OFT backs down after six-year inquiry into milk and butter prices

The Office of Fair Trading (OFT) has backed off on some claims that supermarkets illegally colluded on prices of butter and milk after evidence from Tesco undermined the watchdog's case.

The OFT's dairy price-fixing inquiry has been running for seven years, and implicates a whole string of retailers and dairy companies in a cluster of different investigations into milk, butter and cheese. Asda, Morrisons, Safeway, Sainsbury's and Tesco were all named in the formal "statement of objections" in 2007, as were the producers Arla, Dairy Crest, Lactalis McLelland, The Cheese Company and Wiseman.

Investigations into price-fixing of cheese in 2002 and 2003 will continue, as will the OFT's inquiry into milk pricing in 2003. But on the strength of Tesco's evidence, investigations into alleged collusion over milk prices in 2002 and butter pricing in 2003 will be dropped. And the supermarket itself will be excluded from the 2003 milk inquiry.

Arla was granted immunity because it was the original whistle-blower. All other implicated parties apart from Tesco and Morrisons came forward in 2007 for "early resolution", under which they admitted a certain liability in return for reduced fines. Now that two of the investigations have been dropped, the £116m-worth of fines will be reduced to £70m.

Although Tesco is no longer implicated in the remaining milk investigation, it is involved in the cheese inquiry. The supermarket has consistently disputed all the allegations, including over cheese pricing, but has agreed not to contest the outcome on cheese in the interests of speedy closure. "We are delighted to have been cleared of all wrongdoing in relation to milk and butter," Lucy Neville-Rolfe, an executive director at Tesco, said. "We disagree with the OFT's views on cheese. We firmly maintain that we are innocent of all allegations against us. But given the passage of time and the cost of litigation, we are keen to bring this lengthy and costly process to a close."

Morrisons – which also stood its ground throughout – is now entirely exonerated because it was only implicated in the now-defunct milk 2002 case. The chain has been outspoken in its criticisms of the OFT's handling of the investigation. In April 2008 the OFT was forced to issue an apology and pay £100,000 in damages to settle Morrisons' libel claim over a 2007 press release that a High Court judge slammed as "sensationalist publicity".

The supermarket chain said yesterday that the seven-year fight has cost it more than £1.5m, for which there is no possibility of redress. "Morrisons has always believed strongly that it had no case to answer and that it should never have been part of the OFT's inquiry," it said in a statement. "The OFT's decision to drop all allegations against Morrisons is therefore a welcome vindication."

Elsewhere in the supermarket sector, the tone was less sanguine. Insiders expressed frustration over the way the investigation has been conducted, and said that the OFT should be embarrassed by being forced to make such a climbdown after all the fanfare when the inquiry was first announced.

"The OFT acts as prosecutor, judge and jury, which in most other aspects of life would be regarded as unacceptable," a source at one supermarket said. "Elsewhere there are the checks and balances provided by the judicial process, but the question here is who controls the OFT?"

Under the current rules, any organisation taking a case of illegal activity to the OFT is eligible for immunity. The early resolution process adds to the pressure to "confess", claim critics. "Effectively what the OFT does is say 'we think you're guilty, if don't you 'fess up we'll give you a really large fine, but if you do then we'll give you 30 per cent off'," one insider said. "The pressure is immense."

Dairy products are not the OFT's only contretemps with the retail sector. Last month, it levied a record £225m fine for price fixing on two tobacco companies – Imperial and Gallaher – and 10 retailers including Asda, Morrisons, Somerfield and Shell. Only Sainsbury's avoided a penalty, thanks to the leniency policy. Allegations against Tesco in the investigation were dropped.

OFT: Ongoing investigations

*Last week the OFT issued its first salvo alleging price fixing by Virgin Atlantic and Cathay Pacific on flights between London and Hong Kong. Virgin robustly disputes the charges. Cathay will be immune from any penalties because it reported the alleged activities.

*Royal Bank of Scotland opted for "early resolution" last month in a price-fixing investigation into its Professional Practices Coverage Team. RBS has agreed to pay a fine of £29m, reduced from £34m by the bank's agreeing to co-operate. Barclays blew the whistle, and is therefore exempt from fines.

*The OFT is looking into "exit fees" charged by retirement homes when residents either sell or rent their properties. Some 26 retirement homes were contacted at the start of the investigation last year and the OFT is now considering representations received in return.

*The ongoing inquiry into alleged price-fixing by MasterCard and Visa in the "interchange" fees charged to retailers is on hold pending the conclusion of a similar investigation by the European Commission. The OFT will make a decision on the way forward after the judgment from the General Court.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Collections Agent

£14000 - £16000 per annum: Recruitment Genius: This company was established in...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE 40k: SThree: SThree are a global FTSE 250 busi...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + competitive: SThree: SThree are a global FTSE 250 ...

Reach Volunteering: Trustees with Finance, Fundraising and IT skills

Voluntary and unpaid, reasonable expenses reimbursable: Reach Volunteering: St...

Day In a Page

Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

How Isis profits from destruction of antiquities

Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
Labour leadership: Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea

'If we lose touch we’ll end up with two decades of the Tories'

In an exclusive interview, Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea
Tunisia fears its Arab Spring could be reversed as the new regime becomes as intolerant of dissent as its predecessor

The Arab Spring reversed

Tunisian protesters fear that a new law will whitewash corrupt businessmen and officials, but they are finding that the new regime is becoming as intolerant of dissent as its predecessor
King Arthur: Legendary figure was real and lived most of his life in Strathclyde, academic claims

Academic claims King Arthur was real - and reveals where he lived

Dr Andrew Breeze says the legendary figure did exist – but was a general, not a king
Who is Oliver Bonas and how has he captured middle-class hearts?

Who is Oliver Bonas?

It's the first high-street store to pay its staff the living wage, and it saw out the recession in style
Earth has 'lost more than half its trees' since humans first started cutting them down

Axe-wielding Man fells half the world’s trees – leaving us just 422 each

However, the number of trees may be eight times higher than previously thought
60 years of Scalextric: Model cars are now stuffed with as much tech as real ones

60 years of Scalextric

Model cars are now stuffed with as much tech as real ones
Theme parks continue to draw in thrill-seekers despite the risks - so why are we so addicted?

Why are we addicted to theme parks?

Now that Banksy has unveiled his own dystopian version, Christopher Beanland considers the ups and downs of our endless quest for amusement
Tourism in Iran: The country will soon be opening up again after years of isolation

Iran is opening up again to tourists

After years of isolation, Iran is reopening its embassies abroad. Soon, there'll be the chance for the adventurous to holiday there
10 best PS4 games

10 best PS4 games

Can’t wait for the new round of blockbusters due out this autumn? We played through last year’s offering
Transfer window: Ten things we learnt

Ten things we learnt from the transfer window

Record-breaking spending shows FFP restraint no longer applies
Migrant crisis: UN official Philippe Douste-Blazy reveals the harrowing sights he encountered among refugees arriving on Lampedusa

‘Can we really just turn away?’

Dead bodies, men drowning, women miscarrying – a senior UN figure on the horrors he has witnessed among migrants arriving on Lampedusa, and urges politicians not to underestimate our caring nature
Nine of Syria and Iraq's 10 world heritage sites are in danger as Isis ravages centuries of history

Nine of Syria and Iraq's 10 world heritage sites are in danger...

... and not just because of Isis vandalism
Girl on a Plane: An exclusive extract of the novelisation inspired by the 1970 Palestinian fighters hijack

Girl on a Plane

An exclusive extract of the novelisation inspired by the 1970 Palestinian fighters hijack
Why Frederick Forsyth's spying days could spell disaster for today's journalists

Why Frederick Forsyth's spying days could spell disaster for today's journalists

The author of 'The Day of the Jackal' has revealed he spied for MI6 while a foreign correspondent