The Chain Reaction of the Poultry Cartel in Chile

By Benjamin Gomez*

On the last decade, Chile has witnessed an explosion in its cartel history. Strangely enough, while the latest Antitrust reforms have aimed to higher sanctions and invasive investigation methods, and the public scrutiny has increased as more information becomes available, the major corporations seem to have assumed the risk of taking a go at it anyway. This sense of invincibility and recklessness has given way to some of the most outrageous cartels, involving public health (raising the prices of medicine in the “Pharmacy Cartel” [1]) and even daily life hygiene (see the recent “Toilet Paper Cartel” [2]).

But there is another recent case which has been considered as Chile’s biggest cartel in terms of economic impact and duration, affecting the most basic of commodities. The latest episode of this story was released to the media when on January the 6th, 2016, the National Antitrust Prosecutor of Chile (Fiscalia Nacional Economica – FNE) filed a claim against the three major supermarket companies of the country, Walmart, Cencosud, and SMU, for coordinating a cartel in the market of fresh poultry sale to end consumers, where they reach a combined market share of over 90%.

However, this is nothing but a shrapnel deriving from a previous cartel case, commonly known in Chile as the “Poultry Cartel”, articulated by the three major poultry producers of the country, Agrosuper, Ariztia, and Don Pollo, who combined have an 80% of the total national market share, with poultry being the highest consumed meat per-capita. In its investigation, the FNE determined that the cartel rested on the permanent exchange of sensitive and strategic information which was very detailed in regards to the operations of the three companies involved. All of this under the wing of APA, the trade association which was in charge of monitoring the agreement. [3]

The evidence of the second cartel planned by the supermarket companies came during the investigation of the main Poultry Cartel formed by the producers. It was a flawless strategy for the FNE to actually wait for the first case to be discussed and resolved by the Antitrust Tribunal (Tribunal de Defensa de la Libre Competencia – TDLC), and later upheld by the Supreme Court of Chile, and only then file its second claim on the secondary colluded market. Indeed, on October 30th, 2015, the Supreme Court found that “a cartel existed among the defendants, it was coordinated by APA, and affected one element of competition since it allocated market quotas among its members and limited the production of meat destined to local consumption” and therefore imposed maximum legal fines as provided by law for cartel conduct to Agrosuper and Ariztia (US$23.3 million each approximately); and of US$9.3 million to Don Pollo. [4] This historic ruling also confirmed the TDLC’s initial decision ordering the dissolution of the APA, turning the spotlight on trade associations and guilds in all markets.

It is truly a vertical chain reaction, where one cartel in a specific relevant market gives way to another cartel in a different industry. Yet, the accused supermarket companies could not prevent this storm coming their way, as their files and computers had already been seized for the initial Poultry Cartel investigation; their fate was already written. With the existence and illegality of the first cartel already established by the country’s highest court, we can already guess what future awaits for the supermarkets.

The new accusation is a serious one: instead of calling it out, the supermarkets took advantage of the existing price fixing agreements from the main Poultry Cartel, and coordinated with those producers to monitor the agreed prices in the three main supermarket chains – and in other smaller competitors as well – in order to set a minimum sale price for fresh poultry products to final consumers. It is an interesting case of two cartels operating and cooperating simultaneously, something completely new and outrageous in the local Antitrust scene, or what we could call a “same-product / multi-market cartel”.

But the chain reaction does not end with this new prosecution by the FNE. This aggressive revelation of Chilean cartels to the public is raising again the question among the media and politicians of what actions can possibly be taken to prevent the most serious Antitrust conduct to keep taking place. The conversation is heading towards reinstating imprisonment as a sanction. Until 2003, Chilean Antitrust legislation contemplated up to 5 years of prison for these anticompetitive conducts (although no one was ever sentenced). Michelle Bachelet’s government has taken action in the middle of the storm, and passed a bill on October of 2015 – to be approved by Congress – not only to reinstate prison time for cartels, but increasing its duration to twice as high, going to up to 10 years for the most serious cases.

The government’s proposal also makes other amendments to Decree Law 211 – the Antitrust statute in Chile – by giving more incentives to use the current leniency program, increasing economic sanctions, and incorporating the prohibition to hold a position in public office for the term of 5 years as a new punishment. This is a clear sign that in almost a decade since its creation, the statute has failed to be dissuasive enough, having to be amended each time a high-impact cartel is revealed. This already happened with the Pharmacies Cartel – which generated the first major amendments back in 2008, which raised fines and created the current leniency program – and now another case is raising the punishment bar once again.

I have pondered in the past on the evolving nature of Antitrust as the only legal field governed by common law in a strongly civil law-based system as Chile [5], but it is still interesting to raise the question: Is this flexibility of the statute a positive aspect, allowing the law to keep adapting to the times and to new anticompetitive conducts? Or is it instead a sign of weakness, proving it is more a reactive statute than a dissuasive one? Whatever the conclusions may be, the legal changes are already on their way as the aforementioned bill has already been unanimously approved in its first discussion stage at Congress last November – something quite rare for the divided Chilean legislature – and is expected to be passed definitely in the terms proposed by the government early this year.

* Attorney at Law, Pontificia Universidad Católica de Chile
LL.M., University of California, Berkeley, School of Law

[1] http://www.concurrences.com/Bulletin/News-Issues/September-2012/The-Supreme-Court-of-Chile-upholds?ordre_suivant=date_redac&onglet=1&lang=fr

[2] http://www.economist.com/news/americas/21679517-new-breed-competition-regulator-takes-cartels-toilet-paper-tangle

[3] http://www.fne.gob.cl/english/2015/10/29/chilean-supreme-court-upholds-fines-for-collusion-against-agrosuper-ariztia-and-don-pollo-and-hardens-sanction-against-the-trade-association/

[4] Idem.

[5] http://www.concurrences.com/Bulletin/News-Issues/September-2012/The-Supreme-Court-of-Chile-upholds?ordre_suivant=date_redac&onglet=1&lang=fr

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2 thoughts on “The Chain Reaction of the Poultry Cartel in Chile

  1. Reblogged this on Derecho y Política de Libre Competencia en América Latina and commented:
    Un texto de Benjamin Gómez publicado en el blog Developing World Antitrust sobre la reacción en cadena causada por el supuesto cartel del pollo (y otros recientes casos) en Chile y el debate sobre incorporar nuevamente a la legislación antimonopolios de ese país las penas privativas de la libertad.

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