power, which we think needs to be reconceptualised and be employed more systematically, also in competition law enforcement, depending on the comparative institutional analysis performed as to the institutional capabilities of the legal institutions (competition authorities, courts) in the specific jurisdiction and also in other legal fields to deal with instances of superior bargaining power. The next Section deals with an issue that, we believe, should become centre-stage in competition law enforcement, in view of the prevalence of common ownership by the same institutional investors of the various economic actors at the different segments of the food value chain and, more broadly, the financialisation of global food value chains. We consider that this raises important competition law issues that competition authorities need to tackle, not only on the basis of well-accepted theories of harm, such as unilateral effects, coordinated effects, vertical foreclosure, but also specific theories of harm focusing on the preservation of "vertical competition" and the exploitation of the farmers' segment of the food value chain. Part IV explores the issues raised by the need for competition law enforcement to promote innovation and its operation in tandem with other legal regimes having a similar objective. The first Chapter focuses on the broader legal and policy framework, and explores in more detail the interaction of competition law and intellectual property rights in BRICS, focusing on the food industry. The second Chapter explores the way these concerns may play out in assessing mergers, from an innovation perspective. Competition authorities increasingly worry about the impact that concentrations might have on innovation. Until recently, a common view was that, because of the well-documented "inverted U-shape" relationship between innovation and market concentration, mergers were only likely to have an adverse effect on innovation if market concentration is already quite high. New cases and new economic papers have challenged this orthodoxy, arguing that a refutable presumption that mergers lead to less innovation might make for better policy. We review this debate and propose a typology of effects to help decide whether or not such a presumption is actually warranted. We then apply these principles to the case of mergers in the seed/GM crops industry, which is of particular significance for BRICS countries. Finally we present a first illustrative empirical exploration of this typology and the economic principles that underlie it by examining how previous mergers in the industry have affected the merged parties' propensity to patent in various jurisdictions. Because the economic needs of BRICS countries can be distinct, we emphasise not only the effect of mergers on total patent counts but also possible effects on the specific areas where research takes place.

Part V includes country reports from the BRICS jurisdictions. We have tried to include in these reports information on the legal framework structuring food markets and food value chains, not only in the area of competition law, but also other areas of law that exercise an important impact on the competitive interactions in this economic sector. We consider that this holistic perspective is essential if one is to understand the constraints and challenges faced by competition authorities when framing their intervention in food markets. We have a Section for each BRICS jurisdictions, starting with Brazil, Russia, India, China and South Africa.

Part VI delves into a number of case studies of specific food value chains. We have six case studies from South Africa (on seeds, fertilisers, animal feed to poultry, dairy, milling and retail), one case study from India (GM cotton), and one from Brazil (soybean). These case studies provide insightful analysis on the challenges that competition authorities face in specific economic sectors and also constitute excellent illustrations of the descriptive and operational power of the value chain concept.

Keywords: global food value chains, competition law, innovation, IP rights, superior bargaining power, common ownership, mergers, BRICS, agriculture, seeds, agrochemicals, smart agriculture, digital farming, processing, farmers, right to food, biodiversity, Brazil, Russia, India, China, South Africa

JEL Classification: K20, K21, K32, L4, L52, L66, L81, Q1, Q10, Q13, Q18