Competition Bureau statement regarding its investigation into alleged anti-competitive conduct of wholesalers and manufacturers of crop inputs in western Canada

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Source: Government of Canada

Today, the Commissioner of Competition announced that he has concluded an investigation into allegations related to the supply of crop inputs such as seeds, fertilizer and crop protection products (crop inputs). These allegations concerned whether certain wholesalers and manufacturers of crop inputs (the Targets of the investigation) engaged in conduct contrary to Part VIII of the Competition Act (Act), specifically whether the Targets worked together, or on their own, to disadvantage, restrict or block the supply of crop inputs to Farmers Business Network Canada Inc. (FBN). The Commissioner’s decision in this case follows an extensive investigation conducted by the Competition Bureau. This statement summarizes the investigation and the reasons it was concluded.

Overview

The Bureau’s investigation primarily examined the conduct under two relevant provisions of the Act:

  1. civilly reviewable competitor collaborations (section 90.1); and
  2. abuse of dominant position (section 79).

First, the Bureau investigated whether an agreement or arrangement existed in relation to FBN between any of the Targets (at least two of which are competitors to one another), contrary to section 90.1 of the Act. Second, the Bureau examined whether the Targets abused a dominant position by acting with anti-competitive intent toward FBN, causing a market effect contrary to section 79 of the Act.

The evidence gathered and analyzed by the Bureau does not establish that competitors had an agreement or arrangement in relation to FBN; however, the investigation uncovered communications by certain market participants with the goal of influencing suppliers of crop inputs with respect to FBN. Firms should be aware that these types of communications can result in an agreement or arrangement, which may contravene section 90.1 of the Act, or, depending on the terms, the criminal conspiracy provision of the Act (section 45).

The evidence gathered and analyzed by the Bureau also failed to meet the threshold to establish that dominant Targets acted with anti-competitive intent toward FBN and that competition was substantially lessened or prevented in the markets for crop inputs in western Canada. For these reasons, the Commissioner elected to end the investigation. The Bureau will continue to monitor the crop input industry for any anti-competitive conduct that seeks to restrict new entrants and has the potential to substantially lessen or prevent competition in any relevant market.

Background

The Canadian Agriculture Industry

The agricultural industry is a sector of strategic importance to the Canadian economy and consequently a critical sector for the protection of innovation and competition. According to an overview prepared by Agriculture and Agri-food Canada, the Canadian agriculture and agri-food industry accounted for 7.4% of the national GDP in 2020 and generated an estimated $139.3 billion for the Canadian economy. A Canadian seed sector profile shows that Canadian crop inputs are a critical part of the agriculture supply chain in Canada and abroad, with Canada exporting an estimated $646 million of seeds in 2018. Further, Statistics Canada data reveals that Canadian exports of pesticides, fertilizers and other agricultural chemicals reached approximately $1.5 billion in 2020.

The investigation examined crop input firms operating at three levels of production and distribution —

manufacturing, wholesaling, and retailing:

  • Manufacturers develop and produce crop inputs.
  • Wholesalers purchase crop inputs from manufacturers and distribute these products to retailers.
  • Retailers sell crop inputs to growers, and may offer other types of support such as  providing agronomic counselling or advice.

In certain cases, firms are vertically integrated across these levels. For example, large retailers may be integrated at the wholesale and retail level, or manufacturers may have integrated wholesale operations. In cases where manufacturers do not sell directly to independent retailers (i.e., retailers that are not vertically integrated), manufacturers and retailers may enter into contractual relationships in relation to the sale of certain products, to access rebate programs or for the purposes of licensing intellectual property incorporated into crop inputs.

Background on FBN

FBN is an online retailer of crop inputs and the Canadian subsidiary of the U.S.-based Farmers Business Network Inc. In November 2017, FBN entered the Canadian market with a novel business model that allowed growers to purchase crop inputs from a digital platform, access data analytics tools, and view price comparisons and agronomic information for crop inputs. FBN’s service offerings in Canada currently include:

  • an online store for farm inputs (such as crop protection products, adjuvants and fertilizers);
  • grain marketing services (for tracking and managing crop marketing activities); and
  • analytics tools (including price comparison tools, seed selection tools, crop protection selection tools and other farm data analytics).

The conduct under investigation

Following its entry in the Canadian market, FBN unsuccessfully sought to obtain supply of crop inputs from a number of the Targets in western Canada. To facilitate its expansion in the Canadian market, in March 2018, FBN acquired Yorkton Distributors Ltd., a brick-and-mortar, independent retailer in southern Saskatchewan that had relationships with many of the Targets. Following this acquisition, concerns were raised with the Bureau that the Targets took

various actions, including denying or restricting supply and/or associated rebate programs to FBN, or engaging in communications with other market participants about FBN.

The Bureau’s investigation

The Bureau considered communications between Targets that allegedly suggested the timing and nature of the refusals were consistent with and/or suggestive of coordinated behaviour contrary to the Act. The Bureau further investigated whether the Targets engaged in anti-competitive conduct that had or was likely to have the effect of substantially lessening or preventing competition in any market for crop inputs in western Canada.

After a preliminary investigation, the Commissioner launched a formal inquiry in October 2019 into whether the Targets’ conduct was contrary to the Act. The Bureau completed a comprehensive investigation in which it collected information from relevant industry participants such as growers and industry associations, as well as manufacturers, wholesalers and retailers of crop inputs. During the investigation, the Bureau also sought court orders under section 11 of the Act, which included requirements that the Targets produce records and written returns of information.

Analysis

Competitor collaboration

An agreement or arrangement among competitors may be prohibited under the civil provisions of the Act when it exists or is proposed between persons, two or more of whom are competitors, with the result that competition has been or is likely to be prevented or lessened substantially in a market. The Bureau’s investigation focused on competitor collaboration under section 90.1 of the Act.

The Bureau is of the view that the full body of evidence gathered does not sufficiently establish a horizontal agreement or arrangement between Targets in relation to FBN.

A horizontal agreement is an arrangement between one or more competitors that operate at the same level of a supply chain (e.g. manufacturers).

However, the evidence suggests that certain market participants engaged in communications with the goal of influencing manufacturers or wholesalers with respect to FBN. Although the evidence surrounding these communications fails to establish an agreement or arrangement between competitors, these communications are nonetheless concerning to the Bureau. Such communications have the potential to eliminate competitive tension between rivals or establish a “hub-and-spoke” arrangement, wherein a third party facilitates (and therefore becomes party to) an agreement or arrangement between horizontal competitors. As indicated in the Bureau’s Competitor Collaboration Guidelines, the civil agreement provision can apply to all forms of agreements and arrangements between competitors, regardless of the degree of formality, and an agreement does not need to be in writing to be in contravention of section

90.1.   As such, “informal” verbal communications where sensitive competitive information or business strategies are shared between competitors may raise concerns under the Act where evidence shows that

those communications have affected or aligned the business strategies and decisions of the competitors. In this case, the Bureau’s conclusion turned on the specific evidence gathered; however, firms should be aware that engaging in these types of communications may lead to the creation of agreements that contravene section 90.1 or, depending on the terms of the agreement, section 45 of the Act.

Abuse of dominance

Abuse of dominance occurs when a dominant firm or group of firms in a market engages in a practice of anti-competitive acts, with the result that competition has been or is likely to be prevented or lessened substantially. While the Bureau’s investigation considered a number of reviewable matters under Part VIII of the Act, the investigation primarily focused on abuse of dominance under section 79 of the Act.

In evaluating the conduct under section 79 of the Act, the Bureau focused on whether the Targets acted with an intended exclusionary negative effect on FBN. This analysis had a particular focus on the Targets who the Bureau considered to be most likely to possess the market power to hold dominant positions under the Act, in particular Targets that are manufacturers. After careful consideration, the Bureau does not, at this time, believe that the evidence of anti-competitive intent is sufficient to continue the investigation.

Another element of the Bureau’s analysis was the assessment of real or probable competitive effects of the conduct under review. In the context of its investigation, the Bureau considered a number of potential competitive effects, including whether, but for the conduct:

  • FBN would be a more vigorous competitor in one or more markets relating todigital agriculture;
  • FBN’s price transparency tool would increase price competition in one or more markets;
  • FBN would bring about materially greater competition from generic crop protection products;
  • crop input retail markets would be more innovative;
  • FBN would be an aggressive retail price competitor; and
  • FBN would offer more choice in the purchase of crop inputs by virtue of its e-commerce business model.

When assessing these potential effects, the Bureau focused on whether there was a causal link between the alleged conduct and the potential effect on competition. In the Bureau’s view, the evidence of a causal link was insufficient for the first four potential competitive effects, having particular regard to FBN’s continued operation in Canada at this time. While the Bureau considered there to be some evidence of FBN offering lower than average prices and of its business model providing additional consumer choice, the Bureau is not of the view that the evidence at this time demonstrates the Targets’ conduct resulted in a substantial lessening or prevention of competition in one or more markets for crop inputs in western Canada.

However, the evidence gathered did establish that many market participants considered FBN as a market disruptor and competitive threat to the incumbents due to its innovative business model. The Bureau considers FBN’s online commerce, price transparency tool and benchmarking technology to be innovations with the potential of increasing competition and facilitating growers’ purchasing decisions. Although evidence in this matter has failed to demonstrate that the alleged conduct is frustrating FBN’s

innovations from materially increasing current or future competition in any relevant market, the Bureau will remain particularly watchful for conduct that appears to raise barriers for innovative entrants.

Conclusion

Having carefully reviewed the evidence gathered, the Bureau has ended its investigation and does not intend to take further investigative steps at this time. Nonetheless, the Bureau is aware of the importance of agricultural innovations, especially in the digital economy. The Bureau also considers the communications that took place in this highly concentrated sector to be of concern. The Bureau’s conclusions in this matter are based on the particular facts of this case; however, firms should be aware that similar communications introduce a significant risk of contravening the Act. If further information comes to the Bureau’s attention, the Bureau may revisit this decision.

The agricultural industry is of great importance for the Canadian economy. If you are aware of or subject to anti-competitive conduct in the agricultural industry, do not hesitate to bring these concerns to the Bureau’s attention.

Sources cited in this Position Statement

  1. Agriculture and Agri-food Canada, Overview of the Canadian agriculture and agri-food sector.
  2. Agriculture and Agri-food Canada, Canadian seed sector profile, November 2019.
  3. Statistics Canada, Trade data online, Canadian total exports — NAICS 3253 – pesticide, fertilizer and other agricultural chemical manufacturing — Canada, 2016–2020.
  4. Competition Bureau of Canada, Competitor Collaboration Guidelines, May 6, 2021.

This publication is not a legal document. The Bureau’s findings, as reflected in this Position Statement, are not findings of fact or law that have been tested before a tribunal or court. Further, the contents of this Position Statement do not indicate findings of unlawful conduct by any party.

However, in an effort to further enhance its communication and transparency with stakeholders, the Bureau may publicly communicate the results of certain investigations, inquiries and merger reviews by way of a Position Statement. In the case of a merger review, Position Statements briefly describe the Bureau’s analysis of a particular proposed transaction and summarize its main findings. The Bureau also publishes Position Statements summarizing the results of certain investigations, inquiries and reviews conducted under the Competition Act. Readers should exercise caution in interpreting the Bureau’s assessment. Enforcement decisions are made on a case‑by‑case basis and the conclusions discussed in the Position Statement are specific to the present matter and are not binding on the Commissioner of Competition.