The Competition Commission (the Commission) has sent an issues letter to the
parties, Cargill PLC and Cerestar SA, in its inquiry into the proposed merger
of these companies.
The Commission has identified a number of issues that it wishes to consider,
arising from the information received to date from Cargill, Cerestar and a
number of third parties. These issues will form the basis for the Commission’s
findings on the question whether the proposed merger might be expected to operate
against the public interest.
An issues letter is always sent to the main parties in an inquiry and is designed
to highlight those matters which have been identified by the investigating
Group for further consideration, and to ensure that no relevant matter has
been missed. The Commission will shortly discuss these issues at a hearing
with the parties. The purpose of making the statement of issues public is to
inform all interested parties, should there be any further point they wish
to raise with the Commission within the next week. No conclusions have yet
been reached by the Commission as to whether any matter operates or might be
expected to operate against the public interest.
The issues that the Commission intends to consider are as follows:
Market definition
- Product market:
Whether glucose syrups and blends (GSB) constitute a separate product market
or whether these products are part of the wider market for sweeteners.
- Geographic market:
Whether the geographic market for GSB is EU-wide or whether Continental Europe
and the UK, or parts of the UK, might be considered to form separate geographic
markets. In this context:
- whether the current level of imports into the UK indicates that the Continental
European market includes all parts of Great Britain and Northern Ireland;
- whether the costs of transporting GSB relative to their price make it profitable
for GSB to be supplied to large customers in the UK from production plants
in Continental Europe;
- whether it is profitable for Continental GSB plants to supply medium-sized
and smaller sized customers in the UK;
- whether the need of some UK customers for "just in time" deliveries
of GSB means that supplies from outside the UK are not feasible for such
customers on a long-term basis;
- whether, following the merger, customers requiring tailor-made GSB would
be disadvantaged, either in terms of choice or price.
Barriers to entry
3. Whether there are currently any barriers to entry to the GSB market and
whether new entry or expansion would be less likely following the merger.
4. Whether the creation of an even stronger UK player in the market for GSB
than currently exists would be likely to act as a barrier to entry.
Market power
5. Whether the merged company would acquire market power in the supply of
GSB in the UK.
6. If so, whether the merged company could raise prices above the levels that
would be achieved if the merger did not take place.
Competition issues
7. Whether, were the merger to proceed, there would be a realistic threat
of increased imports of GSB, capable of acting as a constraint on the prices
of these products in the UK. In particular, whether GSB production plants in
Continental Europe have sufficient cost advantages (for example, because of
their greater economies of scale) to offset any higher transport costs of importing
GSB into the UK.
8. Whether matters such as the need for reliability and continuity of supply
of GSB would deter customers from switching to imported supply of these products,
even where such imports otherwise offered better value for money.
9. Whether it is likely that, without the merger, UK price levels would be
sufficient to encourage imports or investment in domestic production capacity.
10. Whether, and if so to what extent, buyer power exists among purchasers
of GSB in the UK. Whether such purchasers would be able to resist attempted
price increases by the merged company by, for example, threatening to switch
supplier or sponsoring new entry of GSB production in the UK.
11. Whether, were the merged company to raise the prices of GSB, other UK
producers would have sufficient capacity to satisfy the demand of customers
of the merged company who sought to switch their purchases to those other UK
producers.
12. Whether, were the merged company to raise the prices of GSB, competitors
of the merged company would be likely to follow such prices.
13. Whether the merged company would be able, and likely, to engage in geographic
sharing of the market with the other producers of GSB in the UK in order to
keep prices higher than would otherwise be the case.
14. Whether the merged company would be likely to restrict production capacity
in the UK, and if so whether that would result in higher prices for GSB.
15. Whether any reduction in capacity within the UK following the merger would
result in either further investment in capacity in the UK by existing competitors,
or entry of new competitors not currently producing within the UK.
16. Whether some purchasers of GSB attach importance to product or quality
differences (including genetic modifications) between maize-based GSB and wheat-based
GSB and whether the merger between the two maize-based producers of GSB in
the UK would affect the cost, availability or quality of GSB available to such
purchasers.
Possible adverse effects of the merger on competition
17. Whether prices would be raised above levels that would otherwise have
prevailed.
18. Whether, in respect of GSB, the merged company would be able, and likely,
to reduce the product or service quality below levels that would otherwise
have been provided.
19. Whether security of supply and distribution of the reference products
would fall below levels that would otherwise have prevailed.
20. Whether, in respect of GSB, the merged company would be less likely to
innovate, by developing new or improved products, or by reducing production
costs.
21. Whether, in respect of GSB, the merged company would be likely to offer
less choice than would otherwise have been the case.
Possible benefits for competition from the merger
22. Whether the merger would enhance competition in the supply of GSB, for
example, through new investment in the UK. Whether such enhancement of competition
might be expected to result in prices of GSB to some or all customers within
the UK that were lower than would be available were the merger not to take
place.
23. Whether the merger would result in a company better able, because of size
and scale economies, to compete with GSB producers in Continental Europe.
Hypothetical remedies
24. Whether any of the possible adverse effects set out in paragraphs 17– 21
above could be remedied:
- by prohibition of the merger;
- by the divestment of any plant, product or equipment of either Cargill
or Cerestar in the UK;
- by behavioural remedies of any sort, for example, some form of price control;
- by any other means.
Notes to Editors
- The reference was made by the Secretary of State for Trade and Industry
under the Fair Trading Act 1973 on 19th February 2002 (see DTI
Press Release P/2002/108).
- No conclusion will be reached about whether any matters operate or may
be expected to operate against the public interest until the Competition
Commission submits its report to the Secretary of State on 9 May. The report
will be published later.
- The inquiry is being chaired by Peter Mackay. The other members of the
group are Dr Diane Coyle, Christopher Darke, Professor Cosmo Graham and Peter
Stoddart.
- Further information can be obtained from the Commission’s website
at www.competition-commission.org.uk/inquiries/glucose.htm
- Enquiries should be directed to: Francis Royle, Press Officer tel: 020
7271 0242
