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The Law for Enhancement of Competition
in the Food Sector 2014



1. Background

Protests in the summer of 2011 marked a turning point in Israeli antitrust law. The high cost of living brought hundreds of thousands to the streets, which in turn led to a number of reforms. The food sector caught a central place in these protests and following the protests, the government appointed a committee to examine the level of competitiveness in the Israeli food sector. Based on the committees' conclusions, on March 27, 2014 the Knesset (the Israeli parliament) passed the law for Enhancement of Competition in the Food Sector 2014 (The "Law").

We will briefly describe the Law's main provisions and our view on these provisions. Naturally, the provision are brought very briefly and in very general terms.

The Law's main objective and stated goal is to enhance competition in the food sector in order to reduce product prices for consumers using the following main paths:

  • Specific prohibitions for large suppliers (suppliers whose sales exceeded USD 87 million or suppliers in the market in which they have been declared a monopoly) and very large suppliers (suppliers whose sales exceeded USD 292 million).
  • Specific prohibitions for retailers and large retailers (retailers which hold at least 3 stores in which more than half of the sales are food related, and whose sales exceeded USD 73 million).
  • Authority to intervene when retail markets are geographically concentrated; and
  • Authority to give special instructions to dominant retailers.

In terms of enforcement, the Law imposes criminal, administrative and civil liability on corporations and their officers.

 

2. General prohibitions on suppliers and retailers
  • A supplier would not dictate, recommend or otherwise intervene with regards to the price or the terms in which the retailer sales a product of a different supplier.
  • A retailer would not dictate or recommend or otherwise intervene with a supplier regarding the price or terms in which a different retailer sales to the consumers. 

 

3. Specific prohibitions on large suppliers

The Law prohibits large suppliers:

  • To physically arrange or otherwise intervene in any way in the arrangement of its products on the shelves of a large retailer;
  • To dictate, recommend or intervene in certain matters with regards to a retailer, including:
  • The price of the supplier's goods, that the retailer sets to consumers, including by way of recommended pricing;
  • The allocation of any amount of available shelf space to suppliers;
  • Purchasing the supplier's goods as a share out of the retailer's total purchase of the good and its substitute goods; 

 

4. Specific prohibitions on the relations between large suppliers and retailers 

The Law sets the following restrictions regarding the relations between a large supplier and a retailer:

  • A large supplier and a large retailer may not engage in a transaction where a certain portion of goods or a certain bundle of goods, are sold below the marginal cost of supplying the large retailer.
  • A large supplier and a large retailer may not engage in a transaction where the price of goods or the price of a bundle of goods offered by the supplier is lower or equal to the price offered by the supplier for the purchase of a smaller amount of the same product or for a narrower bundle of products.
  • A large supplier may not condition the sale of one of its products with the purchase of another of its products.
  • A supplier will not transfer payments to a large retailer, in money or in money equivalent, and a large retailer would not receive such payments; notwithstanding the above, the supplier is not prohibited from reducing the price, subject to the provisions of this Law, of a single product it supplies to the large retailer.

 

5. Authority to issue instructions to a large retailers selling products of large suppliers

The Law empowers the Israeli Antitrust Authority's General Director ("General Director") to instruct a large retailer selling the products of a large supplier with regard to actions it needs to take regarding that product or its substitutable products.

 

6. Provisions regarding the allocation of shelf space to very large suppliers

A large retailer could allocate to the very large suppliers' products a total shelf space of no more than 50% in each of the large retailer stores. This means that all the very large suppliers, together could not receive more than 50% of the total (not divided into categories) shelf space. In practice this will make the very large suppliers to compete against each other for 50% of the total shelf space, while the remaining 50% would be allocated to other suppliers.

 

7. Geographic Demand Areas

 The General Director may attempt to increase competition under the Law by defining a geographic demand area for each branch of a large retailer and identifying the competitors in each such area. The General Director will then send a notification to any retailer whose share in a relevant area exceeds 30%.

Any expansion by such retailer, including opening of a new branch in that location, will require the General Director's approval. The law provides that such approval will be denied unless the retailer is able to show that its expansion is not likely to pose any danger to competition. Even more remarkable is that, the law stipulates that the General Director may recommend to the Antitrust Tribunal that a retailer whose share in a demand area exceeds 50% a cease operations in a certain store in that area or sell that store to a third party.

 


 


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The Law for Enhancement of Competition
in the Food Sector 2014



1. Background

Protests in the summer of 2011 marked a turning point in Israeli antitrust law. The high cost of living brought hundreds of thousands to the streets, which in turn led to a number of reforms. The food sector caught a central place in these protests and following the protests, the government appointed a committee to examine the level of competitiveness in the Israeli food sector. Based on the committees' conclusions, on March 27, 2014 the Knesset (the Israeli parliament) passed the law for Enhancement of Competition in the Food Sector 2014 (The "Law").

We will briefly describe the Law's main provisions and our view on these provisions. Naturally, the provision are brought very briefly and in very general terms.

The Law's main objective and stated goal is to enhance competition in the food sector in order to reduce product prices for consumers using the following main paths:

  • Specific prohibitions for large suppliers (suppliers whose sales exceeded USD 87 million or suppliers in the market in which they have been declared a monopoly) and very large suppliers (suppliers whose sales exceeded USD 292 million).
  • Specific prohibitions for retailers and large retailers (retailers which hold at least 3 stores in which more than half of the sales are food related, and whose sales exceeded USD 73 million).
  • Authority to intervene when retail markets are geographically concentrated; and
  • Authority to give special instructions to dominant retailers.

In terms of enforcement, the Law imposes criminal, administrative and civil liability on corporations and their officers.

 

2. General prohibitions on suppliers and retailers
  • A supplier would not dictate, recommend or otherwise intervene with regards to the price or the terms in which the retailer sales a product of a different supplier.
  • A retailer would not dictate or recommend or otherwise intervene with a supplier regarding the price or terms in which a different retailer sales to the consumers. 

 

3. Specific prohibitions on large suppliers

The Law prohibits large suppliers:

  • To physically arrange or otherwise intervene in any way in the arrangement of its products on the shelves of a large retailer;
  • To dictate, recommend or intervene in certain matters with regards to a retailer, including:
  • The price of the supplier's goods, that the retailer sets to consumers, including by way of recommended pricing;
  • The allocation of any amount of available shelf space to suppliers;
  • Purchasing the supplier's goods as a share out of the retailer's total purchase of the good and its substitute goods; 

 

4. Specific prohibitions on the relations between large suppliers and retailers 

The Law sets the following restrictions regarding the relations between a large supplier and a retailer:

  • A large supplier and a large retailer may not engage in a transaction where a certain portion of goods or a certain bundle of goods, are sold below the marginal cost of supplying the large retailer.
  • A large supplier and a large retailer may not engage in a transaction where the price of goods or the price of a bundle of goods offered by the supplier is lower or equal to the price offered by the supplier for the purchase of a smaller amount of the same product or for a narrower bundle of products.
  • A large supplier may not condition the sale of one of its products with the purchase of another of its products.
  • A supplier will not transfer payments to a large retailer, in money or in money equivalent, and a large retailer would not receive such payments; notwithstanding the above, the supplier is not prohibited from reducing the price, subject to the provisions of this Law, of a single product it supplies to the large retailer.

 

5. Authority to issue instructions to a large retailers selling products of large suppliers

The Law empowers the Israeli Antitrust Authority's General Director ("General Director") to instruct a large retailer selling the products of a large supplier with regard to actions it needs to take regarding that product or its substitutable products.

 

6. Provisions regarding the allocation of shelf space to very large suppliers

A large retailer could allocate to the very large suppliers' products a total shelf space of no more than 50% in each of the large retailer stores. This means that all the very large suppliers, together could not receive more than 50% of the total (not divided into categories) shelf space. In practice this will make the very large suppliers to compete against each other for 50% of the total shelf space, while the remaining 50% would be allocated to other suppliers.

 

7. Geographic Demand Areas

 The General Director may attempt to increase competition under the Law by defining a geographic demand area for each branch of a large retailer and identifying the competitors in each such area. The General Director will then send a notification to any retailer whose share in a relevant area exceeds 30%.

Any expansion by such retailer, including opening of a new branch in that location, will require the General Director's approval. The law provides that such approval will be denied unless the retailer is able to show that its expansion is not likely to pose any danger to competition. Even more remarkable is that, the law stipulates that the General Director may recommend to the Antitrust Tribunal that a retailer whose share in a demand area exceeds 50% a cease operations in a certain store in that area or sell that store to a third party.

 


 

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