UK dairy groups admit price fixing role

The country's Office of Fair Trading (OFT) said today it has entered into early resolution with Asda, Dairy Crest, Sainsbury's, The Cheese Company and Robert Wiseman Dairies over their involvement in sharing sensitive information.

Arla Foods escaped punishment for cooperating with the enquiry.

The fines, which come on the back of similar action by the Greek Competition Authority this week, highlight increasing pressure on processors to remain competitive with their pricing without being accused of breaking-competition rules.

This focus is becoming increasingly crucial as the international dairy supply chain is further tightened by increasing global demand, leading to sharp rises in ingredient costs.

The OFT's action today relates to a document issued in September, in which the regulator alleged that there was evidence of collusion between dairy groups and retailers regarding commercially sensitive information in 2002 and 2003.

In a statement, the OFT said that all the group's including Safeway - prior to being bought out by Morrison's - had admitted to varying extents of wrongdoing and accepted the fines.

"These parties have accepted a liability in principle, and will pay penalties which amount to a maximum of over £116m," the regulator said. "

However, each party will receive a significant reduction in the financial penalty that would otherwise have been imposed on it, on condition that it continues to provide full co-operation."

Scandanavia-based Arla Foods escaped a fine from the OFT after applying for leniency in exchange for its cooperation during the investigation, the trade regulator added.

In deciding upon the level of fines imposed, the OFT said it had taken into account the claims made by the companies and retailers involved in the investigation over the pressure at the time to support dairy farmers in the market.

However, there could yet be further repercussions for the UK dairy industry, with all the group's currently implicated in the agreeing to provide further cooperation regarding price fixing.

While accepting the OFT's ruling, a number of the companies involved in the investigation appear unhappy with its outcome.

Alan Wiseman, chairman of Wiseman dairies said that, while he did not agree with the regulator's ruling on what he claimed were "price initiatives", he was glad to have bought the investigation to an end.

"The intention of the retail price initiatives was to provide support for farmers at a time of crisis, and every penny of additional revenues paid to Wiseman was passed directly to our suppliers," he stated.

"Whilst we are disappointed with the outcome of the investigation, this agreement removes a long shadow hanging over the company, and we now look forward to the group's continued growth and success."

Wiseman added that the company faced a maximum punishment of paying ten per cent of its 2006 sales, amounting to £60.5m (€83m) in fines, had it not cooperated in reaching a settlement with the regulator.

The company will pay £6.1m (€8.4m) instead because of the decision.

Ingredients and dairy group Glanbia, which had formerly owned The Cheese Company during the investigation period said it too had settled with the OFT to reduce the potential financial punishment.

Though now owned by the Milk Link group, Glanbia said that the shared £2m maximum penalty it faced with The Cheese Company would be "substantially lower" due to its cooperation.

Tesco, as well as processors Lactalis McLellan are also under investigation by the OFT over the allegations of price fixing.