Example 1: A producer begins certifying that all of its strawberries are pesticide free and charges a premium for their sale. A competing producer observes that the first producer is selling out all of its strawberries at the higher price and starts doing the same. Soon other producers start doing the same and are able to charge a premium because they all certify that their strawberries are pesticide-free. In such a situation, there is no agreement: each producer is acting independently, taking into account the present or expected conduct of its competitors.

Example 2: A group of producers meets to discuss ways to make strawberry cultivation more sustainable. They discuss how they would stop using pesticides on their strawberries, but are concerned that, if they do so on their own, other competitors will undercut them on price. They all state that they will not use pesticides the following season if the others agree to the same commitment. They do not produce a written document recording such commitment. None of the producers uses pesticides on its strawberries the following year. That is an agreement. Although it was not in writing, the producers clearly expressed their intention to conduct themselves on the market in a specific way, both by their statements at the meeting and by actually doing what they said they would do.

Example: A horizontal agreement may concern, for example, a commitment between competing producers to raise poultry only in accordance with certain animal welfare standards that are higher than what is mandated by Union or national law. A vertical agreement may concern, for example, a commitment between certain producers and distributors to only market poultry raised in accordance with certain sustainability standards that are higher than what is mandated by Union or national law.

Example: A cheese IBO represents three levels in the agri-food supply chain: milk producers, cheese producers and distributors. The rules of the IBO provide that the IBO may enter into an agreement or reach a decision upon approval by a majority of members at each level. When concluding a sustainability agreement in the IBO for the more sustainable production and distribution of cheese, a majority of 70 % of milk producers (first level), 60 % of cheese producers (second level) and 55 % of milk and cheese distributors (third level) vote in favour. In this scenario, the decision-making bodies of the IBO can conclude a sustainability agreement that is binding on all its members. For the purpose of applying Article 210a, all producers and distributors who are members of the IBO, either directly or indirectly through their representative bodies and associations, are party to the sustainability agreement, including those that have not voted in favour of the agreement.

Example 1: To promote the sustainable cultivation of apples, a group of supermarket chains that collectively account for 70 % of wholesale purchases of apples in a Member State agrees that that they will only purchase apples that have been certified to be pesticide-free. Since this group accounts for a large share of purchases, most apple producers feel that they have no choice but to follow the standard set by the group of supermarket chains to ensure their products are not excluded from the market. They stop using pesticides and certify their apples as pesticide-free, rather than risking being unable to sell their apple production. There is clearly an agreement between the supermarket chains. However, the apple producers are not parties to such agreement. Although the producers are supplying products that meet a sustainability standard, they themselves have not agreed with the supermarket chains on the content of the standard, and their choice to comply with the standard is not conditioned on other apple producers complying with that standard. As a result, the producers will not be party to the agreement concluded between the group of supermarket chains. However, that does not prevent producers from becoming parties to a sustainability agreement with the supermarket chains in the future.

Example 2: In a slightly different scenario, a group of supermarket chains agrees to only purchase apples that have been certified pesticide-free. An organisation of apple producers develops a certification mark certifying the pesticide-free nature of the products of its members. The organisation licenses the certification mark for use on the supermarkets’ packaging and in their marketing materials. The licensing fees are distributed to the producers that are members of the organisation. In such case, the organisation is an association of producers that took a decision to adopt and supply the certification mark. That decision is a sustainability agreement between producers. In addition, the same sustainability agreement may also include the licensing agreement signed between the organisation and the supermarkets.

Example 1: Producers of pears and a group of wholesalers conclude an agreement. Under the agreement, producers will adopt production techniques that, while eliminating the use of chemical treatments that improve the shelf life of the pears, will result in increased food waste as such production techniques will increase the risk of the pears becoming blemished or spoiled before they reach the consumer. To ensure that the pears stay in good condition before they are delivered to retailers, the wholesalers must adapt the storage facilities conditions and make the required construction modifications. In such a case, the sustainability improvements relate both to the production and to the trade of agricultural products. Article 210a would be applicable to the part of the sustainability agreement that concerns the wholesalers’ storage modifications, because that part would be intrinsically linked to making a more sustainable product available on the market.

Example 2: A group of retailers and wholesalers agree to use a system of recycled containers for the transportation and in-store placement of fresh fruits and vegetables. Although the agreement concerns a sustainability standard that may go beyond what is mandated by law, Article 210a will not apply, because the agreement will not involve any producer.

Example 3: A group of food retailers and producers agree on a circular economy initiative to create a joint waste collection system. Retailers commit to collect their waste turning it later into fertilisers while producers commit to use the fertilisers in their production. Given that the agreement involves the commitment of producers to use the fertiliser generated through the waste collection system, Article 210a will apply.

Example 1: An agreement relates to the sustainable packaging of malt in fully recyclable waterproof shipping bags, and of beer in casks made entirely from recycled metals. Article 210a will only apply to the part of the agreement on malt as beer is a non-Annex I product.

Example 2: An agreement relates to the supply of food waste from several restaurants and from the producers that supply those restaurants. That waste will then be used for the production and commercialisation of biofuels. Article 210a will apply only to the part of the agreement on the supply of waste to produce biofuels and not to the commercialisation of biofuels not included in Annex I.

Example 3: An agreement relates to the supply of sustainably produced poultry to canteen services. The agreement involves poultry producers that supply poultry to prepared-meal producers, and an organisation representing food canteens that purchase prepared meals from the meal producers. Article 210a would only apply to the part of the agreement that relates to the supply of poultry to the prepared meals producers and not to the part relating to the supply of prepared meals to canteens. Only poultry meat is a product listed in Annex I; the prepared meals incorporating that meat are not.

Example 4: An agreement relates to the supply of sustainable tomatoes, mushrooms, vegetables and herbs for processing into different sauces, such as pesto, tomatoes with mushrooms, tomatoes with aubergine, onions and capers, and the commercialisation of such sauces. Article 210a would only apply to the part of the agreement on the production and supply of sustainable tomatoes, mushrooms and herbs, and not the commercialisation of the sauces, because sauces are non-Annex I products.

Example: The sustainability objective could be preventing soil erosion. The sustainability agreement would aim to apply a standard that could involve setting measurable targets in the form of quantitative or qualitative criteria going beyond a mandatory standard, for example, using a cover crop in winter to avoid soil erosion. The agreement could include specific implementation measures, such as obligations to use certain machinery or equipment, to implement risk management tools, or to support the dissemination of technical knowledge, including training, advice, cooperation and knowledge exchange, digital technologies or practices for sustainable management of nutrients.

Examples of sustainability objectives covered by Article 210a:

Examples of sustainability agreements aiming at objectives covered by Article 210a:

Example: A sustainability agreement aims to decrease the use of pesticides by 8 %. A producer, party to the agreement, is active in two different geographic locations. At one of the locations, the producer commits to meet the standard whereas, at the other, the producer continues to use the pesticides as much as possible. Only the location in which the producer aims to meet the standard can benefit from the exclusion laid down in Article 210a.

Example 1: An agreement with the objective to reduce pesticides sets a standard prescribing a 40 % reduction in pesticide use. In that case, it would be necessary to demonstrate that applying the standard leads to a measurable reduction in the pesticide use. However, it would not be necessary to demonstrate that the reduction in pesticide use by individual producers led to an improvement in water quality in the region, such as the reduction of pesticide leakage in groundwater.

Example 2: If a sustainability agreement aims to increase biodiversity through the cultivation of certain insect-friendly wild plants and original varieties, it may not be possible to quantify the results of improved biodiversity in numerical terms. However, the efforts made, and results achieved must be describable, although not necessarily in numerical terms: for example, the parties should identify which plants are more insect-friendly, or which original varieties should be planted.

Example of a target binding on Member States, but not on individuals: The Commission’s proposal for a regulation for the sustainable use of pesticides (29) sets targets to reduce by 50 % both the overall use and risk of chemical pesticides and the use of ‘more hazardous’ pesticides by 2030. While those targets would be binding on Member States, they would not bind individuals. Therefore, those targets would not be considered mandatory standards for the purposes of Article 210a.

Example of a target binding on a region, but not on individuals: In a scenario where the proposal for a regulation for the sustainable use of pesticides is adopted, a region could decide to impose on itself a target to progressively reduce the use of pesticides by 50 % by 2030. While such a decision would be binding on the region, it would not bind individuals. Therefore, such a decision would not be considered a mandatory standard for the purposes of Article 210a.

Example of a target binding on individuals: In a scenario where the proposal for a regulation for the sustainable use of pesticides is adopted, a Member State could decide to implement a binding requirement on producers to progressively decrease the pesticides usage by different levels (for example 30/50/70 %) in different sectors by 2030. Such national provisions would be binding on individuals and would therefore be considered mandatory standards for the purposes of Article 210a.

Example 1: A non-EU country cocoa producer enters into a sustainability agreement with a Union chocolate manufacturer that aims at going beyond a mandatory Union or Member-State standard. The sustainability agreement may therefore benefit from the exclusion under Article 210a.

Example 2: A non-EU country cocoa producer enters into a sustainability agreement with a Union chocolate manufacturer that aims at going beyond a mandatory non-EU country standard. The sustainability agreement may benefit from the exclusion under Article 210a only insofar as it goes beyond a mandatory Union standard or, in its absence, a mandatory standard of a Member State.

Example 1: Producers and operators agree to reduce by 50 % the volume of food wasted in producing and processing peas by optimising harvesting techniques, investing in more efficient storage capacity and improving packaging. There is no mandatory sustainability standard for food waste reduction set at Union level and no applicable national sustainability standard. In such a case, the sustainability standard would be higher than what is mandated by Union or national law.

Example 2: Milk producers and retailers agree to support the conversion to organic milk production as specified in Regulation (EU) 2018/848 of the European Parliament and of the Council (32). Although Regulation (EU) 2018/848 lays down production methods that farmers need to follow to be able to label their products as organic, those production methods are not mandatory standards at Union or national level. In such a case, a standard requiring milk to be produced in accordance with organic production methods would be higher than the one mandated by Union or national law.

Example of an agreement restricting competition: To reduce pollution and protect water systems, soya farmers in a region want to stop using chemical fertilisers. However, due to the potential yield reduction and financial losses if they were to implement such an initiative on their own, they agree not only to stop using chemical fertilisers but also to increase their prices per tonne to maintain the previous level of profitability. The sustainability agreement is likely to restrict competition by limiting the farmers’ ability to set their own selling prices.

Example of an agreement unlikely to restrict competition: A group of farmers who wish to stop using chemical fertilisers create a quality mark for ‘sustainable soya’ that has been produced without chemical fertilisers. Eliminating the use of chemical fertilisers is likely to reduce yields, which could potentially reduce farm incomes. The group therefore invests heavily in raising consumers’ awareness of the quality mark and of the environmental benefits of eliminating chemical fertilisers to convince consumers that sustainable soya is worth more than soya produced with chemical fertilisers. Any farmer that certifies that their soya has been produced without chemical fertilisers may participate in the scheme and can leave the scheme at any time. Unlike the previous example, there are no provisions setting prices.

The sustainability agreement is unlikely to restrict competition. It is possible that the scheme has the effect of restricting competition if a large number of soya producers join the scheme, effectively limiting the ability of customers who do not want to purchase sustainable soya to do so. However, if only a limited number of soya producers join the scheme, for example producers who account for less than 10 % of supply, any restriction of competition is likely to be insignificant, because the resulting reduction in output levels will be insignificant and customers will continue to have alternatives if they are unwilling or unable to pay more for sustainable soya.

Example 1: Producers of grapes operating on low margins and located in a certain region collectively decide to reduce chemical pesticide use by 52 % whereas the standard mandated by law only requires a 50 % reduction. They decide to reduce their use of chemical pesticides by purchasing organic pesticides instead. The additional costs that the producers incur to purchase organic pesticides are slightly higher than the costs they would otherwise have incurred to purchase chemical pesticides. To attain the standard, producers collectively agree on a fixed price that they will charge for the more sustainable grapes.

Given that the organic pesticides are slightly more expensive and that producers operate on low margins and have thus no incentive to individually absorb these costs, cooperation is likely to be necessary. However, the agreement to charge a fixed price downstream is unlikely to be necessary given the improvement in terms of sustainability that the agreement is aiming for. Although agreeing on a fixed price would provide the producers with sufficient remuneration and ensure that the standard is attained, there appears to be a less restrictive alternative. In that case, an agreement to collectively reduce pesticide use by an additional 2 % appears to be the least restrictive way to attain the standard, given that the additional costs for purchasing organic pesticides are low and would be incurred by all producers in the region. That would prevent a situation where only some of the producers would no longer be competitive due to the additional costs incurred.

Example 2: To improve the welfare of poultry raised for meat, producers agree to carry out yearly checks of the quality of water consumed by the animals. The aim of the checks is to assess the level of water contaminants such as heavy metals and chemicals and, where they are found, to address excessive levels of such contaminants. Under the agreement, the producers must carry out the checks themselves using affordable equipment that must only be purchased once and does not require scientific expertise to be used. There is no specific Union or national standard mandating that such checks be carried out, beyond a general requirement that animals receive drinkable water. Due to the yearly water checks, the production costs increase slightly. As a result, the poultry producers agree on exclusive purchase obligations by poultry meat buyers to recover the additional costs by having certainty that their production will be purchased.

Cooperation of poultry producers is unlikely to be necessary, given that the improvement in terms of animal welfare does not appear to justify the restrictions envisaged. Each producer could effectively attain the standard on its own, as producers do not need their competitors’ knowledge or expertise to attain the standard. Moreover, an individual producer could attain the sustainability standard without incurring significant additional costs that would otherwise put them at a disadvantage with other producers who do not implement the standard. In addition, even if cooperation was deemed necessary, it is unlikely to be indispensable for producers to agree with buyers on exclusive purchase obligations, given the relatively low costs producers would incur for testing the water quality.

Example: Producers in a Member State envisage entering into a sustainability agreement setting a target of dedicating 25 % of their land to biodiversity purposes. The producers already dedicate a significant part of their land to biodiversity purposes. There is demand by buyers covering the quantity of products that the producers will be able to cultivate from the other 75 % of their land. Buyers of those products will also pay a price that will financially compensate producers for the biodiversity improvements they will make.

In such case, there is no issue preventing producers from achieving the sustainability standard on their own because each producer already has the experience and knowledge required to implement the biodiversity improvements. In addition, producers would be able to recover from buyers the costs of achieving the sustainability standard.

Example 1: Dairy producers from a region in a Member State agree with a cheese manufacturer that they will produce only soft and fresh cheese since the production of hard cheese leads to relatively higher CO2 emissions. In addition, the dairy producers agree to use the cow manure for energy production using an anaerobic methane digester system. To reduce the carbon footprint of transporting the cheese, the agreement also sets out that the soft and fresh cheese will only be sold within the Member State where the producers are located. However, some neighbouring Member States lie at the same distance as other regions in the Member State where the producers are based.

Such an agreement will not be indispensable for the purpose of achieving the standard of reducing CO2 emissions associated with cheese production and trade since there is a less restrictive way to ensure the decrease of CO2 emissions, namely, the determination of an objective distance-based condition calculated from the area of production to the area of sale, for example 200 km.

Example 2: The scenario is the same as in Example 1. However, the dairy producers decide to restrict participation in the agreement to dairy producers that are based in the same Member State: this is to make it easier to audit compliance with the production criteria since the producers have had a long-standing collaboration with a national auditor who does not operate outside of that Member State.

Such an agreement will not be indispensable for the purpose of achieving the standard since there is a less restrictive way to ensure the decrease of CO2 emissions, namely, that the auditing process could be carried out in other Member States or be carried out either by the same auditor or by another one, who is willing to perform the service.

Example: While there is demand for pesticide-free strawberries, there is also a low acceptance of higher prices among consumers. Producing pesticide-free strawberries would require additional investment in equipment and create additional labour costs and thus result in price increases. Consumers would be less likely to buy the more expensive pesticide-free strawberries, and as a result the producers’ sales may decrease. Moreover, if consumers do not buy the pesticide-free strawberries, a greater proportion of the strawberries would perish. That leads to a first-mover disadvantage for anyone that wishes to produce pesticide-free strawberries.

A group of producers and retailers develop an initiative under which retailers agree to pay participating farmers an additional EUR 1,20 per kilogram for pesticide-free strawberries. The incentive payment is based on a study that found that:

The overall price premium of EUR 1,20 per kilogram is higher than the EUR 1 per kilogram of costs incurred and income foregone to achieve the sustainability standard. Nevertheless, the price premium also comprises an incentive payment of up to 20 % of the compensation for costs incurred and income foregone, in this case EUR 0,20 per kilogram. This is indispensable: (i) to ensure that the sustainability standard will be effectively taken up by the producers, (ii) considering the risk that the agreement may be terminated by the producers due to a potential loss of interest by consumers in purchasing sustainable strawberries and considering the increase in the costs of production and (iii) considering the fact that producers can obtain a return on an alternative investment of EUR 0,05 per kilogram if they choose not to enter into the sustainability agreement. The amount of EUR 0,12 per kilogram allocated for uncertainty (see point (b) above), matches the expected increase in costs and income foregone. The amount allocated for return on investment of EUR 0,08 per kilogram (see point (c) above) exceeds the alternative non-sustainable investment opportunity of EUR 0,05 per kilogram.

However, if the incentive payment was more than EUR 0,20 per kilogram, a case-by-case assessment would need to be made on the compatibility of the price increase with the indispensability condition.

Example 1: Retailers agree to pay watermelon farmers a price premium in order for them to purchase innovative irrigation tools. The price premium payment is needed for 3 years as farmers do not have the required sum upfront. After 3 years, the farmers will have managed to recover the costs incurred for purchasing the equipment and will start saving on water usage by using the tools. Therefore, continuing the price premium payment after 3 years would not be indispensable in terms of duration.

Example 2: In a similar scenario to Example 1, watermelon farmers agree, along with retailers, to produce watermelons without pesticides, and use organic pesticides to chemical pesticides only when they have no alternative. Retailers agree to pay a higher price premium than the one referred to in Example 1. The price premium payment also provides compensation for the purchase of the irrigation tools. However, as using no or only organic pesticides is a recurring expense for watermelon farmers, the part of the price premium payment that relates to the non-use of pesticides, or the use of organic alternatives when necessary, will need to be paid continuously throughout the duration of the sustainability agreement, while the payment that relates to the irrigation tools will need to end after 3 years.

Example 1: 10 producers from Ecuador decide to improve cultivation standards of cocoa by only producing organic cocoa. They agree with a chocolate manufacturer to receive a price premium payment of EUR 0,50 per kilogram of organic cocoa, which will be used as the ingredient for chocolate products carrying a sustainable logo. Before the agreement is implemented, another group of producers and another chocolate manufacturer also show interest in participating. The first 10 producers assesses that the 10 producers and the chocolate manufacturer that initially decided to create the agreement could achieve the standard on their own (as a group) without the help of the second group of producers and chocolate manufacturer. Nevertheless, they invite the latter to join.

In this example, the indispensability test does not preclude all interested producers and chocolate manufacturers from participating in the agreement. This is because the establishment of the agreement demonstrates that in order for the standard to be achieved, producers need to join forces with at least one buyer (in this case – a chocolate manufacturer). The fact that the initial group of producers and the buyer is expanded leading to a higher market coverage of the agreement is not an issue under the indispensability test.

Example 2: In the same scenario of Example 1, after the 10 producers and the chocolate manufacturer have implemented the agreement, an input provider of seeds indicates that it wishes to join the agreement.

In this example, the indispensability test precludes the subsequent participation by the input provider. That is because the indispensability analysis indicated that participation of producers and of at least one buyer suffices. The participation of the input provider is therefore not indispensable.

Example 1: A certain rice cultivation technique uses less water than traditional rice cultivation techniques, it does not use artificial fertilisers and is pesticide-free. The use of such technique contributes to the sustainable use and protection of landscapes, water and soil, and reduces pesticide use. The technique, however, requires additional investment of financial resources and time by the rice producers and it is only profitable if carried out on a medium to large scale. Three rice cooperatives agree to produce ‘sustainable rice’ in accordance with the aforementioned cultivation technique. The retailer agrees to purchase a certain quantity of the sustainable rice – 100 tonnes a year for 3 years.

The three cooperatives have calculated that they would need to produce at least 95 tonnes of rice a year for 3 years in order for their investment to reach the necessary economies of scale to attain the sustainability standard and receive a reasonable return on investment. To encourage consumers to buy the sustainable rice, the three cooperatives and the retailer agree that the retailer’s resale price will be no more than 15 % above the average price charged by the retailer for conventional rice. However, given the cost of inputs and labour, the sustainable rice costs the retailer 30 % more than conventional rice.

Most other buyers in the market, such as retailers, manufacturers and wholesalers are predominantly interested in buying conventional rice sold at a lower price. Consumers show interest in buying more sustainable rice but are unaware of the extent to which the production of conventional rice implies using fertilisers and pesticides and the amount of water consumed for that purpose.

Step 1:

Can the sustainability standard also be attained by acting individually?

The rice cooperatives would be unable to finance the production of sustainable rice individually. This is because they would have no certainty that they could market the rice, given that most buyers are interested in purchasing conventional rice, which is sold at a lower price. Individually, the three cooperatives cannot therefore effectively adopt the standard. In that case, an agreement with a retailer that the retailer would purchase a minimum 100 tonnes of the sustainable rice a year is likely to be indispensable.

A separate assessment must be made of the agreement that the retailer’s resale price for sustainable rice would not be more than 15 % above the average price of conventional rice. Sustainable rice costs 30 % more than conventional rice, and there is a risk that consumers would purchase insufficient quantities of the rice. An agreement to promote the sustainable rice is therefore likely to be indispensable given that, otherwise, the retailer would be unable to keep purchasing from the three cooperatives. Individually, each of the three cooperatives and the retailer cannot promote the rice as they need each other’s assistance to do so, given that the production and sale of the sustainable rice are interlinked.

Indispensability of the provision of the sustainability agreement

The agreement to purchase a certain quantity of sustainable rice a year is likely to be indispensable because there is only one retailer participating in the sustainability agreement, and producing sustainable rice implies additional costs for the producers. Another type of provision addressing the issue of covering costs could be that the retailer would merely commit to promoting the sustainable rice without committing to purchase a minimum quantity. That would, however, not provide enough certainty for the three cooperatives because conventional rice is 30 % cheaper, and consumers are not generally aware of the implications of conventional rice production.

In the case of the agreement on charging a resale price for sustainable rice that is not more than 15 % higher than that of conventional rice, there is a less restrictive way to promote the purchase of sustainable rice. Since the issue is the lack of consumer awareness of the benefits of sustainable rice, the three cooperatives and the retailer could conclude a certification agreement, for example to develop a label for the sustainable rice through the services of a third party. The third party would assess compliance of the rice with the sustainable production methods and testify to its conformity. The label could inform consumers about the environmental impact of conventional rice production. The retailer would therefore be free to determine the resale price of sustainable rice while, through the use of the label, it would be able to effectively meet consumer demand for sustainable rice.

Step 2: Indispensability of the nature and intensity of the restriction

When assessing the nature of a commitment to purchase 100 tonnes of sustainable rice a year, the alternative could be a commitment by the retailer to purchase all the sustainable rice needed for resale from the three cooperatives. However, that would not attain the sustainability standard, as the three cooperatives would have no certainty that the retailer would actually purchase the necessary quantity of rice produced. That is because the retailer might not need all 100 tonnes of sustainable rice in a given year and the cooperatives would therefore have no incentive to make the necessary investment.

When assessing the intensity of the restriction to commit to purchasing 100 tonnes of sustainable rice a year for 3 years, the restriction appears indispensable as the three cooperatives need to produce at least 95 tonnes of sustainable rice per year for 3 years in order to receive a return on their additional investment. Due to the novelty and uncertainty of the sustainability standard, by purchasing the additional 5 tonnes of sustainable rice the retailer aims to provide a safety net in case of miscalculation. The commitment to purchase 100 tonnes of sustainable rice is therefore likely to be indispensable for attaining the sustainability standard at stake.

Example 2: There is a regional initiative to improve pigs’ living conditions. Participating farmers agree with a slaughterhouse and two meat processors to increase the amount of space per pig on their farms above the legal minimum. Due to local laws on maintaining land for biodiversity purposes, it is difficult for most farmers to increase the amount of space for raising pigs, as it would force them to reduce the number of pigs reared to comply with the standard. As a result, participating farmers would be financially disadvantaged compared to farmers who do not participate in the initiative.

The initiative therefore provides for the processors to pay the farmers an additional EUR 1 per kilogram of meat sold as a price premium to compensate them for their reduced output and increased costs. The price premium payment corresponds to the profit that farmers would have otherwise made had they reared more pigs in the conventional way and a small margin to encourage the farmers to enter into the agreement. One processor would have been able to process the farmers’ entire production and cover the related financial burden. However, a second processor has joined the initiative since it would like to tap into the market for more sustainable products. The initiative also sets out that the slaughterhouse involved would exclusively slaughter pigs reared in accordance with the animal welfare standards concerned to avoid that their meat gets mixed with that of animals reared conventionally.

Step 1:

Can the sustainability standard equally be attained by acting individually?

The first alternative that needs to be considered is whether the sustainability standard could be attained by the participants in the agreement acting individually rather than together. A farmer who would increase the amount of space per pig on their farm alone would lose a part of their income, and possibly also access to their buyers, to other farmers due to the decrease in their supply in quantity or the increase in their selling price. At the same time, while farmers acting together without the involvement of processors would compete against each other on equal terms, they would still suffer from a disadvantage compared to farmers who decided not to participate in the sustainability agreement. They would also have difficulties finding buyers who would agree to pay a higher price for the meat from the animals reared sustainably. Therefore, an agreement between the farmers themselves and between the farmers and the processors as buyers of the meat products is likely to be indispensable, unlike unilateral action. Finally, the involvement of the slaughterhouse is in principle necessary as it ensures the separation of the meat sourced from the pigs that are subject of the agreement and the meat sourced from those that are not.

The indispensability of the provision of the sustainability agreement

Next, regarding the price premium payment, as an alternative the processors could commit to purchasing all meat originating from pigs reared in accordance with the initiative at the price of conventional pigs. Farmers do not usually have problems finding buyers and would easily be able to sell the meat products coming from their pigs. However, if they were to apply the sustainability criteria, they would have to sell at a loss as they would have to reduce the number of animals while receiving nothing in exchange. A price premium payment is therefore likely to be indispensable.

As regards the commitment by the slaughterhouse to only slaughter animals reared in accordance with the sustainability standard, an alternative could be for farmers to request the slaughterhouse to separate and clearly identify the meat that comes from their pigs. That would likely lead to some additional costs since the maintenance of two separate lines in a slaughterhouse may result in inefficiencies in slaughtering the animals. Nevertheless, provided that the slaughterhouse manages to find an efficient way of managing the two lines, slaughtering both types of animals would let it achieve a higher turnover and thus be compensated for the costs of separating the two types of meat for processing. The agreement with the slaughterhouse to only slaughter animals reared sustainably is therefore unlikely to be indispensable.

Step 2: Indispensability of the nature and intensity of the restriction

In the case of the price premium payment received by farmers for granting more space to pigs, an agreement on the total price or on a minimum price for the meat products could be an alternative restriction. However, agreeing on the total price would cover many aspects of the cost of production that are unrelated to the sustainability standard, for example, input prices, weather events and diseases. Moreover, while a minimum price, set at a sufficiently high level that the costs for the sustainability improvement are accounted for, could ensure that producers are compensated for their efforts, it would ignore the possibility that the other elements of the price for pig meat, such as inputs, infrastructure and seasonality of the product, may be subject to change in the future and the minimum price agreed upon would no longer reflect accurately the costs of farmers. The price premium payment is therefore likely to be indispensable because it corresponds to a loss of profit that farmers incur by rearing fewer pigs and keep the possibility that other price components may freely fluctuate subject to changes in the market.

Setting the price premium payment at EUR 1 per kilogram of meat produced is also likely to be indispensable. This would be the case if the payment reflects the loss of profit that farmers incur by not having the same output had they reared pigs conventionally as well as a small margin, less than 20 % of the compensation for costs incurred and income foregone, to encourage farmers to enter into the agreement. Without this margin, and if farmers were merely compensated for the additional costs incurred and income foregone, they may not be interested in making the necessary efforts to attain the sustainability standard.

There is no need to assess whether the number of farmers or processors that have joined the initiative is indispensable, as explained in Section 5.4.2.3.

Example 3: A group of three dairy cooperatives develops a quality mark for cheese. The quality mark requires producers to certify that the milk used in their cheese is exclusively produced using organic methods. The quality mark requires that all milk production in the cheese is carried out using a specific predefined list of organic methods to guarantee that there is no mixing of organic and other types of milk. Such production method implies additional costs for producers, reduces their freedom to choose alternative methods of organic cheese production and their ability to continue to offer conventional milk for cheese products. Similar volumes of products to the ones envisaged by the dairy cooperative and produced through similar production methods have already been successfully launched. Consumer demand for organic cheese is high and consumers are already paying a higher price for that cheese. That, in turn, leads to demand among the customers of the cooperatives to source organic cheese and the dairy cooperatives can recover the costs linked with the additional requirements.

Step 1: Can the sustainability standard equally be attained by acting individually?

Certain producers already individually apply sustainability standards higher than mandated by Union or national law and products produced in accordance with those standards are of comparable quality and volumes to the ones envisaged by the agreement. There is also both consumer and buyer demand for organic cheese. Cooperatives will therefore be able to apply the standard individually and meet the increasing customer demand for sustainable cheese by creating their own label. The need to cooperate does not therefore appear to be indispensable.

Example 4: At certain times every year, the volume of certain vegetables available exceeds demand. As a result, between 7 % and 15 % of the yearly harvest of spinach is wasted. Cooperatives have tried to implement different strategies individually to plan or store the excess produce, but they have not managed to keep their losses below the average 7 %. They have also tried to dry the spinach and sell it, but there is no customer demand for such a product.

To reduce such waste, a group of spinach cooperatives decides to exchange information on the monthly deliveries of spinach to customers so that they can plan the supply and demand more accurately. The cooperatives justify such exchange by stating that they will put in place a rotational system where the different cooperatives take turns every month in reducing their production by a certain percentage to match the expected demand for spinach the following month.

Step 1:

Can the sustainability standard equally be attained by acting individually?

The need for cooperation appears to be indispensable as individual action to address food waste has failed.

The indispensability of the provision of the sustainability agreement

Spinach cooperatives aim to attain the standard through an exchange of information on supply and demand. Alternatively, they could agree on reduced production volumes for each cooperative. However, that would not address the issue as it would be difficult to anticipate with certainty how much the cooperative should decrease its production. In addition, there would still be periods when demand is higher so the cooperatives would be unable to fulfil their customers’ orders. Moreover, an agreement on production volumes would be more restrictive than one on exchanging information.

The agreement to exchange information tackles the issue by providing regular information about the state of the market and enables adjusting the supply precisely in the following month. It therefore appears to be reasonably necessary to attain the standard of reducing food waste.

Step 2: Indispensability of the nature and intensity of the restriction

In terms of the indispensability of the restriction of competition that flows from the agreement, exchanging information on a parameter such as monthly deliveries to customers is a significant restriction of competition. Sharing aggregate information on a bimonthly or trimonthly basis rather than on a monthly one would be a less restrictive and realistic alternative. Aggregating and compiling the data less frequently results in individual cooperatives’ sales to individual customers not being identifiable. At the same time, by sharing data on a bimonthly or trimonthly basis producers would still be aware of the market demand for spinach in the preceding 2-3 months so they could adjust their own production the following months.

As a result, the agreement to share information on a monthly basis would fail to meet step 2 of the indispensability test.

Example: Several producers enter into an agreement before the publication of these guidelines. They commit to stop using an authorised herbicide, which is frequently detected in drinking water supplies. To finance the transition towards this more sustainable method of production, they agree to temporarily fix prices at EUR 0,50 per kilogram produced.

After publication of these guidelines, it is clear to the parties that a price premium payment would have been sufficient to reach the standard. Therefore, the agreement does not fulfil step 2 of the indispensability test. As a result, the parties should update their agreement as soon as possible to comply with Article 210a, by replacing the price fixing by a price premium payment.

Example: Several agricultural producers agreed in January 2023 to change their production method to stop using an authorised polluting herbicide which is frequently detected in drinking water supplies. As some time was needed to change the production method, the launch of the final less-polluting product is due in September 2023. The producers agreed on a price premium payment for the product using the problematic herbicide as of January 2023, to finance the investment necessary for the transition.

The price premium payment may be granted from January 2023 if the producers are unable to cover their investment costs only by granting the price premium payment from September 2023, after the launch of the alternative product. In the absence of a price premium starting from January 2023, they would otherwise not consider taking up the sustainability initiative. However, if the parties are able to cover their investment costs by granting the price premium payment from September 2023, then applying the price premium payment before that date is not indispensable.

Example: Two producers have agreed to invest together in research and development on a new production method that promises to be more sustainable. That implies fixing prices to finance such new investment. Due to the start of an economic crisis after they have concluded the agreement, the parties are no longer able to finance the research, and decide to stop the research investment.

Since the parties have failed to implement the standard for a reason unrelated to force majeure, they cannot continue restricting competition, that is to say fixing prices.

Example: Producers and retailers agree on growing a new variety of maize that is more resistant to pests and so requires using fewer pesticides than other varieties of maize. However, the seeds for the new variety are more expensive and are sold at EUR 6 per kilogram. Retailers agree that they will finance the purchase of the more expensive seeds by offering a price premium payment for the maize grown. In the later stages of implementing the sustainability agreement, the cost of the seeds drops to EUR 1 per kilogram as the crop becomes more widely sought after, and there are more seeds on the market.

The change in the price of seeds, which are an input for the maize, means the parties must reassess how much the price premium should be and whether retailers need to support the agreement through a price premium payment at all.

Example: Producers, processors and retailers agree on a price premium payment for rearing animals without using cages. The law requires each animal to have at least 0,2 m2 of space. Sometime after that, the mandatory legislation is amended and imposes a new requirement of 0,5 m2.

The sustainability standard imposing the requirement that animals be reared in ‘free-range’ might still justify applying a price premium. However, as the law has raised the mandatory standard, the level of the price premium needs to be reassessed, which in certain cases could lead to a lower price.

Example: An agreement between a producer organisation and manufacturers enables the manufacturers to invest in artificial intelligence (‘AI’) technology which can detect diseases in plants early, leading to higher yields. The manufacturers agree to buy the technology for the producers and cover the operating costs of the technology by agreeing on a minimum price for the products produced by the PO. In return, the agreement requires the members of the PO to license the technology, to ensure that there are enough licensees, and thus licence fees, to cover the costs of the investment.

Once the technology has been tested and leads to higher yields, the indispensability of the minimum price will have to be re-assessed by the producers. As they are now producing more, they may be able to cover by themselves the technology’s operating costs.

Example: Local poultry farmers jointly agree to provide more living space per animal. To reduce their transition costs, they enter into an agreement with their buyers, by which the latter agree on a fixed price premium, to cover the additional cost of the new sustainability standard. The agreement is signed in March 2024, with a 1-year formal notice period in case of unilateral termination. The notice period ensures adequate planning for the buyers, who want to position themselves on the market as suppliers of sustainable poultry and have made investments to do this. New local legislation is adopted in June 2024 and applies from December 2024. It requires all agricultural production in that region to allocate the exact same amount of space to animals as provided for in the agreement.

As the minimum space requirement becomes a legal obligation in December 2024, the restriction of competition is no longer indispensable. However, terminating the agreement with the buyers before the end of the formal notice period could have serious financial consequences for the parties. The parties have acted in good faith because the new law was not foreseeable when they concluded the agreement. They can, therefore, continue to benefit from the exclusion laid down in Article 210a until the formal notice ends i.e. until June 2025.

Example: To reduce pesticide use more than what is mandated by Union and national law, three maize producers, representing only one small part of the number of producers on the market, agree with a feed producer that they will switch to organic production methods. Since that switch will increase their costs, they jointly agree that the three maize producers will fix prices for a period of 2 years. After 1 year of implementing the sustainability agreement, the three maize producers realise that they underestimated how much the switch to organic production would increase their costs, and that the fixed price does not cover these extra costs. The three maize producers therefore reduce their revenue in order to cover these costs, given that they cannot increase the fixed price.

In this example, the reduction of revenue is merely due to a miscalculation by the three maize producers. In addition, it only concerns a limited number of producers. As a result, it is unlikely to jeopardise the objectives of the CAP laid down in Article 39 TFEU.

Example: Several grain seed producers, making up 80 % of the grain produced in the relevant geographic area, agree to stop selling grain seeds treated with a certain type of chemical pesticide. That creates a shortage of inputs for processors that use the grains because the producers account for a large share of seed production, leading to a substantial increase in the price of bread. That would likely jeopardise the objectives of ensuring the availability of supplies and reasonable prices for consumers.

Example 1: Poultry producers making up around 50 % of the market agree to enter into a purchase agreement to jointly purchase higher-quality feedstuff for poultry. Thanks to the cost savings of the joint purchase, the producers manage to maintain a feed price that is more or less equal to the price of feed for poultry not covered by the sustainability agreement. They also agree to jointly finance an advertising campaign to raise awareness of how better-fed poultry is better for human health and animal welfare. As a result of the campaign, most consumers decide to switch to buying better-fed poultry meat. That increase in demand creates an incentive for other producers to join the agreement and change their production methods. In particular, the joint purchase attracts smaller producers to the higher standard as they could not otherwise have afforded to buy the higher-quality feedstuff. As a result, producers representing more than 90 % of total supply switch to the more sustainable standard.

Although the agreement removes virtually all less sustainably produced poultry from the market, it is unlikely to constitute an exclusion of competition under Article 210a(7). That is because Article 210a does not aim to prevent agreements that are so effective at delivering sustainable products that most consumers want to purchase and other operators adopt that same standard.

Example 2: Turkey breeders making up 60 % of the market decide to improve the living conditions of their turkeys by setting a new animal welfare standard that goes beyond what is prescribed by mandatory law. That involves increasing the turkeys’ living space and installing air renewal and water treatment systems. The new sustainability standard also requires that turkeys be fed only premium-quality feed. The producers agree with buyers to receive from them a price premium to cover the costs for the sustainable turkey.

The price premium payment results in a price for sustainably produced turkey meat that is 150 % higher than the price of the non-sustainably produced turkey meat. That increase is necessary because of the need to ensure the recovery of the extensive extra costs of the new standard. Within a few months, all other turkey breeders in the market in question join the new sustainability agreement. Barriers to the import of turkey meat significantly limit the amount of imported non-sustainably produced turkey meat on the market. As a result, there is effectively no longer any non-sustainably produced turkey meat available. In addition, the price of the sustainably produced turkey meat increases further by 200 % compared to the original price of non-sustainably produced turkey meat.

Evidence indicates that, because of the agreement, between 45 % to 50 % of the consumers of turkeys are no longer able to afford to buy any turkey.

As a result, consumers who were only willing to pay for the cheaper – and less sustainable alternative – will no longer be able to buy any turkey, as they cannot afford the 200 % price increase. Such a situation is likely to constitute an exclusion of competition under Article 210a(7).