The concentration on the basis of which a joint venture is created in the sugar production and the wholesale business means the consolidation of the sugar market in Croatia as a result of full liberalization and abolition of production caps on sugar beet in the internal market. The end of EU sugar quota system on 1 October 2017 was the end of all formal and structural barriers in the sugar market that in 2018 lead to the increase in the sugar production by 8.1 per cent compared with the year before the liberalization.
The EU reforms in the period from 2000 – 2012 decreased the number of sugar plants by almost 60 per cent. Given the fact that at the time concerned Croatia was not an EU Member State, the European producers, whose restructuring was at large financed from the EU resources, gained an important and lasting advantage relative to the Croatian producers. At the same time, it must be noted that the European producers are almost completely vertically integrated systems where there are ownership ties between the producers of sugar beet and the producers of sugar, ensuring them a lower price of raw material and profit making on the final product.
While the EU market recorded mergers and acquisitions as well as sugar beet higher yields per hectare with higher sugar content than in Croatia, all attempts to consolidate the Croatian refiners have proved unsuccessful.
Even before the sugar quota was scrapped, the European sugar producers reacted and increased the sugar beet cultivation areas while lowering the purchase price. Exactly the opposite was happening in the Croatian sugar sector: the purchase price of sugar beet went down leading to the shrinkage in cultivation areas and stagnation in the sugar production from sugar beet.
The competitors of the domestic refiners are the most prominent refiners in the internal market. These sugar giants do not need to advertise – they already have their established communication channels with the buyers. After the abolishment of the production quotas big foreign sugar producers entered the Croatian market. A significant number of retailers have switched to the imported sugar whereas the domestic refiners have continued to realize the major part of their turnover from the trade with the industrial customers.
The sugar production is characterised by high raw material cost. It has been estimated that the average share of the cost of sugar beet is some 55 per cent in the total sugar production cost. What is more, the transport outside the radius of 70 km from the sugar mill is not cost-effective.
The import of white sugar to Croatia is free of any customs charge. There are no custom duties for the EU suppliers thanks to the internal market whereas the import from Serbia, one of the major importers, is subject to the duty-free quota allotted to Serbia by the EU.
The behaviour pattern of the buyers in the purchase of sugar indicates that their purchase depends on the price that has been offered on the market and not on the seat of the supplier. It is therefore clear that in this particular case competition in the sugar production and wholesale is present in the area that is wider than the Croatian market and covers at least the European Economic Area.
Given the special features of the sector it is not likely that there would be any new entrances in the sugar production market, neither into the Croatian nor the EU market. No entrance has been recorded after the full liberalization took place in 2017.
Following the analysis of all the facts of the case in question it has been established that competition between sugar refiners is present in the wholesale market, concretely, in the direct sales through two channels – the sales to industrial customers and the retail chains, where buyers are big undertakings with well established distribution systems exercising strong bargaining power towards their suppliers.
Furthermore, sugar is a generic, standardized and homogeneous product with a level of substitutability that is almost perfect on the demand side. It competes with other brand name products largely on a price basis rather than a brand name. The price of sugar is created depending on the price parameters relevant on the world commodities exchange market. The above-mentioned fall in the price of sugar in the production year of 2017/2018, which was historically low, proved therefore to be the direct consequence of the full liberalization of the market.
Compared with the Member States in the region Croatia stands out with three refineries per 4 million inhabitants. Hungary has one refinery and produces less sugar per twice as many inhabitants, whereas Austria, with also twice as many inhabitants, has two refineries and produces the double quantity of sugar. France, as one of the biggest sugar producers in the EU, has one refinery per 2.5 million inhabitants, Germany one per 4 million inhabitants and Italy one per 30 million inhabitants.
Only in two Member States the sugar producers are not under control of some of the leading sugar producers in the internal market. Three Member States produce more than a half of the total amount of sugar in the EU and are at the same time leaders in the sugar beet cultivation technology, and consequently, are by far more productive than other countries.
Should the newly created joint venture between Viro Grupa and Tvornica šećera raise the price of sugar in the post-merger period, it would not create any obstacles for their buyers to switch to other suppliers, whereas its competitors on the market would have enough capacity to increase the production in the response to the increased demand of the buyers. The fact that some of the industrial customers – buyers from the parties of the concentration concerned – have already selected the competing undertakings of the undertakings concerned as the best suppliers in the recent tendering suffices, whereas the industrial customers, particularly the beverages producers, substitute sugar with isoglucose that is a cheaper substitute for sugar and is easily transported. At the same time, some of the retail chains have already started to satisfy their demand for sugar from the foreign suppliers – competitors of the parties to the concentration.
Taking everything above into account, the CCA found that with respect to the nature and scope of the relevant market, this concentration will not have any significant anti-competitive effects.