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BEST AGRIFUND / NORDFLEISCH

M.3337

BEST AGRIFUND / NORDFLEISCH
March 18, 2004
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EN

Case No COMP/M.3337 - BEST AGRIFUND / NORDFLEISCH

Only the English text is available and authentic.

REGULATION (EEC) No 4064/89 MERGER PROCEDURE

Article 6(1)(b) NON-OPPOSITION Date: 19/03/2004

Also available in the CELEX database Document No 304M3337

Office for Official Publications of the European Communities L-2985 Luxembourg

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 19.03.2004

SG-Greffe(2004) D/201081

In the published version of this decision, some information has been omitted pursuant to Article 17(2) of Council Regulation (EEC) No 4064/89 concerning non-disclosure of business secrets and other confidential information. The omissions are shown thus [Ö]. Where possible the information omitted has been replaced by ranges of figures or a general description.

PUBLIC VERSION

To the notifying Parties

Dear Sir/Madam,

Subject: Case No COMP/M.3337 ñ Best Agrifund/Nordfleisch Notification of 13.01.2004 and 18.02.2004 pursuant to Article 4 of Council Regulation No 4064/89

1.On 13.01.2004, the Commission received a notification of a proposed concentration pursuant to Article 4 of Council Regulation (EEC) No 4064/89, as last amended by Regulation (EC) No 1310/97, by which the Dutch undertaking Best Agrifund NV (ëBest Agrifundí), acquires, within the meaning of Article 3(1)(b) of the Regulation, control of the whole of the German undertaking CG Nordfleisch AG (ëNordfleischí), by way of purchase of shares. On 04.02.2004, the notification was declared incomplete. On 18.02.2004, the proposed concentration was re-notified.

2.After examination of the notification, the Commission has concluded that the notified operation falls within the scope of Council Regulation (EEC) No 4064/89 and does not raise serious doubts as to its compatibility with the common market and with the EEA Agreement.

I THE PARTIES

3.Best Agrifund and its subsidiaries are mainly active in the Netherlands, Belgium and Germany in the fields of slaughter of pigs and cattle, processing, production and sale of meat products and industrial processing of abattoir by-products and cadavers. Best Agrifund has four direct subsidiaries, Bestmeat Company B.V., Sobel N.V., Chemson B.V. and Termochem Beheer B.V. Only Bestmeat and Sobel engage in an economic

1OJ L 395, 30.12.1989 p. 1; corrigendum OJ L 257 of 21.9.1990, p. 13; Regulation as last amended by Regulation (EC) No 1310/97 (OJ L 180, 9. 7. 1997, p. 1, corrigendum OJ L 40, 13.2.1998, p. 17).

Commission europÈenne, B-1049 Bruxelles / Europese Commissie, B-1049 Brussel - Belgium. Telephone: (32-2) 299 11 11.

activity. Bestmeat is active via its subsidiaries Moksel AG and Dumeco B.V. Sobel is the parent company of Rendac B.V., Sonac B.V., Harimex B.V., Smits Vuren B.V., Rousselot S.A.S. and Banner Pharmacaps Inc., and has joint control over SNP-Schlachtnebenprodukt-Handelsgesellschaft Icker GmbH & Co KG (a rendering company) [Ö].

4.Nordfleisch is the ultimate holding company of the Nordfleisch group of companies. Nordfleisch and its subsidiaries are mainly active in the purchase and slaughtering of pigs and cattle, the sale of fresh meat, processing and production of meat products (convenience and sausages) and abattoir by-products and the trade of live stock. The Nordfleisch group companies include NFZ Norddeutsche Fleischzentrale Fleischzentrum Emstek GmbH, NFZ Pronat GmbH and FVZ-Westfood Convenience GmbH (a joint venture with Westfleisch) and Fleischmehlfabrik Jagel GmbH. Furthermore, Nordfleisch has amongst other a 29.9% shareholding in Nordschmelze GmbH.

II THE OPERATION

5.Best Agrifund acquires, through its subsidiaries Bestmeat Company B.V. and Peelse Barrier B.V. & Co. KG, the shareholdings of IBG Industrie Beteiligungsgesellschaft mBH [Ö] and DZ Bank [Ö] thereby gaining the majority of the shares in Nordfleisch and control thereof.

III CONCENTRATION

6.In the light of the above, it can be concluded that the operation constitutes a concentration within the meaning of article 3(1)(b) of the Merger Regulation.

IV COMMUNITY DIMENSION

7.The undertakings concerned have a combined aggregate world-wide turnover of more than EUR 5 billion (EUR 4,236 million for Best Agrifund and EUR 1,604 million for Nordfleisch). Each of the undertakings have a Community-wide turnover in excess of EUR 250 million (EUR [Ö] for Best Agrifund and EUR [Ö] for Nordfleisch), but they do not achieve more than two-thirds of their aggregate Community-wide turnover within one and the same Member State. The notified operation therefore has a Community dimension.

V RELEVANT MARKETS AND COMPETITIVE ASSESSMENT

A. The purchase of live pigs for slaughtering

Product market

2Turnover calculated in accordance with Article 5(1) of the Merger Regulation and the Commission Notice on the calculation of turnover (OJ C66, 2.3.1998, p25). To the extent that figures include turnover for the period before 1.1.1999, they are calculated on the basis of average ECU exchange rates and translated into EUR on a one-for-one basis.

8.The Commission has previously defined a separate product market for the slaughtering of live pigs. This product market definition was confirmed during the Commissionís market investigation. In addition, it could be considered to subdivide the market for the slaughtering of live pigs into the slaughtering of slaughter pigs and sows, respectively. This is based on the fact that slaughter pigs and sows differ in weight and therefore in handling at the slaughterhouse. The slaughter of slaughter pigs and sows require a different technical design of the slaughter line since sows are much heavier at the time of slaughter. However, for the purpose of this decision it can be left open whether the slaughtering of slaughter pigs and sows constitute two separate product markets.

Geographic market

9.The parties consider the geographic market for the purchase and slaughtering of pigs is at least the Benelux countries, Germany and France and probably Community wide. According to the parties, hygienic or veterinary regulations do not hinder cross border trade of live slaughter pigs. Based on information submitted by the parties approximately 3% of the pigs slaughtered in Germany are of foreign origin and exports amount to around 2% of the total market. In general the supplier of live pigs (the farmer) pays the transport cost from the farm to the slaughterhouse. This limits the geographic scope of the market considering a limitation of the transport cost and thereby a maximisation of the revenue obtained by the farmer.

10.The Commission has previously considered the market for the purchase of live pigs for slaughtering as national in scope. The market investigation indicated that slaughterhouses generally purchase slaughter pigs within a geographic distance of 200-300 km indicating regional markets. One slaughterhouse indicated that it would at maximum transport slaughter pigs for up to 550 km. As an example pricing information of slaughter pigs provided by the parties on e.g. 2 March 2003 shows that the price for a quality E pig varies between Ä1.26 in Schleswig-Holstein and Ä1.32 in Hessen. In comparison the average in Germany was Ä1.29. At the same time it should be mentioned that considerable volumes of pigs are transported across regions in Germany and that the place of birth and the place of slaughtering of the pig often is different. Looking at price differences between the Member States larger price differences occur as shown below in the figure:

11.As can be seen from the figure, prices differ on a national basis with Belgium and Denmark relatively low and the two weekly German quotations at the highest level. Considering the low imports combined in the light of the price differences across borders would point in the direction of a national market.

12.However, the precise scope of the geographic market can be left open, since under no circumstances will the proposed transaction give rise to competition concerns.

Competitive assessment

13.First of all a distinction should be made in relation to previous cases in the slaughter industry. Unlike in Denmark, the members of production co-operatives in Germany and the Netherlands are not obliged to supply the animals raised by them to a specific slaughterhouse. In general the price quotation in Germany for slaughter pigs is made on a national basis through ZMP. The price quotation is based on the quality of the pig meat based on the lean meat ratio. Prices are published daily on ZMPís homepage (www.zmp.de) and broadcast through ZMPís telephone service. This gives a high price transparency in relation to prices for slaughter pigs.

14.The parties will become the largest German slaughterhouse with a combined market share of [10-20]% on a national market based on 2002 figures. The proposed transaction will also give rise to a minor overlap on the Dutch market for the purchase and slaughtering of pigs. Best Agrifund holds a very strong position in the Netherlands with

4

15.a market share of [40-50]%. Nordfleisch has been buying small amount of slaughter pigs in Netherlands in 2002 ([Ö]) which gives Nordfleisch a market share of [<1]%. The preceding years this figure was somewhat higher at around [<1]% in 2000 and [<1]% in 2001. However, the overlap on the Dutch market should be regarded as de minimis and would under no circumstances significantly alter the competition situation on the Dutch market. Best Agrifundís largest competitors on the Dutch market are Slachthuis Groenlo and HMG each having an estimated market share of about [20-30]%.

16.Considering the slaughter of sows as a separate product market, the partiesí combined market share will be around [0-10]% in Germany. As for the slaughtering of pigs, the partiesí overlapping geographic activities in the slaughtering of sows will be minimal.

17.The German slaughter industry is concentrated to the Northwest of Germany and the South of Germany. Best Agrifund is through is subsidiary Moksel situated in the South of Germany whereas Nordfleisch is situated in the North of Germany. Considering regional markets with a radius around 200 km around each slaughterhouse the partiesí activities will only overlap in Northwest of Germany and in Eastern Germany. However, at the same time several competing slaughterhouses are situated in the same geographic areas, prescribing alternatives to the partiesí slaughterhouses. Even considering two separate markets defined as North and South of Germany respectively, the partiesí combined market share will not exceed [20-30]%. Based on this it can be concluded that the proposed transaction will not give rise to competition concerns.

B. The purchase of live cattle for slaughtering

Product market

18.The slaughtering of live cattle constitutes a separate product market. The Commissionís market investigation confirmed this definition. The parties do not object this finding of the Commission.

Geographic market

19.The parties suggest that there are indications of a national market for the purchase and slaughtering of live cattle. The parties argue that both the Netherlands and Germany have high self sufficiency rates and German consumers have a strong preference for domestic beef, which leads slaughterhouses to purchase primarily German cattle for slaughtering. In addition, the parties mention that the outbreak of the BSE crisis has increased the preference for domestic beef and led to the introduction of strict labelling requirements for German beef.

20.Again, the import of cattle into Germany is rather low and only constituted around 4% in 2002. Germany has a high self sufficiency rate of 136% and, according to the parties, strong consumer preferences.

21.The Commissionís market investigation suggested that the market for the purchase of slaughter cattle may be national in scope. The transport distance over which it is viable to transport cattle for slaughter is somewhat greater than for pigs. Third parties indicate that they transport cattle at a maximum distance of 600-800 km. It should furthermore be mentioned that there is a much higher variety in different cattle than in pigs. Accordingly, the ZMP price data distinguishes cattle on three levels. First a distinction is made between the type of cattle (i.e. young bulls, cows, calves etc). Secondly, within each category the animals are classified based on the so-called EUROP classification system. Finally, the EUROP categories are broken down into further subcategories depending on the amount of fat on the carcass. Pricing information submitted by the parties show small differences in prices across regions.

22.However, for the purpose of this decision the precise scope of the geographic market can be left open, since under all circumstances the proposed transaction will not give rise to competition concerns.

Competitive assessment

23.The partiesí activities within the slaughtering of cattle are split between the North (Nordfleisch) and South (Best Agrifund) of Germany. Nordfleisch furthermore operates a cattle slaughterhouse in Kalkar close to the Dutch border. The partiesí market share on a national market will be [10-20]%. Their main competitors are S¸dfleisch ([10-20]%), Westfleisch ([0-10]%) and Gausepohl ([0-10]%). Considering a regional market of 600-800 km most of the German territory will be included and thereby serve as a proxy for a national market. On an EU wide market, the partiesí combined market share will not exceed [10-20]%. Based on this it can be concluded that the proposed transaction will not create or strengthen a dominant position on the market for the slaughter of cattle as a result of which effective competition will be significantly impeded.

Sale of fresh meat

Product markets

24.The Commission has in the previous cases defined separate product markets for the sale of fresh pork and beef, respectively. Fresh meat includes both fresh and frozen meat which is not processed in any way. In this respect it should be mentioned that the parties consider minced meat as belonging to the market for processed meat. However, the Commissionís market investigation did not support the partiesí view and the sale of minced meat should be regarded as belonging to the market for the sale of fresh meat.

25.The sale of fresh pork and beef has in the previous cases been further sub-segmented into a (i) retail market (supermarket, butchers, farm sales) and (ii) a catering market, constituting separate product markets. In addition the Commission has identified a separate market for the sale of fresh meat to (iii) industrial processors. Industrial processors transform the meat into processed meat products, which is then sold to the retail market or the catering market as processed meat.

Geographic market

26.The Commission has previously considered the sale of fresh pork to the retail market as national in scope whereas the market for the supply of fresh pork to caterers and industrial processors possibly could be wider based on large imports and exports. Presently, the Commission is not left aware of any reasons for changing the existing definitions. Based on this, and considering the competitive impact of the proposed transaction, the geographic scope of the market for the supply of fresh pork and fresh beef to retailers, caterers and industrial processors can be left open.

Competitive assessment

C. Sale of fresh pork

27.On an overall market for the sale of fresh pork, including sales to all customer groups, the partiesí combined market share would result in affected markets in Germany ([10-20]%), Greece ([10-20]%) and the Netherlands ([40-50]%).

C.i.a. Sale of fresh pork to supermarkets

28.Looking at the sale of fresh pork to supermarkets the proposed transaction will give rise to an affected market in Germany with a combined market share of [20-30]%. With regard to the German market, it should be mentioned that prices are negotiated with the supermarkets on a weekly basis. Based on the Commissionís market investigation the German supermarkets seem to hold a rather strong position as buyers. Long term contracts are seldom made between slaughterhouses and supermarkets. In relation to distribution channels, most of the large supermarket chains are supplied at regional distribution centres from which the supermarkets themselves distribute to their outlets. The market investigation revealed that supermarkets are able to switch supplier of fresh pork without any significant cost and are willing to do so. Based on this, and taking into account the modest market share of the merging parties, no competition concerns are envisaged in this market.

29.Even though Best Agrifund holds a market share of [50-60]% in the Netherlands, this does not give rise to an affected market because Nordfleisch is not active on any up- or downstream markets from the sale of fresh pork to supermarkets in the Netherlands except for the purchase of slaughter pigs which constitutes a vertically affected market, but only with an insignificant overlap.

C.i.b. Sale of fresh pork to butchers

30.On this market Best Agrifund is active in Germany, the Netherlands, Austria and Greece. Nordfleisch only supplies butchers in Germany. Only in Germany, where the parties will hold a combined market share of [10-20]%, is the proposed transaction close to result in an horizontally affected market. Considering a more narrow geographic market definition i.e. a local market around each slaughterhouse with a radius 100 km, the partiesí activities will not overlap. Based on this, the proposed transaction will not give rise to competition concerns.

C.i.c. Farm sales

31.None of the parties are engaged in farm sales.

C.ii. Sale of fresh pork to caterers

32.The only two areas in which both Best Agrifund and Nordfleisch are active are Germany and Austria. In Germany the parties will hold a combined market share of [0-10]% and in Austria a combined market share of [0-10]%. In Netherlands, Best Agrifund holds a market share of [20-30]%. Based on this the proposed transaction will not create or strengthen a dominant position as a result of which effective competition will be significantly impeded.

C.iii. Sale of fresh pork to industrial processors

33.Both parties are active in several Member States in supplying fresh pork to industrial processors. Considering national markets, which are likely to be a too narrow market definition, the proposed transaction will give rise to affected markets in Germany [10-20]%, Greece [20-30]% and the Netherlands [40-50]% (Best Agrifund [30-40]%, Nordfleisch [0-10]%). As mentioned, previous cases have indicated that the sale of fresh pork to industrial processors is likely to be larger than national. The market investigation supported this view. Evaluating an EEA-wide market, the partiesí combined market share would be significantly lower than [10-20]%. Based on this it can be concluded that the proposed transaction will not give rise to competition concerns.

12In Germany this includes sales to companies such as [Ö].

8

D. Sale of fresh beef

34.On an overall market for the sale of fresh beef including all sub-segments identified above, the parties will hold a combined market share of [20-30]% in Germany whereas on no other national market the partiesí combined market share will exceed [10-20]% (2002).

D.i.a. Sale of fresh beef to supermarkets

35.The only country where the partiesí activities overlap and which constitutes an affected market is Germany. The parties will become the largest supplier of fresh beef to German supermarkets with a combined market share of [30-40]%, followed by S¸dfleisch with [10-20]%, Westfleisch [10-20]% and the remaining market split between smaller slaughterhouses. The Commission does not consider the partiesí combined market share to raise concerns. Most beef is sold under the supermarkets own labels and the supermarkets consider it easy to switch supplier of fresh beef. Again, most of the large supermarkets are supplied at their regional distribution centres access to distribution facilities does not amount to a significant entry barrier. Considering the ease of entry of smaller regional slaughterhouses to supply the supermarkets in Germany. Based on the Commissionís knowledge, none of the larger German supermarkets are relying on only one supplier of fresh beef without continually taking into account competing suppliers. In conclusion, the proposed transaction will not give rise to any competition concerns.

D.i.b. Sale of fresh beef to butchers

36.The parties are only to a small extent active in the supply of fresh beef to butchers. The proposed transaction will not give rise to affected markets on a national basis. Considering local markets, only small overlaps will occur as a result of the proposed transaction and in all local markets competitorsí cattle slaughterhouses are situated within the same local areas.

D.i.c. Farm sales

36.None of the parties are engaged in farm sales.

D.ii. Sale of fresh beef to caterers

37.The proposed transaction will not give rise to any affected markets on a national basis. Likewise, on a wider defined market – no affected markets will arise.

D.iii. Sale of fresh beef to industrial processors

38.As mentioned above, the geographic scope of the market for the sale of fresh beef to industrial processors is likely to be larger than national. The proposed transaction will only give rise to three affected markets when considering a national market definition. In Denmark, the parties will hold a combined market share of [10-20]%, Germany [20-30]% and the Netherlands [10-20]%. The parties will be facing competition from large European competitors such as ABCS, Socopa, Inalca, Danish Crown and IFP. According to the parties’ information, none of the competitors will exceed a market share of [0-10]% in the EU and the parties will hold a combined EU market share of only [0-10]%.

9

Based on this it can be concluded that no competition concerns will result as a consequence of the proposed transaction.

E. Processed meat

Product market

39.The Commission has previously defined the market for processed meat products as comprising meat from mammals or birds, containing external ingredients such as salt or spices, being raw, dried, smoked or cooked. It considered that, in view of the additional processing, processed meat products constitute a distinct product market. The question of whether the market should be subdivided further was left open. The various processed meat products vary in several dimensions such as the raw material used (pork, beef, poultry), ingredients (spices), water content, heat treatment (smoked or boiled), portion, packaging, temperature (chilled or canned). All processed meat products constitute a combination of this 7-dimension scheme. However, the Commission noted that all processors are able to use all processing techniques (drying, smoking and cooking) on meat from all species.

Geographic market

40.The parties consider the geographic market for processed meat to be wider than national, as most customers have European purchasing policies and source centrally for the whole of Europe. Whereas the origin of processed meat products seems to be less important than it is the case for fresh meat products, there remain national consumer preferences, too. For instance in Germany specialities such as “Kasseler”, various German sausage specialities etc. are based on regional/national recipes. This seems to indicate national markets for processed meat products.

41.In a previous case the Commission found that the geographic market was wider than national, but decided later that due to suppliers’ ability to price discriminate between different Member States the national geographic market delimitation was justified. However it was not ruled out, that there were markets for individual product groups of processed meat which were more wide ranging than others.

42.The present market investigation showed that presently there is no significant cross border trade, but supply from third countries appears generally unproblematic for customers.

43.However, for the purpose of this decision the precise geographic market definition can be left open, since the proposed transaction will not lead to competition concerns under any possible geographic market delimitation.

Competitive assessment

44.Both parties have activities on the market for the production and sales of processed meat products. Germany is the only Member State where their activities overlap. They sell processed meat nearly exclusively in their home country.

45.According to the parties’ data, considering an overall market for processed meat (not including convenience products) in the EU, their combined market share would be less than [0-10]% ([Ö] out of approximately 7,550,000 tonnes) and in Germany below [0-10]%.

46.Considering narrow product segments as suggested in the pre-cited Commission decision (not including convenience products), the parties would have the following combined market shares:

Processed meat products

EU

Germany

Raw cured products

Processed meat for cold consumption

Canned meat

Sausages

Pâtés

[0-10]%

[<1]%

[0-10]%

[<1]%

-

[<1]%

-

[0-10]%

[<1]%

50.As can be seen from the table above, the proposed transaction does not give rise to affected markets either on a national or on a wider basis under either possible market definition. Following from this no competition concerns arise as a result of the proposed transaction.

F. Convenience products

Product market

51.In line with previous Commission decisions the parties have defined convenience food as a fully or partially prepared dish or packaged food that can be prepared quickly and easily. The notifying party submits that the meat industry considers meat convenience food as including pre-packed unprocessed meat (in household sizes) and minced meat, too. The inconvenience of this approach is that it leads to overlaps with the markets of fresh meat and includes competitors’ market shares to the convenience food market whose products consist only to a minor extent of meat, such as pizzas, soups etc. The parties are active almost exclusively in a convenience food segment, where the meat content of the product amounts to 90% or more. Considering the competitive impact of the present transaction on such a meat based convenience segment, the overall market size had to be based on the parties’ assumptions, as no reliable data was available. This narrow market delimitation only includes meat convenience food products which consist of at least 90% meat content, excluding pre-packed unprocessed meat and unprocessed minced meat.

52.Ultimately it could be left open, whether this narrow product market definition applies, as even under this narrow approach of meat convenience products no competition concerns arise. This is true even if the overall market size of the narrowly defined meat convenience product market was considerably smaller than according to the parties’ assumptions.

Geographic market

53.There are some indications – such as in the other processed meat markets – which indicate the existence of national markets for convenience food. The parties themselves supply convenience food to their customers, supermarkets and caterers and some intermediate industrial processors, mainly in their home countries Germany and the Netherlands. The market investigation revealed that most customers presently purchase convenience products on a national level, but would not face significant obstacles to purchase from aboard. Ultimately the geographic market delimitation can be left open, as

due to the present transaction neither on EU level nor on the narrower national levels do any competition concerns arise.

Competitive assessment

54.The parties’ convenience food activities are almost exclusively concentrated in the meat convenience segment as previously defined, i.e. a market which includes meat convenience food, as a fully or partially prepared dish or packaged food that can be prepared quickly and easily, deep frozen or fresh, not including pre-packed unprocessed meat and minced meat, but including hamburgers and similar minced meat convenience products and having a meat content of 90% or more in each case. This narrow definition excludes the producers of convenience food products which have a less important meat content (ex. pizzas, soups etc.). The parties are active only to a negligible extent in the segment of non-meat, i.e. vegetable- and fish convenience food products, accounting in every case to less than [0-10]% market shares on any national basis.

55.Best Agrifund is active on the market of convenience products throughout Moksel and its subsidiaries Salomon Hitburger GmbH, Salomon Meat GmbH and Eyckeler & Malt AG. Nordfleisch is active in this segment through its subsidiaries Ranchmaster, Weimarer Wurstwaren and a joint venture company with Westfleisch, the FVZ Westfood. Moreover Nordfleisch sells convenience meat products to Unilever, which are sold under Unilever’s brand, but are included to Nordfleisch’s sales data.

56.According to the parties’ estimations, even in the narrow convenience products market, as defined above, their combined market shares remain post merger below [10-20]%: in the EU [0-10]% and on their strongest national market, Germany [10-20]%. Considering the convenience food market as including pre-packed fresh meat in household sizes and minced meat (wider definition) the parties’ market shares remain under [10-20]% on any national- and EU- wide basis, too:

Convenience products

Market Parties Parties Parties

volume combined combined combined

EU market market market

(tonnes) shares EU shares shares

Netherlands Germany

[0-10]% [0-10]% [10-20]%

[Ö]

Narrow definition: products having a meat content of 90% or more, excluding fresh and minced meat

Wider definition: products including pre-packed fresh meat in household sizes and minced meat

Source: the parties’ best estimates

[Ö]

[0-10]% [10-20]% [10-20]%

57.If one were to distinguish further the “narrow” convenience products market according to customer groups such as supermarkets and caterers, the parties achieve their strongest market position again in Germany with [10-20]% in the catering – and [10-20]% in the supermarkets segments. On any other national market the parties achieve less than [0-10]% combined market shares in any customer group segment. In Germany the parties compete with companies such as ESCA Food Solutions GmbH ([10-20]%), Iceline GmbH ([0-10]%), Tönnies ([0-10%]), Artland ([0-10]%) and a number of smaller competitors holding market shares around [0-10]% on the national level. Moreover caterers – such as the big fast-food chains – would generally issue invitations to tender on European level.

58.It can be concluded from the foregoing that under any possible market delimitation the parties’ combined convenience product activities will not lead to competitive concerns as a result of the merger.

G. Trading of meat

Product market

59.The parties submit that there is one product market for trading of meat (pork, beef, lamb, poultry etc.) which consists of the resale of products that are purchased from a third party without further processing and are separate from the markets for the production/processing and sale of the products in question. According to the parties, the trading activity is the same independently of the meat traded and the market comprises all types of meat such as pork, beef and lamb. The meat traded is distributed in the same ways as fresh meat.

60.The majority of the replies from the market investigation show that trading of meat including imports from outside the EU constitutes a separate product market and that the trading activity perhaps should be further subdivided based on the type of meat traded. The replies that state that the trading of fresh meat is not a separate product market state that the trading activity is included in the markets for the sale of fresh meat. Some replies state that trading should be subdivided based on the type of meat traded because of different demand structure. However, according to the market investigation there seems to be a tendency towards trading of meat in packages including more types of meat.

61.For the purpose of this decision the precise product market definition can however be left open, since the transaction will not lead to competition concerns.

Geographic market

62.The parties state that the geographic scope of the market is EU-wide as it comprises all meat from countries outside the EU into the EU. According to the market investigation, the geographic scope of the market is EU or world-wide.

63.For the purpose of this decision the precise geographic market definition can however be left open, since the transaction will not lead to competition concerns.

Competitive assessment

64.Both parties trade meat within the EU. They list their main competitors as F. Boyvent International, Sød­fleisch, Danish Crown, Cremonini and Euromeat. On the EU-level, considering all traded meat the parties’ combined market share is [0-10]% (Best Agrifund [0-10]% and Nordfleisch [0-10]%). On an EU-wide market for the trading of lamb meat, the parties’ combined market share is [0-10]% and does not exceed [10-20]% in any Member State. On an EU-wide market for the trading of poultry the parties’ combined market share is [<1]% and does not exceed [10-20]% in any Member State. The sale of pork and beef is included in the parties’ market shares for the sale of fresh pork and beef. On separate markets for the trade of pork and beef respectively, the parties’ combined market shares would therefore be lower than on the markets for the sale of fresh pork and beef (see above). No vertical relationship arises as a result of the proposed concentration.

65.Based on the above, the proposed transaction does not give rise to competition concerns on the market for trading of meat under any alternative definition.

H. Trade of live stock

Product and geographic markets

66.Both Best Agrifund and Nordfleisch are active in the trade of live stock (primarily piglets and cattle). In this area, the parties’ main activities are in Germany, where they hold a combined market share of [0-10]% of trading with piglets and below [0-10]% of the trading with cattle. In the other EU Member States, their market shares are below [10-20]% .

67.The Commission’s market investigation indicates that there is a separate market for the trade of live stock even though more respondents consider trade to be included in the purchase of animals for slaughtering and that the trading should be segmented according to the species. The geographic scope ranges from 300 km to an international.

68.For the purpose of this decision the precise product and geographic market definitions can be left open, since the transaction will not lead to competition concerns.

Abattoir by-products

69.During the slaughtering process a slaughterhouse produces different abattoir by-products which can either be further processed or which have to be destroyed. Abattoir by-products are generally split into different categories based on the applications for which they can be used. Food/gelatine grade abattoir by-products can be further processed for human consumption and for pharmaceutical applications (e.g. blood, fat, bones and pigskin). Non-food grade abattoir by-products may not be used for human consumption but may be further processed into feed or pet food, used for other applications or have to be destroyed. All animals are subject to an ante-mortem veterinary control which determines the category into which they fall.

70.According to regulations, non-food grade abattoir by-products are classified into three different categories. Category 1 materials are mainly all body parts of animals suspected of being infected with certain diseases (e.g. BSE), Category 2 materials are mainly dead animals not infected by dangerous diseases and that died other than by being slaughtered for human consumption. Category 3 materials are all other abattoir by-products not used for human consumption. Regulations also prescribe how the abattoir by-products are to be treated and different options for the disposal or further processing of the by-products exist (e.g. incineration).

71.A slaughterhouse has more choices when it has to decide what to do with the abattoir by-products, e.g. it can further process it itself, sell it to a third party for further processing or deliver it to processing plants, biogas installations or incineration plants. There are however some limits to this: category 1 material has to be disposed to category 1 rendering plants or has to be incinerated directly; category 2 material can be disposed to category 2 rendering plants or can be disposed via land spread and biogas composting; and category 3 material can be incinerated, disposed to biogas composting, incinerated or further processed elsewhere, e.g. into pet food. Category 3 can be disposed and processed in the same way as category 1 and 2, and category 2 material can be disposed of and processed as category 1 material. The parties state that slaughterhouses use the different possibilities depending on the economic viability of the possibilities.

72.Accordingly, the parties distinguish between (i) category 1 and 2 material; (ii) category 3 material; and (iii) food/gelatine grade material.

The parties’ activities

73.Best Agrifund is primarily active in the Netherlands, Germany and Belgium whereas Nordfleisch’s activities are limited to Germany. The parties are active in the (a) Collection and disposal of category 1 and 2 materials; (b) Purchase and processing of blood; (c) Sale of plasma and haemoglobin; (d) Purchase and processing of bovine hide; (e) Purchase and processing of bones; (f) Sale of fine bone ash; (g) Purchase and processing of fat; (h) Purchase and processing of other category 3 abattoir by-products; (i) Purchase and processing of poultry abattoir by-products; (j) Sale of end products made from other category 3 material (meat meal, blood meal, hair meal, feather meal, animal fat); (k) Processing of bowels; (l) Purchase and processing of pigskin; and (m) Production and sale of gelatine. The production of abattoir by-products is directly proportional to the slaughtering of pigs and cattle.

74.According to the parties, there are some activities where only one of them is active and these activities do not give rise to horizontally affected markets. Vertically, some of these activities do not give rise to affected markets either because the parties’ market shares in both up or down stream markets are below 25%.

I. Collection and disposal of category 1 and 2 materials

Product market

75.Both parties are active in the collection and disposal of category 1 and 2 material and it is submitted that there is a single product market for the collection and disposal of category 1 and category 2 material. Both under EU and national law, the two groups are strictly regulated. The proposed market definition is in line with the Commission’s previous decisions.

Geographic market

76.The parties submit that the geographic market is at most national as the materials may not be exported and need to be processed in the area where they originate. National or local regulations require slaughterhouses to supply category 1 and 2 material for disposal to a specific rendering plant that holds an exclusive license. Both parties hold statutory monopolies in their designated catchment areas and the activities and prices are subject to governmental control.

77.The proposed geographic scope of the relevant product market is in line with the Commission’s earlier decisions and for the purpose of this decision and under the current legislation there is no reason to deviate from previous findings.

Competitive assessment

78.In the Netherlands, Best Agrifund has through its subsidiary Rendac B.V. a statutory monopoly in the processing of category 1 and 2 material. Rendac must collect, transport and process all category 1 and 2 material originating in the Netherlands. The tariffs are subject to governmental control. Nordfleisch does not produce abattoir by-products in the Netherlands and under the current regulation the market for collection and disposal of category 1 and 2 material in the Netherlands is not affected by the proposed transaction.

79.In Belgium, Best Agrifund’s subsidiary Rendac België N.V. is the only company processing category 1 and 2 material. Nordfleisch does not produce abattoir by-products in Belgium, so under the current regulation the market for collection and disposal of category 1 and 2 material in Belgium is not affected by the proposed transaction.

80.In Germany, Nordfleisch operates a rendering plant in Schleswig-Holstein through its subsidiary Jagel. The plant is mainly active in the disposal of category 1 material. Via its indirect shareholding in SNP in Lower Saxony, Best Agrifund is also active in Germany in the area of processing and disposal of category 1 and 2 material. But because each rendering plant has a statutory monopoly in its designated catchment area, the parties’ activities do not overlap and the German markets will not be affected by the proposed transaction.

81.Third parties have raised competition concerns that the parties both will be controlling the collection and disposal of category 1 and 2 products and at the same time involved in the processing of category 3 products. In this respect the respondents fear that the collection of the category 1 and 2 products are bundled with the disposal of the category 3 products, whereby actual or potential category 3 abattoir by-product competitors are excluded from the market.

82.The Commission has carefully considered this argument. On none of the abattoir by-products markets described and assessed below will the parties hold a dominant position. The competitors will continue to have access to purchase of the raw material they need.

J. Purchase and processing of blood

J.i. Food grade blood and category 3 blood

Product market

83.Both parties are active in the purchase and processing of blood. Both parties also produce blood during the slaughtering process. The blood is either further processed or has to be disposed of.

84.Earlier, Best Agrifund was of the view that a distinction should be made between food-grade blood and category 3 blood, noting that the methods for processing category 3 blood and food-grade blood and the costs of doing so are different. For example, blood for food grade applications is collected at slaughterhouses through hygienic collection installations and the processing company does not normally charge the slaughterhouse for the removal of the blood. However, the parties submit that such a distinction is not appropriate any longer because a slaughterhouse has various choices: It can supply the blood to processing companies that use the blood for food applications, to processing companies that use it to produce pet food, to bio gas plants and to rendering plants that dispose of the blood. According to the parties, the choice between the different options is made on the basis of the costs for the slaughterhouse and the parties therefore consider that there is a single market for the purchase and processing/disposal of blood regardless of the blood category.

29See Case No COMP/M.3175.

85.In the Best Agrifund/Dumeco-decision, the Commission considered the distinction between food grade blood and category 3 blood which was confirmed by the market investigation. The exact definition was ultimately left open.

86.Food-grade blood is supplied to producers of plasma and haemoglobin, to butchers or to meat processors. Category 3 blood is supplied to producers of (feed-grade) plasma and haemoglobin and to pet food manufacturers. If a slaughterhouse collects blood for pet food or food applications it must capture the blood in determined hygienic conditions, store it temporarily in separate tanks and add an anti-coagulant. If the blood is supplied to a rendering plant, it needs no special collection or treatment. Animals used for food grade applications must pass both an ante mortem and a post mortem inspection; if the post mortem inspection is negative, the blood can no longer be used for food grade application. Blood for category 3 applications has to pass only the ante mortem inspection.

87.A slaughterhouse can either purchase the equipment for the collection and storage of the blood itself or it can ask the blood processing company that it intends to supply to make the investment. According to the parties, there is no minimum size for a slaughterhouse for the installation of food-grade blood collection equipment. In both cases, the slaughterhouse bears the operating costs of the equipment. If the slaughterhouse makes the investment, the processing company pays for the blood or charges less for its removal. If the processing company makes the investment, it pays even less. [less than half] of Pronat’s blood suppliers own the installed blood collection equipment, while [the vast majority] of the blood collection equipment of Harimex’s blood suppliers is owned by Harimex.

88.The parties submit that the net cost of the collection and storage of blood for feed or food grade applications is, on average, similar to the cost of supplying the blood to a biogas plant or rendering plant. Slaughterhouses therefore switch between the supply of blood to food-grade blood processors, pet food manufacturers, biogas plants (in Germany) and rendering plants in response to structural price movements, in order to minimize the cost of removing the blood. The fact that a slaughterhouse has invested in a blood collection installation does not prevent it from switching its supplies to a biogas plant or a rendering plant. The switch from the collection of blood for pet food applications to the collection of blood for food applications merely requires the purchase of small tanks (for the temporary storage of blood until the post mortem inspection). The switch from blood for food applications to blood for pet food applications does not require any investments.

89.The parties’ view was not confirmed during the Commission’s market investigation. The vast majority of the replies state that food grade blood and category 3 blood are two different product markets. This is primarily because switching is not entirely easy and because the end applications are different. One can easily switch from processing food grade blood to category 3 blood but it is not easy switching from category 3 to food grade blood because of the required investments in tanks, cooling, staff etc. Category 3 blood cannot be used in food applications, whereas food grade blood can be used in category 3 applications. Therefore, it seems that there is an overlap from food grade blood to category 3 but not vice versa. Slaughterhouses only producing category 3 blood cannot start supplying food grade blood without incurring significant costs. The parties have stated that the costs of the equipment for the collection of food-grade blood range from Ä [Ö] to Ä [Ö], depending on the type and capacity of the installation and the

32Unprocessed blood contains around 85% water and only 15% plasma/haemoglobin.

90.costs of the equipment for the collection of blood for pet food applications range from Ä [Ö] to Ä [Ö]. According to the market investigation the costs of food grade collection equipment ranges from Ä70.000 to Ä1,600,000 and from Ä25,000 to Ä1,000,000 for category 3 equipment.

91.In addition, the purchase prices for food grade and category 3 blood are also different. For example, a German slaughterhouse pays/is paid Ä/litre for food grade pig blood by Best Agrifund and Ä/litre for category 3 blood. According to the market investigation, should the price on food grade blood increase by 5-10%, the slaughterhouses not producing food grade blood would be reluctant to start up such a production because of the investments needed.

92.It can be concluded based on the facts that different equipment and requirements and especially the lack of demand substitutability that food grade blood and category 3 blood constitutes separate product markets.

J.ii. Pig blood and cattle blood

93.The parties submit that there is a single market for pig and cattle blood because food grade pig and cattle blood are both processed into plasma and haemoglobin and used for the same applications. There are no relevant technical differences between pig and cattle blood. According to the parties, a specific type of blood is required only in a very limited number of cases where customers demand blood of a specific origin. The possible uses of pig and cattle blood differ only for category 3 blood. Pursuant to Regulation 1774/2002, category 3 cattle blood (unlike category 3 pig blood) may not be used in the manufacture of pet food. There are no material separate production lines for the types of plasma and haemoglobin. They are produced in batches and the equipment is cleaned before a batch of another type is produced.

94.This is not in line with the findings of the Commission’s market investigation. The vast majority of the respondents state that the purchase of blood should be separated into pig blood, cattle blood and mixed pig/cattle blood because of demand side considerations. Some replies state that blood from different species can be processed on the same production lines while others state that this is not possible and that specific dedicated production lines are required. Anyway, based on information obtained by the Commission, the same production facilities cannot be used for both category 3 products and food grade products.

95.Under the current regulation it seems that food grade blood and category 3 blood should be further split according to the species.

Geographic market

30Regulation (EC) No 1774/2002 of the European Parliament and of the Council of 3 October 2002 laying down health rules concerning animal by-products not intended for human consumption, OJ L 273, 10.10.2002, p. 1.

96.The geographic scope of the market is the same for the different blood types and categories. Food-grade blood and category 3 blood are transported over similar distances even though the transportation of food-grade blood over larger distances is generally economical due to the higher value of the blood. The blood processing companies operate primarily on a national basis (e.g. Harimex in the Netherlands, Veos in Belgium and NFZ Pronat in Germany) appears to indicate that the market for the purchase and processing of blood is national, which was also confirmed by the Commission’s investigations in the Best Agrifund/Dumeco-decision. Unprocessed blood is voluminous and heavy it is not economical to transport it over long distances. There are however examples of cross-border trade (Harimex purchases blood in Germany and in Belgium and Pronat purchases blood in Denmark). The parties therefore submit that the market may be wider than national and comprise Germany, the Netherlands and Belgium.

97.The market investigation has shown that the blood purchasers source most of their blood within a radius of 200-300 km from the processing plants. A few of the replies to the market investigation indicate that the geographic market is national perhaps comprising neighbouring countries. The results from the market investigation are in line with the Best Agrifund/Dumeco-decision. This is especially true for those slaughterhouses situated close to the Dutch border, however, for other slaughterhouses the market should be regarded as strictly national in scope.

Competitive assessment

98.Although, for the reasons described above, the various disposal channels of blood may belong to different product markets, there is significant interaction between the different disposal and processing options. Because of the low value of blood relative to the primary slaughter products (see below), the overall quantity of blood produced is inelastic with regard to the price of blood, but proportional to the number of animals slaughtered.

99.The following value-added levels can be identified for slaughter blood: blood -> category 3 blood -> food-grade blood -> liquid plasma/ haemoglobin -> frozen plasma/ haemoglobin -> plasma/ haemoglobin powder.

100.A switch of production from lower to higher value-added blood products (e.g. category 3 to category 3 to food-grade blood, liquid blood to frozen plasma or plasma powder.) requires a certain amount of investment. In return, the blood becomes eligible for additional disposal channels, potentially earning a higher price (or incurring a lower disposal fee). Since the technology for the additional investment (essentially additional collection tanks) is freely available, the investment decision depends essentially on the price differential between different disposal channels. It should be remembered, in this context, that blood is a low-value product. Several competitors covered by the market investigation have pointed out that the potential income from blood sales or, alternatively, the disposal costs account only for a small fraction of a slaughterhouse’s turnover and do barely affect the total cost of supplying meat to the downstream market. For example, Best Agrifund and Nordfleisch, who have some of the most extensive blood processing operations in the industry, generate only [<1]% and [<1]%, respectively, of their total turnover in the sale of blood products. As a result, many slaughterhouses prefer to dispose of their blood at a low-value added level. The emergence of biogas facilities in Germany as a new disposal channel for category 3 and food grade blood has added further attraction to this disposal strategy.

101.By contrast, both Best Agrifund and Nordfleisch have extensive blood processing activities, including the production of frozen and spray-dried plasma and haemoglobin. Both companies obtain food-grade and category 3 blood for further processing not only from their own operations but also from third-party slaughterhouses. Thereby, they offer an additional disposal channel for blood produced by slaughterhouses without further processing activities. The notified transaction, thus, combines the only two companies offering this disposal option to third parties in Germany.

102.Both parties are active in the production and sale of plasma and haemoglobin. Plasma and haemoglobin are functional proteins that are isolated from blood. Haemoglobin is used in the pet food and food sector as a colouring agent, a protein source and a replacement for fishmeal. To a minor extent it is also used in the health sector as a natural iron source. Plasma is used for food and feed applications as a gelling agent, emulsifier, protein source or binder. Plasma and haemoglobin are sold in frozen and in liquid form and as plasma and haemoglobin powder. The three forms are ñ according to the parties ñ substitutable because their functionalities are the same.

103.The parties submit that there is a single market for functional proteins. Plasma competes with a large number of other functional proteins from animal and vegetable origin that have similar water binding, emulsifying and taste/smell properties and protein content. Substitute products for haemoglobin are colouring agents like caramel, iron oxide, beetroot and carmine and, for feed applications, other protein sources like fishmeal, soy proteins and potato proteins. For pharmaceutical applications, where haemoglobin is used as an iron source, it can be substituted in particular by iron sulphate. For use in cooked meat for instance, plasma protein, collagen protein, carrageenan, soy protein, egg albumin, whey-protein and Na-Caseinate can be applied alternatively. Meat is also used as a substitute for haemoglobin due to the colouring features of myoglobin. According to the parties, all these substitutes can replace plasma and haemoglobin irrespective of whether it is liquid, frozen or in the form of powder.

33Plasma and haemoglobin are contained in blood in fixed proportion.

108.The geographic scope of the market is the same for the different blood types and categories. Food-grade blood and category 3 blood are transported over similar distances even though the transportation of food-grade blood over larger distances is generally economical due to the higher value of the blood. The blood processing companies operate primarily on a national basis (e.g. Harimex in the Netherlands, Veos in Belgium and NFZ Pronat in Germany) appears to indicate that the market for the purchase and processing of blood is national, which was also confirmed by the Commission’s investigations in the Best Agrifund/Dumeco-decision. Unprocessed blood is voluminous and heavy it is not economical to transport it over long distances. There are however examples of cross-border trade (Harimex purchases blood in Germany and in Belgium and Pronat purchases blood in Denmark). The parties therefore submit that the market may be wider than national and comprise Germany, the Netherlands and Belgium.

104.However, the Commission’s market investigation indicates that substitution between blood and alternative products may be difficult, costly or impossible for at least some customers. For example, pet food producers would have to modify their recipes in order to accommodate substitutes. This cost may enable a hypothetical monopolist to impose a SSNIP on this group of consumers. However, the exact scope of the market can be left open in this case because, even in a separate market for plasma and haemoglobin, no serious doubts as to the compatibility with the Common Market arise.

105.From the demand side, a further distinction could be made between plasma and haemoglobin, as they are not substitutes for each other, between form (frozen, liquid, powder) and species from which the blood is made (pig, cattle and mixed). However, there is significant interaction between the different segments and there appears to be supply-side substitutability between at least some of the possible product market delineations. In addition, some of the resulting market segments and potential customer base would be extremely small and any resulting market shares (such as, e.g., for frozen bovine haemoglobin) are likely to be incidental.

106.Further, blood contains plasma and haemoglobin in fixed proportions. Any production of liquid plasma, thus, leads to haemoglobin as a by-product. Like plasma, haemoglobin can be further processed into frozen flakes or powder in a process that is identical for plasma and haemoglobin. However, because of its properties, plasma is a substantially more valuable product for most applications, leading to a price approximately ten times higher than for haemoglobin. It appears unlikely; therefore, that a high market share in haemoglobin powder would by itself confer any market power, given that the supply of haemoglobin is essentially determined by the demand of plasma. Similarly, a separate high market share for mixed porcine and bovine products would not lead to market power as long as competitive conditions prevail in the separate porcine and bovine markets.

107.The exact market definition for blood products can be left open because the notified transaction does not lead to serious doubts under any conceivable market delineation.

108.It seems that the geographic scope of the market depends on the form of the product in question. When considering liquid plasma and liquid haemoglobin, it seems from the market investigation that the products are sold within a radius of maximum 600-700 km from the processing plant. Looking at frozen plasma and haemoglobin, most replies indicate that the scope could be national. Some state that neighbouring countries should be comprised too. The geographic scope of the plasma and haemoglobin powder market seems to be at least EU-wide. The sale of plasma powder could even be world-wide, whereas the market for haemoglobin powder at most is the EU. These findings apply regardless of the species from which the plasma or haemoglobin is made and regardless of whether the category is food grade or category 3 material.

109.The transaction leads to the following combined market shares in the various blood product segments, according to data collected by the Commission’s market investigation (2002 by volume):

Food grade blood products - overall

Category 3 blood products - overall

Plasma

Haemoglobin

Plasma

Haemoglobin

Volume (t) 11.880 9.846 [10-20]% [10-20]% [20-30]% [0-10]% [30-40]% [10-20]% Combined

Volume (t) 23.088 30.714 [0-10]% [10-20]% [10-20]% [20-30]% [20-30]% [30-40]% Combined

BA

NF

Porcine food grade blood products

Porcine category 3 blood products

Plasma

Haemoglobin

Plasma

Haemoglobin

Volume (t) 11.131 8.580 [10-20]% [10-20]% [20-30]% [0-10]% [30-40]% [10-20]% Combined

Volume (t) 13.820 20.784 [0-10]% [0-10]% [10-20]% [10-20]% [10-20]% [20-30]% Combined

BA

NF

Bovine food grade blood products

Bovine category 3 blood products

Plasma

Haemoglobin

Plasma

Haemoglobin

Volume (t) 538 1.266 [20-30]% [0-10]% [0-10]% [0-10]% [20-30]% [0-10]% Combined

Volume (t) 3.895 608 [0-10]% [50-60]% [0-10]% [0-10]% [0-10]% [50-60]% Combined

BA

NF

Combined

Mixed food grade blood products

Mixed category 3 blood products

Plasma

Haemoglobin

Plasma

Haemoglobin

Volume (t) 211 [40-50]% [50-60]% [90-100]% [0-10]% Combined

-

Volume (t) 5.373 9.322 [10-20]% [10-20]% [30-40]% [50-60]% [40-50]% [60-70]% Combined

BA

BA

NF

NF

110.As the table above indicates, the parties achieve significant market shares in a range of blood products, in particular in food-grade porcine plasma ([30-40]%) and in an overall market for food-grade plasma. In view of the BSE problem, little bovine and mixed plasma is marketed in the EU and the parties’ market shares in this segment cannot be considered as indicative of market power (or a dominant position). Significant quantities of category 3 haemoglobin are marketed as animal feed, however the unit value of haemoglobin is only approximately 10% of plasma. The parties’ activities do not overlap in the bovine haemoglobin segment. Again, the market investigation indicates that a [50-60]% nominal market share for category 3 bovine haemoglobin does not confer significant market power, in view of the absence of barriers-to-entry into this market for plasma producers. In addition, the parties’ activities do not overlap in this segment.

111.Apart from Best Agrifund and Nordfleisch, there are four additional significant competitors: APC, Veos, Badenhop and Danish Crown. Their market shares vary across the different product segments.

112.If the market is further subdivided between liquid, frozen and powder products, the parties’ activities no longer overlap in most of the resulting tentative markets. However, both Best Agrifund and Nordfleisch produce frozen food-grade porcine plasma. According to the Commission’s market investigation, their combined market share in this segment would amount to [50-60]% at EU-level. However, the market investigation also indicates that competition from the remaining suppliers (notably APC, Veos and Danish Crown) as well as competitive pressure from powder-based and liquid products would prevent the creation of a dominant position in such market. In particular, barriers-to-entry between the liquid and frozen markets are low for suppliers already active in liquid plasma. The parties control only [10-20]% of an EU-market for liquid porcine plasma. In food-grade plasma powder, the combined market share is [20-30]% (Commission’s calculations).

113.Furthermore, the blood market’s linkage to the overall market for slaughter products reduces the incentive for a firm with market power to decrease its output of processed blood products (e.g. to impose a price increase). Given that the overall blood supply is exogenous to the processed blood market (as it is determined by the number of animals slaughtered), any reduction in the production of plasma/ haemoglobin would force the parties’ competitors to dispose of their slaughter blood through more costly channels, while reducing utilisation of the processing equipment.

114.In conclusion, on the basis of the market investigation, the Commission has found no indication that the notified transaction may create a dominant position in the market for plasma and haemoglobin products, even on the basis of narrowly defined product markets.

L. Production and sale of gelatine

115.Gelatine is a natural organic product made from abattoir by-products (see below) through the extraction of collagen and it is used for a wide range of applications, including in particular applications in food, pharmaceutical and photographic sectors. The production process to obtain collagen differs depending on the raw material used. The raw material used are bovine and pig bones, bovine hides, pigskin, animal skins and bones, bone fragments and, to a lesser extent, turkey bones and fish skins. In general gelatine is made from a single raw material but there are various applications for which a blend of different types can be used.

116.The parties believe that there is a single market for gelatine since the different forms of gelatine are, to a large extent, substitutable and since the equipment used in the production of the varieties is basically the same. Only Best Agrifund through its subsidiary Rousselot is active in the production and sale of gelatine. Nordfleisch is a (potential) supplier of most of the raw materials (see below).

117.For the purpose of this decision the precise product market definition can however be left open, since the transaction will not lead to competition concerns.

Geographic market

118.The parties submit that the relevant geographic market is world-wide or at least EU-wide. Rousselot produces and sells its products world-wide.

119.However, for the purpose of this decision the precise geographic market definition can be left open, since the transaction will not lead to competition concerns.

Competitive assessment

120.On a world-wide market, Best Agrifund has a market share of approximately [10-20]%. The main competitors are the German Gelita ([20-30]%), the Belgian PB Gelatine ([10-20]%), the French Weishardt ([0-10]%), the Italian Italgelatine ([0-10]%) and the Japanese Nitta and Junca Gelatines ([0-10]%). When splitting up the gelatine according to applications, the market shares are roughly the same. But as only Best Agrifund is active in the production and sale of gelatine, no overlap and no horizontally affected market arise as a result of the proposed transaction.

121.Vertically, Nordfleisch is a potential supplier of the raw materials used in the production of gelatine, but this is dealt with below. Furthermore, Nordfleisch produces meat products in which gelatine is used, but its market share on any up stream meat market is below [20-30]%.

122.Based upon this it can be concluded that the proposed concentration does not create competition concerns on the market for production and sale of gelatine.

M. Purchase of raw materials for the production of gelatine

123.The following concerns the purchase of raw materials for the production of gelatine. The different raw material product markets are assessed on the narrowest possible basis, i.e. separately. Only Best Agrifund through its subsidiaries is active in the purchasing. Nordfleisch only produces the different raw materials in the slaughtering process.

M.i. Purchase and processing of bones

124.Bones can be used in the production of gelatine, foodstuffs, meal, fat and technical glues, colloidal products and bone ash. According to the parties, in principle, both pig and cattle bones can be used for all applications even though cattle bones are better suited for certain sophisticated technical applications. The parties submit that there is full supply-side substitutability as the processing method is identical for pig bones and cattle bones and both are processed in the same facilities. The processors can therefore easily switch between the processing. They consider that there is one single product market for all bones.

125.The parties’ submission is in line with the Commission’s earlier findings regardless of the fact that bones are also categorized as food grade, category 1, 2 and 3 materials. Only Best Agrifund through its subsidiaries is active in the purchase and processing of bones. Nordfleisch only produces bones.

35See Case No COMP/M.3175 where the exact market definition was left open.

For the purpose of this decision the precise product market definition can however be left open, since the transaction will not lead to competition concerns.

Geographic market

127.The parties consider that the relevant geographic market at least comprises the Netherlands, Belgium and Germany, but may be wider. This is in line with the Commission’s previous decision where there were indications that the geographic scope may be wider than national as some cross-border trade takes place between Belgium and Germany. Best Agrifund states that they purchase more than [40-50]% of the bones processed in the Netherlands in Germany and Belgium.

However, for the purpose of this decision the precise scope of the geographic market definition can be left open, since the transaction will not lead to competition concerns.

Competitive assessment

129.On a regional market comprising the Netherlands, Belgium and Germany, Best Agrifund’s market share is [10-20]%. Considering national markets, Best Agrifund’s market shares would be [50-60]% in the Netherlands, [0-10]% in Germany and [10-20]% in Belgium. But since Nordfleisch is not active in the purchase and processing of bones, no overlap and no horizontally affected market arise as a result of the proposed transaction.

130.Vertically, Nordfleisch is as such a potential supplier to Best Agrifund. However, if Nordfleisch were to supply its entire production of bones to Best Agrifund, Best Agrifund’s market share on the regional market would increase to from [10-20]% to [10-20]%. Considering Germany (the only place where Nordfleisch produces bones), Best Agrifund’s market share would increase from [0-10]% to [10-20]%, if Best Agrifund were to purchase and process the total volume of bones produced by Nordfleisch. Since Nordfleisch does not produce bones in either the Netherlands nor in Belgium, these markets would not be affected by the proposed concentration.

131.In conclusion, the proposed concentration does not give rise to competition concerns on the market for the purchase and processing of bones.

M.ii. Purchase and processing of pigskin

132.Pigskins are mainly used for the production of gelatine. Only Best Agrifund is active in the purchase and processing of pigskin through its subsidiary Rousselot. Nordfleisch produces pigskin and is as such a potential supplier.

133.For the purpose of this decision the precise product market definition can however be left open, since the transaction will not lead to competition concerns.

Geographic market

36See Case No COMP/M.3175 where the exact market definition was left open.

134.The parties believe that the geographic market for the purchase of pigskin comprises at least the Netherlands, Germany and Belgium since pigskins are exported on a large scale.

135.However, for the purpose of this decision the precise scope of the geographic market definition can be left open, since the transaction will not lead to competition concerns.

Competitive assessment

136.Considering a regional market for the purchase of pigskin, Best Agrifund’s market share is [10-20]%. On a national basis, Best Agrifund’s market share in the Netherlands was [20-30]% and in Germany [0-10]%. Best Agrifund does not purchase pigskin in Belgium. As mentioned, Nordfleisch only produces pigskin. Even if all pigskin produced by Nordfleisch were processed by Best Agrifund, Best Agrifund’s market share would increase only to [10-20]% in Germany, the Netherlands and Belgium taken together. Considering national markets, the Netherlands would not be affected since only Best Agrifund produces and purchases pigskin in the Netherlands. All processing takes place in Belgium. In Germany, even if all pigskin produced by Nordfleisch were processed by Best Agrifund, Best Agrifund’s market share would increase to [10-20]%. Neither Best Agrifund nor Nordfleisch produces or purchases pigskin in Belgium.

137.Based on this, the proposed transaction does not give rise to competition concerns on the market for purchase and processing of pigskin.

M.iii. Purchase and processing of bovine hide

138.Bovine hides are used as a raw material in the production of gelatine but they need to undergo an additional treatment before they can be used for such. This treatment is carried out by skin processing plants (tanneries), which separate bovine hide into three layers: the flesh-containing subcutaneous layer, which is removed; the outside skin, which is processed to leather and the mid layer, which is used for gelatine production. Neither of the parties is active in tanneries.

Only Best Agrifund through its subsidiary Rousselot is active in the purchase and processing of bovine hide. Because the hides have to be processed before the gelatine production Nordfleisch is not able to supply Best Agrifund directly after the transaction. The market for the purchase of bovine hides is not affected by the proposed transaction.

139.For the purpose of this decision the precise product and geographic market definitions can however be left open, since the proposed transaction will not lead to competition concerns.

N. Sale of fine bone ash

140.Bone ash can be either produced directly from bones or synthetically. Natural bone ash is made from bone chips that are too small to be used for the production of gelatine. These bone chips are processed into rough bone ash through calcinations (in a drum). If bone ash is processed further into fine bone ash it can be used as a whitening agent for the production of china by the ceramic industry. If water and stone are added to the fine

bone ash, it can be used as cement. Only Best Agrifund through its subsidiary Smits Vuren B.V. produces bone ash. Nordfleisch produces bones and is as such a potential supplier.

141.For the purpose of this decision the precise product market definition can however be left open, since the transaction will not lead to competition concerns.

Geographic market

142.The parties submit that the relevant geographic market is world-wide. However, for the purpose of this decision the precise geographic market definition can be left open, since the transaction will not lead to competition concerns.

Competitive assessment

143.Only Best Agrifund is active in this market with a market share of approximately [20-30]% world-wide. Nordfleisch is neither an actual nor potential supplier as it has no activities in rough bone ash. The market for sale of fine bone ash is not affected by the proposed concentration.

O. Purchase and processing of fat

144.Neither Best Agrifund nor Nordfleisch is active in the processing of fat. Nordfleisch holds a non-controlling minority shareholding in Nordschmelze GmbH which processes food grade fat into category 3 fat in Germany.

145.For the purpose of this decision the precise product and geographic market definitions can however be left open, since the transaction will not lead to competition concerns.

P. Processing of bowel packages

146.Bowel packages are raw abattoir by-products including small and large intestines, stomach fat, spleen and pancreas. Parts of the bowel package are further processed into natural casings for sausages and parts of them are used for pharmaceutical applications or are disposed. Only Nordfleisch is active in the processing of bowel packages at the premises of its own slaughterhouses; Best Agrifund is merely active in the disposal of unprocessed bowel packages. Bowel packages produced at the Best Agrifund slaughterhouses are processed by independent companies at the premises of the Best Agrifund slaughterhouse.

147.For the purpose of this decision the precise product and geographic market definitions can however be left open, since the transaction will not lead to competition concerns.

Competitive assessment

148.The proposed concentration creates no overlap between the parties’ activities since the bowel packages are processed at the slaughterhouse where they are produced.

37Including the sales from the joint venture China Millers Ltd. with Royal Doulton.

Q. Purchase and processing of other category 3 abattoir by-products

149.Only Best Agrifund is active in the purchase and processing of other category 3 abattoir by-products. Potentially, Nordfleisch could supply Best Agrifund with other category 3 products. According to the parties, other category 3 abattoir by-products consist of the lowest value abattoir by-products. Although these products could be fit for human consumption, it is not possible for commercial reasons to use them for food applications. The abattoir by-products in this category are processed into meat meal, fat and water. The processed products are used for pet food and technical applications, in the energy sector or are exported to countries outside the European Union for use in pet food.

150.For the purpose of this decision the precise product market definition can be left open, since the transaction will not lead to competition concerns.

Geographic market

151.The parties believe that the relevant geographic market is national because of high transport costs compared to the low value of the products.

152.For the purpose of this decision the precise geographic market definition can be left open, since the transaction will not lead to competition concerns.

Competitive assessment

153.The proposed concentration does not create any horizontal overlaps. Vertically, Nordfleisch is a potential supplier to Best Agrifund. However, Nordfleisch does not produce any abattoir by-products in the Netherlands. According to the parties, in Germany, if Nordfleisch were to supply all of its other category 3 by-products to Best Agrifund, Best Agrifund’s market share would increase from [10-20]% to less than [10-20]%, not giving rise to competition concerns.

R. Sale of end products made from other category 3 by-products

154.The end products made from other category 3 by-products made by Best Agrifund are meat meal, blood meal, feather meal and animal fat.

155.As only Best Agrifund is active in the sale of end products made from other category 3 material and Nordfleisch is not active on the up-stream market producing any end products from other category 3 material, the precise product and geographic market definition can be left open, because the transaction will not lead to competition concerns.

38This is in line with the Commission’s decision in Case No COMP/M.3175.

39This is in line with the Commission’s decision in Case No COMP/M.3175.

30

Neither horizontally affected nor vertically affected markets arise as a result of the proposed transaction and hence no competition concerns either.

S. Purchase and processing of poultry abattoir by-products

157.Only Best Agrifund is active in the purchase and processing of poultry abattoir by-products.

158.For the purpose of this decision the precise product market definition can be left open, since the transaction will not lead to competition concerns.

VI CONCLUSION

159.For the above reasons, the Commission has decided not to oppose the notified operation and to declare it compatible with the common market and with the EEA Agreement. This decision is adopted in application of Article 6(1)(b) of Council Regulation (EEC) No 4064/89.

For the Commission

(signed) Mario MONTI Member of the Commission

31

EUC

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