Animal welfare, consumer welfare, and competition law: The Dutch debate on the Chicken of Tomorrow

The business sector is often expected to innovate in promoting sustainable animal-sourced products. However, the Dutch Consumer and Market Authority ruled that a voluntary arrangement for a more ethical and sustainable chicken meat concept, the Chicken of Tomorrow, violated national and European Union competition law. The ensuing debate on the Chicken of Tomorrow meat concept revealed that consumer acceptance of such sustainability agreements would depend on conditional self-regulation which is based on the explicit articulation of and alignment with public interests. Business initiatives to create markets for ethical products such as animal-friendly meat products or child labor-free clothing may be restrained by competition law if they involve agreements that reduce consumer choice. In the Netherlands, supermarkets, poultry farmers, and chicken meat processors agreed in 2015 on a chicken meat concept with an enhanced sustainability profile: the ‘Chicken of Tomorrow’. It established private animal welfare standards above the legally required minimum, such as the use of a slower growing breed, more space in the poultry house, natural day and night rhythm, and provision of distraction materials. Chicken of Tomorrow also addresses public health and environmental concerns through less use of antibiotics, “responsible soy” in feed, reduced emissions of ammonia and particulates, and closed mineral cycles. The goal of this agreement was that by 2020 supermarkets would sell fresh chicken meat exclusively from animals that have been produced under these improved conditions. Accordingly, supermarkets would offer higher purchasing prices to meat processors and poultry farmers positioned further up the supply chain. However, the Dutch Consumer and Market Authority (ACM) ruled that these arrangements violated national and European Union (EU) competition rules (ACM, 2015). According to ACM, the benefits in terms of animal welfare and sustainability did not outweigh the disadvantages for consumers from limited choice and a higher product prices. The decision highlighted a conflict between consumer protection and animal welfare goals. Public opinion and the Dutch government expect the private sector to innovate in promoting sustainable animal-sourced products (Ministry of Economic Affairs, 2013). This works well when efficiency savings can be made that benefit companies and consumers. However, further progress requires the agro-food sector to also internalize environmental and social externalities, which would lead to higher product prices and the removal of the least sustainable products from the market. Supermarket chains face the dilemma of either advancing alone and risking the loss of price-oriented customers or collaborating with their competitors in potential breach of competition law for conspiring to raise prices or to limit consumer choice. The strict approach of the ACM caused much consternation among participants in the Chicken of Tomorrow initiative and other civil society organizations, environmental and animal welfare NGOs. (a) Source: Distrifood (b) Source: Plukon In response, the Minister of Economic Affairs issued an “adjusted policy rule” to “clarify and explicitly guide the competition authority ACM in assessing sustainability initiatives” (Ministry of Economic Affairs, 2015, 2016). Notably, the Dutch competition law protects merely “consumers’ interest” rather than a broader concept of “public interest.” Meanwhile, how the consumers’ interest should be interpreted is fiercely debated. Besides traditional considerations of choice, price, and innovation, broader definitions include sustainability concerns. Legal debates are divided between economists, who tend to focus on price, and other social scientists, philosophers, and lawyers who espouse broader interpretations. This article analyses the Dutch debate on legally acceptable ways to incorporate animal welfare goals in governance and responsible business conduct and the mandate of the competition authority and assesses the ethical and political significance of the (provisional) outcomes. The law on cartels and horizontal competition is enshrined in Article 101 of the Treaty on the Functioning of the European Union (TFEU) and in Article 6 of the Dutch Competition Act: the latter applies to agreements that only comprise the Netherlands, Article 101 TFEU to those that “affect trade between Member States.” Both provisions prohibit any agreement between companies that restricts, prevents, or distorts competition, unless it “contributes to improving the production or distribution of goods or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit” (art. 101, 3 TFEU). To escape annulment, agreements therefore need to be able to demonstrate either that they do not restrict competition or that they are indispensable to achieve the desirable aims while providing fair benefits to consumers. Failure to provide such evidence can result in fines and even in prison sentences. Competition-inhibiting agreements that introduce minimum environmental or nutritional standards could still be allowed if an overriding consumer benefit can be demonstrated (Food Ethics Council, 2011). In the Netherlands, a vision document by the ACM (2014) introduced a “broad welfare concept” that, while based on consumer preferences, recognized a possible inclusion of environmentally friendly and animal-friendly modes of production. The ACM also conceded that coordination problems might impede the introduction of more sustainable products: “the existence of a first-mover disadvantage could be an argument […] to consider a market-wide arrangement justified” (ACM, 2014, § 3.5.3). However, the broader future benefits still have to be discounted, according to guidelines by the European Commission (2004, § 88). Similarly, while benefits might accrue to consumers not directly affected, the latter “cannot be worse off as a result of the arrangement” (ACM, 2014, § 3.5.2; cf. European Commission, 2004, § 85). Furthermore, the European Commission stated “that it is indeed possible to take future benefits for consumers into account, but that paragraph 3 of Article 101 of the EU Treaty requires that the benefits accrue to the actual users of the relevant goods and services (and that it is not acceptable, within this framework, to include the benefits for society as a whole)” (Ministry of Economic Affairs, 2014, § 4). The most important limitation of the ACM’s consumer welfare approach is that sustainability gains are not automatically considered as welfare gains unless this is perceived by consumers as “value creation,” preferably to be proven by a revealed willingness to pay (WTP): Many consumers are willing to pay more for sustainable products because they value the realization of the ideas behind such products. When determining the benefits, qualitative improvements that create value through the introduction of new or improved products may thus be taken into consideration. When arrangements simultaneously lead to a reduction of supply—for example, by taking animal-unfriendly products off the market—it is necessary that it can be demonstrated that the (new) supply really is an improvement in terms of quality, or that it is at least perceived as such by consumers. The latter may be demonstrated by the willingness of a substantial share of consumers to possibly pay more for these products. (ACM, 2014, § 3.5.1) Notably, the ACM does not require proof that “animal-friendly” products actually improve the welfare of production animals but would be content with perceived improvements. In search for standards for demonstrable evidence, the ACM then opts for consumer WTP. In the ACM’s view, “taking animal-unfriendly products off the market” cannot be allowed as a matter of course, but only under stringent conditions. Following an exchange between ACM and the European Commission over the exemption of cartel prohibition for the Chicken of Tomorrow and similar initiatives, the ACM guidelines require as a precondition for such an exemption the proof of perceived benefits to some affected consumers and the absence of disadvantages for all affected consumers. The perceived benefits have to be quantified in monetary terms. In the past, similar arrangements have been banned because they directly affected the retail price at supermarkets. (c) Source: Boerenbusiness Description (a), (b) and (c): Animal welfare, consumer welfare and competition law. For example, in the “milk-dime” case in 2001, several supermarket chains in the Netherlands requested permission to charge consumers an additional 10 cents per liter of milk to compensate the increased purchasing costs after an outbreak of foot-and-mouth disease. The Dutch competition authority refused permission. In 2015, the ACM found the Chicken of Tomorrow agreement to restrict competition, as it encompassed all supermarket chains in the Netherlands which together cover 95% of the country’s sales of fresh chicken meat. Therefore, the agreement to remove regular chicken meat from their shelves was seen as limiting consumers’ choice. But the ACM also had to assess whether the exemption criteria set out in article 101, 3 TFEU and in article 6, 3 Dutch Competition Act that could justify the agreement were met. The ACM (2015) summarized these exemption criteria in four steps: The anticompetitive arrangement must contribute to the improvement of production or distribution, or to the promotion of technical or economic progress; Consumers have to receive a “fair share” of these benefits; The anticompetitive arrangement must be necessary and proportional to the attainment of the efficiencies that are realized by the arrangement; and Sufficient residual competition must continue to exist in the market. In essence, animal welfare initiatives in the form of horizontal agreements among retailers that categorize specific products as low in animal welfare and remove them from the market have to demonstrate that this reduction in consumer choice creates a measurable benefit to consumers. To determine whether the Chicken of Tomorrow arrangement was in the interest of consumers, the ACM asked its Bureau of the Chief Economist to conduct a cost–benefit analysis that also included a survey study into the consumer WTP (Bureau ACM, 2014). To determine the value attached by consumers to certain (credence) attributes of the Chicken of Tomorrow concept, the survey study asked 1,603 participants to make a series of choices by indicating their preferences within a controlled set of products from broiler chicken raised under different circumstances. The analysis of these choices revealed the implicit valuation of individual elements making up the meat product. On the basis of this “choice-based conjoint method” (Lagervist and Hess, 2010), the researchers estimated the WTP for various underlying attributes (e.g., broiler life span to slaughter, occupancy rate in the poultry barn, type of animal feed, availability of a covered outdoor area, and type of anesthesia at the slaughterhouse). This allowed to calculate the WTP for the different conditions (or standards) in various broiler husbandry systems (Table 1): regular (meeting basic requirements), Chicken of Tomorrow (new Dutch standard), one star of the Better Life Hallmark of the Dutch Society for the Protection of Animals (free range), and organic (Bureau ACM, 2014). (e) Source: Pluimveeweb (f) Source: Pluimveeweb Comparison of standards in various broiler husbandry systems: regular, Chicken of Tomorrow, and one star Better Life Hallmark. Sources: Dierenbescherming, LEI Wageningen University, Albert Heijn, Plukon. Comparison of standards in various broiler husbandry systems: regular, Chicken of Tomorrow, and one star Better Life Hallmark. Sources: Dierenbescherming, LEI Wageningen University, Albert Heijn, Plukon. The analysis found that the additional WTP for the Chicken of Tomorrow compared with regular chicken meat was 68 eurocent/kg. In contrast, the extra WTP for the one star Better Life Hallmark (free range) compared with regular chicken meat was 11.99 euro/kg. The WTP survey study concluded that consumers (i.e., research participants to the survey) were not particularly susceptible to the animal welfare criteria in the Chicken of Tomorrow concept (increased life span before slaughter, lower occupancy rate in poultry house, etc.), but attached higher value to the availability of covered outdoor areas for broiler chicken raised under the one star Better Life Hallmark. The Chicken of Tomorrow concept also earned a modest increase in WTP of 14 eurocent/kg for environmental aspects such as animal feed according to the Round Table of Responsible Soy. According to the ACMs’ Bureau of the Chief Economist, the total extra WTP (68 + 14 = 82 eurocent) could not offset the calculated additional price of 1.46 euro/kg asked from consumers in the supermarket (Bureau ACM, 2014). The ACM’s Economist’s claim was contested by legal experts. Jochemsen-Vernooij and Van der Heul (2015) pointed out that the Chicken of Tomorrow agreement was about supermarkets adjusting their purchasing conditions towards meat processors and poultry farmers. This implied that the calculated higher price should be regarded as the valuation of the purchasing conditions instead of what the ACM considered as the retail price in the supermarket. The authors also criticized the ACM for disregarding the possible applicability of the “doctrine of inherent limitations.” Intense academic debate focused on the proper normative foundations of European competition law, especially since the European Commission established consumer welfare as the overriding criterion in legal assessments of exemptions to the cartel prohibition (Dubbink and Van der Putten, 2008; Kingston, 2009, 2010; Baarsma, 2011; Gerbrandy, 2013; Claassen and Gerbrandy, 2016). One line of critique follows the American philosopher Mark Sagoff who broadly explored public policy and societal decision-making within ethically sensitive areas (Sagoff, 1989). Sagoff (1989, p. 10) argues that the use of traditional cost–benefit economics to assess values in the environment, health care, and other public domains constitutes a categorical of the of value that are included in Animal that the animal merely in the of the market an a categorical about the of value that are included in Similarly, it can be that consumer welfare as the is because it does not for the of environmental goals in all policy areas Gerbrandy, 2013; 2015). the value of a broiler chicken can be only in terms of monetary market participants are to about “the of animals that animals are p. WTP analysis aims to into a monetary valuation the of and ethical values that are at when and make within the public p. This academic had in the of the consumer welfare in the decision of national competition Source: Pluimveeweb to the Chicken of Tomorrow, the ACM’s was that the initiative violated the standards of competition law. it benefits to consumers and therefore to the from the extra WTP for the one star Better Life the ACM concluded that retailers and other had actually to the economic at the WTP for Better Life individual supermarket should be able to from the competitors in the market through agreements in their chicken meat supply chain. Therefore, the ACM did not a need for a horizontal market-wide for to a (ACM, and ruled the Chicken of Tomorrow agreement as to competition law. 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