Andreas Whittam Smith: Price collusion is a crime, however presented

If a similar amount were taken from a bank, we would describe it as stealing
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The Independent Online

When crimes are given technical names such as "collusion" or "involvement in anti-competitive practices" they lose their power to shock. These are the charges to which pleaded guilty last week certain large supermarkets (Asda, Safeway and Sainsbury's) and certain dairy processors (Arla, Dairy Crest, The Cheese Company and Wiseman).

For they all agreed to pay penalties to the Office of Fair Trading (OFT). Their cases concerned the pricing of milk, of butter and of cheese. But although the offences give the impression of being merely infringements of some code or other, they are not. Collusion and involvement in anti-competitive practices are, both alike, conspiracies.

The plot was estimated by the OFT in September to have cost consumers 270m. Morrisons and Tesco were also named but they continue to reject the charges. The supermarket chains and dairy processors which have owned up could be fined as much as 116m.

In other words, a huge sum of money seems to have been removed from the pockets of consumers. If a similar amount were, say, taken from the vaults of a bank by a gang capable of making holes in walls, disabling security cameras and picking locks, not only would we call it "the crime of the century" but we would also describe it as stealing. In the two examples, the objective is the same, only the methods differ. Nonetheless, a substantial mystery remains. What happened to the loot? The story goes back to 2002 and 2003. That is when, according to the OFT, "collusion took place through the sharing of commercially sensitive information".

This was a difficult time for dairy farmers. They were still recovering from an outbreak of foot and mouth disease. Many had been "culled out", meaning that their herds had been compulsorily slaughtered. Admittedly, they had received compensation they had been able to use to start again. Some were also able to re-equip their milking parlours.

But other dairy farmers had given up after being culled out and switched into different activities that also suited their land, a second-best choice, but better, as they saw it, than staying in the dairy industry with its low prices and traumatic experiences.

At the time, there was rightly a lot of sympathy for dairy farmers. MPs and others urged that they be paid more, both on grounds of fairness and in order to make sure that the industry didn't suffer a catastrophic collapse. Listening to these pleas, retailers raised their prices, intending, so they said, to give a helping hand to the farmers who supplied them. In its statement, the OFT said it had taken into account information which demonstrated the pressures the retailers were under at this time to support dairy farmers.

Indeed, consumers did begin to pay more for dairy products. Over the following two years, the price of milk rose by more than 5p a litre, half a pound of cheese went up 15p and a quarter pound of butter also rose by 15p. The puzzle, however, is that farmers saw little or nothing of the extra revenue thus garnered. Figures from the Milk Development Council show the price farmers received for milk in January 2002 was 18.7p per litre and that, in December 2003, at the end of the period under investigation, it was up less than half a penny to 19.1p.

Hence the plaintive note sounded by the chief executive of Sainsbury's, Justin King. Commenting on the fine his company has agreed to pay, he said: "We are disappointed we have been penalised for actions that were intended to help British farmers, but recognise the benefit of a speedy settlement with the OFT.

"The price initiatives in 2002 and 2003, which were widely and publicly reported at the time, were designed to help British dairy farmers at a time of considerable economic pressure and public debate about whether farmers were getting a fair price for their products."

So let us review the facts again. Supermarket chains raised their prices. They must have done so "in concert", otherwise the OFT would not have become involved. But farmers saw no benefit. And Mr King feels hard done by.

What was going on? The nearest we can get to an explanation are the comments of Kevin Hawkins, the director general of the British Retail Consortium. He commented: "A proportion of the increases reached farmers, but some appear to have stuck to the sides on the way down the supply chain." Stuck to the sides. No doubt bank robbers say that fivers and tenners stick to their hands..

I don't suppose we shall ever learn where, exactly, the money went. That is the problem with the OFT's behind-closed-doors style of dispensing justice. I should like to have seen this case conducted in open court. Two hundred and seventy million pounds. It was a big crime.