Tesco enraged by £10m fine from OFT

Supermarket has consistently protested its innocence in the row over dairy market price fixing and called yesterday for a complete overhaul of the regulatory system

Tesco came out fighting yesterday, effectively calling for the Office of Fair Trading to be broken up after the watchdog slapped a £10m fine on the supermarket chain for colluding to fix cheese prices between 2002 and 2003.

The UK's biggest grocer reacted with "surprise and dismay" to the OFT's ruling that it had colluded with suppliers and other retailers, adding that the judgement was "entirely without substance".

The OFT conducted a seven-year inquiry into the matter, which it has concluded by fining eight parties a total of £49.81m for infringing the Competition Act of 1998.

While whisteblower Arla was given complete immunity from a fine, Asda, Dairy Crest, McLelland, Safeway (prior to its acquisition by Morrisons in 2004), Sainsbury's,, The Cheese Company and Wiseman received more lenient fines after admitting liability. But Tesco has always contested the ruling and was fined £10.43m.

John Fingleton, the OFT's chiefexecutive, said: "This decision sends a strong signal to supermarkets, suppliers and other businesses that the OFT will take action and impose significant fines where it uncovers anti-competitive behaviour aimed at increasing the prices paid by consumers."

The OFT judged the nine parties colluded to rig the price of cheese in 2002 and 2003, as well as fresh liquid milk in the latter year, which ended up costing consumers an extra £270m. Some grocers, such as Sainsbury's and Asda, were involved in all three activities, while Wiseman was embroiled in just the 2003 milk inquiry.

However, Lucy Neville-Rolfe, Tesco's director of corporate and legal affairs, said: "We are disheartened and disturbed that the OFT continues to pursue this costly and time consuming case at the expense of both the taxpayer and UK business."

She added: "We have always said we did not collude on prices on cheese and we stand firm in our rebuttal of these ongoing allegations. We will continue to defend our position vigorously, through the courts if necessary."

Tesco pointed out that the OFT last year dropped its allegation about collusion over milk prices in 2002 and butter in 2003 against all parties, as well as its 2003 milk allegation against the grocery giant.

The price fixing investigation followed a sustained and very public campaign by dairy farmers between 2001 and 2003 demanding higher milk prices at the farm gate. Tesco said the OFT had made its decision on the pricing of cheese, despite the grocer's insistence – backed by "firm evidence" – that it didn't collude with other retailers.

"We surely have now reached the stage where the absurdity of the OFT operating as investigator, prosecutor and judge cannot be allowed to continue," Ms Neville-Rolfe said. "The Government's plans for the new competition regime must address this anomaly, in the interests of the consumer and the business community."

The Government plans to merge the Competition Commission and the OFT to create a single agency, the Competition and Markets Authority.

Tesco said it has two months todecide whether it would appeal, but said "our expectation is that we will". Such a hearing would take place at the Competition Appeal Tribunal and the appeal process could take up to a year.