Anticipated joint venture between the agricultural merchanting activities of ABF plc and Cargill plc

Affected market: Agricultural products

No. ME/1506/05

Please note that the full text of the decision can be downloaded by using the link on the right. What follows are extracts regarding the parties, the transaction, jurisdiction, third party views, assessment and decision.

The OFT's decision on reference under section 33 given on 16 March 2005. Full text of decision published 23 March 2005.

Please note square brackets indicate information replaced by a range or excised at the request of the parties for reasons of commercial confidentiality.

PARTIES

Cargill plc (Cargill) is part of the Cargill group of companies which is active internationally in commodity trading and processing and the marketing of non-branded food ingredients. Banks Cargill Agriculture Ltd (BCA) is a UK agricultural merchanting business owned ultimately by Cargill. 

Associated British Foods plc (ABF) is an international food, ingredients and retail group.  Allied Grain is an operating division of ABNA Ltd (ABNA), which in turn is owned ultimately by ABF.  Allied Grain is active in agricultural merchanting in the UK.  JK Kings and Sons Limited (Kings), a division of ABNA, is an agricultural merchant supplying mainly borage seed, game cover seed and salad rapeseeds.  KW Feeds, an operational division of ABF, sells small amounts of seeds (see note 1) in the UK.  In the remainder of this decision, references to Allied Grain are deemed to include KW Feeds (see note 2) and, subject to the paragraph below, Kings.

TRANSACTION

The proposed transaction will combine, in a 50/50 full-function joint venture between Cargill and ABF, Cargill's UK agricultural merchanting activities, comprised in its subsidiary BCA, with the UK agricultural merchanting operations comprised in ABF's operating division, Allied Grain. Subject to negotiation, the agricultural merchanting business carried on by ABNA's subsidiary Kings will also be contributed to the joint venture (see note 3). In the year ended 30 September 2004 BCA's UK turnover was [   ].  In the year ended 30 September 2004, Allied Grain's UK turnover was [   ].

The transaction was notified to the OFT on 19 January 2005.  The administrative deadline expires on 16 March 2005.

JURISDICTION

As a result of this transaction BCA and Allied Grain will cease to be distinct.  The transaction qualified for investigation by the European Commission under the EC Merger Regulation (ECMR) on the basis of turnover.  However, on 8 December 2004 the European Commission adopted a decision pursuant to Article 4(4), ECMR to refer the entire transaction to the UK.

The turnover test in section 23(1)(b) of the Enterprise Act 2002 (the Act) is satisfied since, pursuant to section 28(1)(b) of the Act, the turnover test is met if the lower of the turnovers of the businesses being contributed to the joint venture exceeds £70 million. The OFT therefore believes that it is or may be the case that arrangements are in progress or in contemplation which, if carried into effect, will result in the creation of a relevant merger situation.

THIRD PARTY VIEWS

The OFT contacted a substantial number of suppliers (farmers, fertiliser producers, seed breeders) as well as customers and competitors in the agricultural merchanting sector, in particular customers and competitors in regions where the parties' shares of supply are relatively high.  We also contacted competitors of the joint venture parents in markets upstream and downstream of the activities of the joint venture and sought to obtain the views of the HGCA and DEFRA. 

Most concerns related to the supply of seed and were raised by some competitors and suppliers in this market.  These concerns have been addressed in the competitive assessment above.  For the most part, farmers were unconcerned, noting that alternative suppliers/purchasers are available.  DEFRA (with input from NIAB and the HGCA) noted that all markets for agricultural merchanting are highly competitive with no significant barriers to entry.

ASSESSMENT

Although the proposed joint venture will result in the creation of the largest agricultural merchant in Great Britain, this sector is characterised by low levels of concentration and the resulting combined shares of supply are low.  

The substantive assessment has focused on various segments within the agricultural merchanting sector in which the activities of the parties overlap.  Due to concerns expressed by third parties, particular attention was given to the effect of the proposed transaction on competition in the supply of seeds in Great Britain. This detailed investigation did not lead to substantiation of the concerns expressed and, to the extent that market power may arise in particular situations (such as exclusivity arrangements between seed breeders and merchants), this is not sustainable over time. 

In all segments and regions that were analysed there are sufficient numbers of national and regional competitors, and the merging parties are also constrained by the possibility of self-supply (in the case of seeds) and direct supply (in the other segments). In addition, barriers to entry and expansion are low and there is evidence of regional merchants expanding into other regions.

The competitive constraints identified mean that there are incentives for the parties to pass on to their customers any savings resulting from efficiencies and increased buyer power. 

Shares of supply of the joint venture parents in the markets upstream and downstream from those of the joint venture are not such as to give rise to vertical competition concerns.

Consequently, the OFT does not believe that it is or may be the case that the merger has resulted or may be expected to result in a substantial lessening of competition within a market or markets in the United Kingdom.

DECISION

This merger will therefore not be referred to the Competition Commission under section 33(1) of the Act.

NOTES

1. Less than 1 per cent of the GB market.
2. The parties note that KW Feeds will not form part of the joint venture.
3. This does not affect the jurisdictional test or the substantive analysis.

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