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This is an unofficial independent translation 1 MAIN CLAIM: Complaint against Agrícola Agrosuper S.A.and others (Defendants) FIRST: Documents SECOND: Public versions THIRD: Bailiff FOURTH: Representation and powers of attorney Honorable Competition Court FELIPE IRARRÁZABAL PHILIPPI, ECONOMIC NATIONAL PROSECUTOR, domiciled in Agustinas Nº 853, 2nd floor, Santiago, to this Hon. Court I respectfully say: According to the provisions set out in articles 1°, 3°, 18, 19 and subsequent 26 and 39 letters b) and c) of DL N° 211, and based on the facts, legal and economic arguments exposed herein, I hereby present a complaint against the following persons: (i) AGRICOLA AGROSUPER S.A. (hereafter “Agrosuper”), agricultural investment company, RUT 78.426.020-8, represented by its general manager Mr. Carlos José Guzmán Vial, agronomist engineer, both domiciled for these purposes in Camino La Estrella N° 401; Rancagua; (ii) EMPRESAS ARIZTÍA S.A. (hereafter “Ariztía”) agricultural investment company, RUT 78.462.910-1, represented by its general manager Mr. Ismael Correa Rodriguez, commercial engineer, both domiciled for these purposes in Los Carrera N° 444, Melipilla; (iii) AGRICOLA DON POLLO LIMITADA ( hereafter “ Don Pollo”), company, RUT 79.662.080-3, represented by its general manager, Mr. Ramón Cobarrubias Matte, agricultural technician, both domiciled for these purposes in Camino El Mariscal N° 1590, La Pintana; and This is an unofficial independent translation 2 (iv) ASOCIACION DE PRODUCTORES AVÍCOLAS DE CHILE A.G. (hereafter “APA”), Trade Association of poultry companies, RUT: 71.893.300-5, represented by its President, Mr. Juan Miguel Ovalle Garcés, commercial engineer, both domiciled for these purposes in Avenida Isidora Goyonechea N° 2939, office 701, Las Condes, Santiago. The three Defendant Producing Companies 1 , that together concentrate more than the 92% of the national poultry production, destined to the internal market 2 , and more than the 93% of its commercialization in Chile 3 , by themselves and/or through their related companies, have infringed article 3° of DL N° 211, by celebrating and executing an agreement between competitors, consisting in limiting their production, controlling the amount produced and offered to the national market, and assigning market quotas, in the market for the production and commercialization of the mentioned product. In fact, as it will be proved, the Defendant Producing Companies, by using models of projected demand, have determined year by year, the total quantity of chicken meat that they will sell in the national market and, in relation to this, have assigned marked quotas and determined what each member of the cartel must produce in the national market. In this way, and given the market power that the Defendant Producing Companies jointly hold, through their actions, have significantly altered competition, in the market of production and wholesale of chicken meat. The implementation and execution throughout time, of this anticompetitive agreement, has been possible given the permanent exchanges of sensitive information between the Defendant Producing Companies, in APA -trade association that during the period in which the agreement was in force 1 Hereafter “Defendant Producing Companies” will be understood as Agrosuper, Ariztía and Don Pollo. On the other hand “Defendants” will be understood as Agrosuper, Ariztía, Don Pollo and APA. 2 According to figures corresponding to the period between January-October 2010. 3 According to figures of 2010 and, in this case, without considering imports from third parties different from the Defendant Producing Companies. This is an unofficial independent translation 3 gathered Agrosuper, Ariztía and Don Pollo 4 -, under whose coordination the cartel that motivates the present complaint has been celebrated, executed and monitored. Due to the gravity of the facts, the National Economic Prosecutor asks this Court to condemn each of the Defendant Producing Companies to the maximum fine established in our legislation. At the same time, and given the role of facilitator that that APA has held, it is requested that the Hon. Court, orders, in addition to the payment of the fine, its dissolution. I. FACTS 1. Agrosuper, Ariztía and Don Pollo, main producers and marketers of chicken in the country, have celebrated an anticompetitive agreement, by virtue of which they have limited the production, controlled the amount produced and offered to the national market, and assigned quotas of market participation, during, at least, ten years. 2. The mechanism adopted for the effectiveness of this agreement is directly related with the production that the three Defendant Producing Companies destine to the national market. For these purposes, from the year 1995, the Defendant Producing Companies, coordinating through APA, have generated annual projections of chicken consumption for the following year; by virtue of which, they determined the tons of chicken meat they must produce and sell jointly, in the national market, during the corresponding year. 3. The mentioned projection is generally elaborated in the last trimester of the previous year, with the information of prices and sales existent at that time, delivered by the Defendant Producing Companies to APA. Notwithstanding the adjustments that the Defendant may do during the course of the year. 4. In this way, APA projected the different possible scenarios of consumption of chicken for the coming year, elaborated from different variables that, according to what the Defendant pointed out, have incidence in the determination of the chicken demand. In the last years, the projection model of demand was perfected, incorporating variables for an econometric analysis that 4 Since 2009 Agricola Santa Rosa is associated to APA, although it does not send or receive information from the mentioned association. This is an unofficial independent translation 4 considers, for instance, the IMACEC, imports of chicken, and the price of chicken meat, beef, and pig. 5. Then, the scenarios determined, are discussed by high executives of the Defendant Producing Companies in the Directory meetings of APA, or in others called specially for that matter by the mentioned trade association, in which one of the selected scenarios projected by the members of the cartel is chosen. 6. Using as a starting point the total estimated demand projected for the national market -having chosen the scenario-, the Defendant deduct the quantities they estimate will be covered by imports, and by other national companies which are not parties to the cartel, and determine what will be destined to the national market. 7. At the same time, the amount corresponding to the national market is distributed amongst them in determined percentages that, despite having experimented certain variations, revolve around 61% for Agrosuper, 31% for Ariztía and 8% for Don Pollo. In this way, APA projected the weekly load for each one, despite the adjustments made by them which in turn, affect the annual projection. 8. In this context, APA has fulfilled the following functions: (i) elaborate demand projections of chicken meat based on the information delivered by the Defendant Producing Companies; (ii) sent detail figures of loads 5 assigned to each one o them for the whole year -figures that are periodically revised-; (iii) monitor the compliance of the adopted agreement ,informing what is actually commercialized by each company on a weeklybasis 6 ; and (iv) coordinate -when applicable- adjustments loads for Agrosuper, Aristía and Don Pollo. 9. This way, for instance, as to the adjustment of loads, APA has coordinated the Defendant Producing Companies to, as the case required, reduce the previously established loads, intensify exports, increase stocks of frozen products or proceed to the killing of new born chickens, managing to perform the modifications in a coordinated manner and fulfilling the quotas agreed between the cartel members, as is the case with the annual projections. 5 From a technical point of view, the term “loads” refers to the inclusion of eggs in the incubators. However, the Defendants use it as quantities or units of chickens slaughtered or to be slaughtered. 6 Thus, sales actually made by each company (“Real Sales”, according to the wording used in the reports prepared by APA), are offset permanently with the agreed quantities (“Projected Sales”, according to the wording used in the reports prepared by APA). This is an unofficial independent translation 5 10. The mentioned agreement has been effectively monitored due to the permanent information exchanges between the Defendant Producing Companies, under APA. In fact, the Defendant Producing Companies have delivered and exchanged sensitive, strategic and detailed information of their businesses, sending weekly and monthly data to APA, related to: Sales by cuts in units, kilos and value; Exports, in kilos and value; and, Stocks of frozen products, destined for the national and international markets. 11. APA, with the information received by the Defendant Producing Companies, has elaborated various reports, among those are: (i)Report of the Poultry Market 7 ; (ii) Weekly and Monthly Reports of Chicken Sales 8 ;(iii) Weekly Report of Production and Sales 9 ; and, (iv) Monthly 7 This is a monthly report, - with two months of lag- in which the national production, internal sales in gross weight) and exports (gross weight and dollars) of chicken and turkey meat in the industry. For the preparation of this report, APA uses information regarding the monthly production of poultry meat that the Defendant Producing Companies send to the National Institute of Statistics (“INE”), as well as the report published by the mentioned organ, to determine the production of companies not belonging to APA. In any case, it should be mentioned that the information published by INE is aggregated at industry level, whereas APA´s report is disaggregated in relation to the Defendant Producing Companies, thus one may suppose that it’s them who send APA the information sent to INE. The report is sent by APA through e mail, to the general and commercial managers of the Defendant Producing Companies, as well as to other high executives of these; and in its cover the following phrase is included “Reserved Use for Companies Associated to APA (do not quote, do not copy, do not distribute)” 8 The reports on sales, weekly and monthly, contain an analysis of sales and exports by the Defendant Producing Companies, both in kilos and units – as well as values in the case of the monthly report-, making reference also to the stock of frozen products destined both to the national and export markets. The information contained in the monthly report was disaggregated by company till May 2010, in this month the information started being delivered aggregated; in the same way, the information contained in the weekly report was delivered disaggregated until week N°21 of 2010, corresponding to the period between May 24 th and 30 th , from this last date the information started being delivered aggregated. Until recently, both reports where published in APA´s web page, in a link with exclusive access for associates, with access only to those users specifically appointed by each company. Currently, they are sent by e mail to the commercial managers of the Defendant Producing Companies. 9 In this weekly report real sales of the Defendant Producing Companies are compared in kilos and units with the projected sales in kilos and units for that same period by APA for the same companies, as well as the real sales in the previous year. Additionally the report contains the stock of products, both frozen and alive, and the average weight of the chicken sold. The information is aggregated and sent through e mail to the commercial managers of the Defendant Producing Companies. This is an unofficial independent translation 6 Report of Average Prices of the Different Cuts 10 , amongst others. These reports have been delivered to the Defendant Producing Companies or put at their disposal, in a link with restricted access only for Agrosuper, Ariztia and Don Pollo. 12. Hon. Court, notwithstanding the conduct charged in these proceedings, there are also concrete facts that point to joint decisions and agreements over relevant aspects of competition by the Defendant Producing Companies gathered in APA, in 1994, they carried out initiatives with the aim of obtaining - according to their own words- “a reasonable development for the sector”. 13. This is an important precedent of the agreement to which this action refers, because in that opportunity, not withstanding the fact that the Defendant Producing Companies -In APA- agreed on common reference prices, already since that date, they also established that, in order to monitor and facilitate the compliance of the pact, they committed to “ give (…) all the information that may affect the normal compliance of this agreement, such as un programmed lower production levels , exports (…)” 14. The roll of inspector of the pact fell upon an organ of permanet character created for that effect, called the “Evaluation Commission”, integrated by three persons designated by the cartel participants, and an executive secretary, Mr. Juan Miguel Ovalle, till the date President of APA. 15. Various elements of the agreement of 1994 where modified successively by the Defendant, entailing, according to documentation from 1995, prices, differences by zones, discounts, marketing, participants of the agreement, fines, delegates, amongst others,. 16. Against this frame, in the same year 1995, they agreed to inform weekly and monthly loads, production in kilos, and sales in units, kilos and values, information that to date is sent by them to APA. The agreement included the decision of globalizing and delivering information to its members, a task that has been facilitated and coordinated by APA. 10 In this monthly report, the average price per kilo of chicken is analyzed, also that of its main cuts ( whole chicken, cut and MSC), which is obtained dividing the sales of those cuts by the kilos sold. The information is published aggregated and is sent by e mail to the commercial managers of the Defendant Producing Companies. This is an unofficial independent translation 7 17. The collusive behavior of the Defendant derived in an agreement consistent in the limitation of production, control of the amount produced and offered in the market, and in the assignation of market quotas for the production and commercialization of chicken meat. In fact, unequivocal findings of the charged agreement in these proceedings, where already evidenced in information exchanges between the President of APA and high executives of the mentioned companies in the year 2000, not varying their coordinated behavior in the years following that date. 18. Hon. Court, the agreement object of this action has been successful. In fact, the Defendant Producing Companies, organized by their trade association, have managed to limittheir production and sustain their market quotas in accordance to their agreement. 19. The market shares of the Defendant Producing Companies have been stable throughout time, as can be deduced from Graph N° 1, in which it may be observed that, in average, they correspond to: 60,51% Agrosuper, 30,52% Ariztia 8,97 % Don Pollo. Graph N°1 Market Share by company based on joint production (Kilos Gross wheight) September 2002 to February 2010 Source: FNE, on the basis of information gathered during investigation Rol N° 1752-10 FNE This is an unofficial independent translation 8 20. The Defendant Producing Companies have managed that their joint production does not vary significantly in relation to the agreed projected quantities to be sold in the national market; have implemented the adjustments in a coordinated way through APA; and confronted with unforeseen situations in the original projection, using the market power that the agreement conferred them, have coordinated to determine the offer of chicken in the country, always on the basis of maintaining the market shares agreed upon in the cartel. 21. Furthermore, since the year 2006, the Defendant Producing Companies have not exceeded the projected quantities by APA, limiting their production and respecting the agreed market quotas, therefore sustaining the cartel´s stability. 22. In fact, on March 1 st of 2006, the Defendant agreed the last projected sales for that year, in accordance to which 387.298 tons should be sold 11 . At the end of that year, the amounts sold reached the sum of 385.624 tons, only a 0, 43% lower to the original projection. 23. On the other hand, for 2007, according to the projection sent by APA on November 20 th 2006, 404.421 tons should have been sold. By the conclusion of that year, APA’s sales reached 370.035 tons, an 8,50% lower than the originally projected. Such difference was strongly influenced by the fire that affected San Vicente the main chicken slaughterhouse of the country, at the end of 2006 12 . In fact, in January 2007 the Defendant met to adjust the loads, -after which, and having received information on future production of each of the Defendant Producing Companies- APA sent a modified figure, corresponding to 3.300.000 weekly units. In that opportunity, the quantity of units to be loaded by each company was also determined, triggering even a complaint by one of the producing companies, given that the loads did not correspond no the quota previously agreed upon. 11 Regarding this annual projection, it must be indicated that it didn’t consider the first day of 2006. This, given the fact that the monitoring and accounting of this market is weekly, therefore, the annual projection report considers a total of 52 weeks. According to the above mentioned, January the 1 st of 2006 would be part of week 52 of 2005. The quantities sold in 2006 were also accounted without considering the first day of the year, for the same reasons. 12 On November 26, the Agrosuper’s plant located in San Vicente de Tagua Tagua, in the VI Region, caught fire and was completely destroyed. This plant was the main slaughterhouse of the country, representing, at that time, more than half of Agrosuper’s capacity for slaughtering chickens. It was rebuilt and put in operation after 10 months. This is an unofficial independent translation 9 24. In the case of 2008, the Defendant Producing Companies agreed –in November 2007 and through APA - two projections of demand, on the basis of two different scenarios, the amounts to be sold being between 390.288 and 401.051 tons, which meant a load between 3.350.000 and 3.450.000 weekly units, disaggregating the information related to each company, in accordance to the agreed participation. 25. However, as a consequence of the increase of the cost of the inputs that took place that year, the President of APA requested its associates, in various occasions, to adjust the agreement, reducing loads. 26. In fact, at the beginnings of January 2008, the President of APA reminded de Defendant Production Companies that, given the costs of inputs, it was important not to exceed the suggested loads in November, in order for the price to fluctuate between the estimated values, pointing out as well, that it was necessary to establish a policy to export or freeze chicken legs. Also, he requested the programmed loads for the first 10 weeks of that year to be sent, in order to determine if it was necessary or not to make production adjustments. 27. The following day, the Defendant Producing Companies complied with the request, informing their future production. In this sense, the declarations of APA´s President contained in an e mail sent to the general managers of the Defendant Producing Companies is illustrative -“too well behaved to be “normal” “children”- given that on the basis of the programmed loads informed by them, he had verified that the where within the said parameters and where consistent with the agreed participation quotas. 28. January had not concluded, when APA’s President requested de Defendant Producing Companies that, given the situation of the grain and red meat markets, they lower their loads to 3.350.000 weekly units, a lower amount than both estimated projections. In February, once again, APA´s President instructed a reduction in the production, indicating the companies they This is an unofficial independent translation 10 should slaughter less than 3.250.000 weekly units, pointing out, once more and expressly, the number of loads that corresponded to each of the Defendant Production Companies, according to their quota. 29. As a consequence of these requests, in the month of March of the present year, the projection was modified, reducing the annual projected amount to 386.205 tons, that is, 3.260.000 weekly units. However, the requests of reducing production by APA´s President continued. 30. Precisely, in the beginning of June, APA´s President recommended Agrosuper, Ariztía and Don Pollo, not to load during that month more than 3.250.000 units, figure which –in his words- is “fractioned” in the sum of 1.980.000, 1.010.000 and 260.000, respectively, and that it would be revised by the end of the month. In fact, by the middle of the month, given the existent market situation in the moment, APA´s President indicated that they should lower their production to 3.000.000 weekly units, adjusting loads by company to the abovementioned participation percentages. 31. As a consequence of these adjustments, the quantities sold during 2008 reached only 359.570 tons, figure which is a 6,90% lower to the projected in March that year. In fact, the agreed limitations of production by the Defendant where so many during this period, that the quantity sold was a 2,83% less than in 2007, year in which the capacity of production was diminished during several months, given that the main slaughterhouse of chicken in the country - Agrosuper’s in San Vicente- was inoperative. 32. For the year 2009, APA´s President sent -on December 5 th 2008- the correspondent annual projection, which established a sale of 369.540 tons, figure lower than the previous year and even slightly below sales in 2007. It must be underlined that, in the same terms as in previous occasions, APA´s President indicated the values for the weekly loads, starting from the abovementioned date, for each of the Defendant Producing Companies. 33. As in previous years, the projection for 2009 was slightly diminished in March of that year, the amount of 363.321 tons had to be sold, which implied an average of 3.400.000 weekly units. Certainly, the FNE is aware that at least in April and July of that year, the Defendantmet with This is an unofficial independent translation 11 the aim of discussing the production and the adjustments that had to be made, agreeing on several measures, amongst which they included: “eliminating discounts”, “freezing more”, “loading less than 3.200” and “kill chicks”, as will be proved during these proceedings. 34. Finally, the sales in the year 2009 reached the total of 356.836 tons, only a 1,78% lower to the projected on March of the same year. 35. In the same year 2009, and due to a new sanitary regulation 13 , aimed at allowing consumers to know the quantities of salt and water contained in their products, the Defendants agreed on the labeling of the percentage of marinated 14 that the chicken meat of each one of them would have. In fact, the decision of the companies of labeling their packages “contains up to a 15% of marinated” -which is the one they currently use- was taken jointly, avoiding the differentiation of their product for consumers. 36. For the year 2010, the projected sales of APA where sent by an analyst of the mentioned trade association to the general and commercial managers of the Defendant Producing Companies, on December 7 th 2009. The mentioned document projected the amount to be sold by all the companies belonging to APA, 405.150 tons during the 52 weeks of the year. 37. In July of that year, at the express request of APA´s Directory, the projection was estimated once again with the 2010 data, reducing the tons to be sold. This way, in the 51 week sales amounted to 359.278 tons, figure that was lower to the projected only in a 1,38%. 38. Finally, for the year 2011, the Defendant Producing Companies once again projected their sales. For this purpose, the manager of studies and marketing of APA called de general and commercial managers of the Defendant Producing Companies to a meeting for December 2 nd 2010, in order to observe the results of the mentioned estimations. 39. In consequence, HON. Court, there is evidence that during several years the Defendant Producing Companies –under the coordination of APA- have agreed: limiting production, controlling the quantities produced and offered in the Chilean market and have assigned market quotas amongst each other of the production and commercialization of the product inside of the mentioned market. 13 Imposed by Decreto Supremo N°106, of December 18 th 2008, of the Ministry of Health. 14 The marinated consists of a technological process by which a solution of water adobos (marinated) and additives are added to the meat, improving its flavor and increasing its weight. This is an unofficial independent translation 12 40. All of the above mentioned only reaffirms the veracity of the general manager of Don Pollo, in an interview published in a national newspaper, that requires no more explaining: “Why fight with Super Pollo, it is better to coexist. As it is said: if you have a powerful enemy, you better join him. With Ariztía and Agrosuper we have a very strong trade association, through which we have reached agreements with respect to what corresponds to each one in the market. We will not get burned for a 1% more” 15 . II. CHARACTERISTICS OF THE AFECTED MARKET 41. The chicken industry is, and has been during the last decade, the main producer of meat in the country, having produced during 2010 almost 500 thousand tons. Additionally, it is the most consumed in Chile, representing in 2010, around 39% of the total consumption of meat. Table N°1 presents the production and internal consumption of the different types of meat for the mentioned year. Table N°1 Production and Consumption of Meats (Tons) 2010 Chickens Pigs Veal calves Turkeys Production Ton. 498.772 498.324 191.302 89.884 % 39% 39% 15% 7% Internal consumption Ton. 482.631 379.910 319.264 66.242 % 39% 30% 26% 5% Source: FNE, based on information gathered during the course of investigation Rol 1752-10 FNE 42. The Defendant Producing companies concentrated more than de 92% of the national production of chicken destined to the internal market 16 . In this market only two more companies participate (Codipra and Santa Rosa), whose production is small and destined to specific niche markets. 15 Interview published in El Mercurio, Revista del Campo, of April 16 2007 headlined: “Don Pollo will now fatten pigs”. 16 According to figures corresponding to the period between January-October 2010. This is an unofficial independent translation 13 43. The leading company in the market is Agrosuper 17 , with a 56% market share based on sales in the national market, measured in kilos. Created in 1960, this company owns two slaughtering houses and has average sales -for 2010- of more than 18.490 tons a month of chicken, commercializing its products through a distribution net integrated by 28 terminals located in the main cities of Chile. Agrosuper is also the main producer of food in the country, with important market shares in the markets of pig, turkey, and salmon meat, operating other markets as well such as sausages, wines and oils. 44. On the other hand Ariztía 18 created in 1936, holds a 29% market share, being the second player in the market, with an average monthly sale -for 2010- of 9.670 tons. The company owns two chicken slaughtering houses in the central zone and one in the north of the country, and commercializes its products in the whole country. The company also participates in other food markets, such as turkey, sausages and eggs, amongst others. 45. Finally Don Pollo 19 , with a market share of 8%, initiated its activities in 1986 and now occupies the third place in terms of production in the industry. This company operates with only one plant, with sales -for 2010- of 2.560 tons a month 20 , and commercializes its products in different regions throughout the country. Also, the company produces pig meat, sausages and eggs. 17 Among the subsidary companies of Agrosuper, are the following:: Comercializadora de Alimentos Lo Miranda Ltda., Agrocomercial Los Castaños Ltda., Alimentos Agrosuper Ltda., Agro Tantehue Ltda., Agrícola y Servicios Arenilla Ltda., Alimentos Arenilla Ltda., Faenadora Arenilla Ltda., Faenadora Rosario Ltda., Faenadora Lo Miranda Ltda., Faenadora San Vicente Ltda., Agrícola Super Ltda., Agrocomercial AS Ltda., Agrosuper Comercializadora de Alimentos Ltda., Distribuidora Oriente Ltda., Frigorífico San Cristóbal Ltda., Elaboradora de Alimentos Doñihue Ltda., Asesoría y Proyectos SP Ltda., Agrosuper Servicios Corporativos Ltda., AS Logistic Ltda., Agroforestal Corneche Ltda., y Puerto Las Losas S.A. 18 Among the subsidary companies of Ariztía, are: the following Agrícola Ariztía Limitada, Agrícola Tarapacá Ltda., Agroexportadora e Importadora Ltda., Agroindustrial Arica Ltda., Agroindustrial El Paico Ltda., Ariztía Comercial Limitada, Ariztía Europa, Ariztía Exportaciones Ltda., Ariztía Registros de Marcas y Cía., Comercial Tácora Ltda., Concordia Alimentos Balanceados Ltda., Distribuidora Diper Ltda., Industrial Leyda Ltda., Industrial Ochagavía Ltda., Rentas Cerro Talami Ltda., Servicios de Venta Ltda., Servicios Agrosistemas Ltda., Servicios de Mantención Ltda., Servicios de Ventas Ltda., Servicios y Asesorías Seas Ltda., Tecnología y Alimentos Ltda. 19 Among the related companies of Don Pollo is Agrícola Chorombo S.A. 20 The market shares indicated in this and the two preceding paragraphs, do not consider the imports of third parties different to the Defendant Producing Companies. This is an unofficial independent translation 14 46. Inthe following Table, the essential characteristics of each of the main players in the market are summarized: Table N°2 Description of the Main Poultry Companies Company Agrosuper Ariztía Don Pollo Labels Super Pollo Ariztía Don Pollo Pancho Pollo Pollos King Year of initiation of activities 1960 1931 1986 Ranking in Production and National Sales 1° 2° 3° Income from Exports (MM$ 2009) 21 797.217 218.846 51.102 Market Share (National Production in Kilos destined to the internal market, January-October 2010) 167MM (52%) 101MM (32%) 25MM (8%) Market Share (National Sales in Kilos 2010) 222 MM (56%) 117MM (29%) 31MM (8%) Market Share (National Sales in Kilos, including imports, 2010) (49%) (26%) (7%) Number of slaughtering plants 2 3 1 Other products commercialized Sausages, Pig, Turkey and Salmon Sausages, Pig, Turkey and eggs Sausages, Pig and Eggs 47. The Chilean industry of chicken meat, characterized by vertical integration, presents various stages, which include: reproduction; loading of the eggs into incubators and incubation; breeding or fattening of poultry; industrial processing or slaughtering; and finally commercialization and distribution of the product. 48. The production process begins with the so called “reproducing poultry or mothers”, which are the ones that lay eggs. The actual production of chickens is initiated by loading 22 in the incubators the amounts the companies determine. From the incubation plants, after a period of 21 days, the birds with one day are extracted, “chicks”, which are then sent to the breeding or 21 The FNE does not have the definitive financial statements of the Defendant Producing Companies for the year 2010. 22 In this chapter, the term “loads” is used in its technical sense, meaning the inclusion of eggs in the incubation machines. This is an unofficial independent translation 15 49. fattening units for around 45 days. After this stage, the poultry pass to the slaughtering plants, where the slaughtering and processing takes place -supposedly also the packaging and labeling as well-. During this process, cuts and selections are made of the sub products that will be commercialized, being the highest sold the whole chicken, the chicken leg and the breast; the meat is also marinated at this stage. Finally, they proceed to the commercialization and later distribution of the chicken, mainly in its fresh format for the national market. 50. In the national market, chicken meat is commercialized through three channels: (i) supermarket channel, where the main players are Walmart S.A., Cencosud S.A. and SMU S.A; (ii) traditional channel or coverage: composed mainly by butcheries, neighborhood stores, small business and minimarkets; and (iii) the industrial channel, that corresponds to clients that buy chicken meat to manufacture their own products or offer their services, including the restaurant and catering services (HORECA) 23 and the companies that elaborate sausages. 51. The supermarket is the main channel of sales, concentrating around the 45%-47% of sales in the national market. The highest sold products are: whole chicken leg bulk (58%), followed by the whole chicken with giblets (25%), and the whole breast bulk (17%) 24 . 52. In second place, in the traditional or coverage market, around 31%-33% of the chicken meat is commercialized, and it is greatly atomized, having a great number of players. The most relevant products, in terms of sales, are the whole chicken with giblets (53%), followed by the whole chicken leg bulk (33%) and whole breast bulk (14%). 23 HORECA comprehends clients that integrate commercial areas such as hotels, restaurants, and catering. 24 To obtain the percentage that this commercialization channel represents, as well as the ones described in the following two paragraphs, the total sales of Agrosuper, Ariztía and Don Pollo was used as a proxy in relation to the daily transactions exclusively of the main cuts of chicken of these companies (whole chicken with giblets, whole breast bulk, and leg bulk), corresponding to the years 2008, 2009, and 2010, according to the information presented by the Defendant Producing Companies. As to the classification of the products that corresponded to each cut, only the information of 2010 was considered. This is an unofficial independent translation 16 53. Finally, the portion of production of chicken meat that is sold to the industrial channel represents around the 20%-25% of the total sales, and its main product is MSC 25 , a paste elaborated with input from chicken that is used for the production of sausages. 54. In the case at hand, the relevant market consists in the production, commercialization and wholesale distribution of fresh chicken meat in all the national territory, given the specific characteristics of chicken meat, that distinguish it from other potential substitutes 26 . 55. In fact, chicken meat does not have any close substitutes. As can be reflected in the following table, chicken meat constitutes a separate market from other meats, mainly due to two elements: (i) its components and (ii) its sale price. Table N° 3 Analysis of the substitutability between different types of meat Chicken Pig Turkey Veal 1) Nutritional Characteristics Cholesterol (mg):75 Cholesterol (mg):91 Cholesterol (mg):85 Cholesterol (mg):89 Protein: 23,3 Protein: 25,4 Protein: 28,5 Protein: 30,3 Iron (mg): 0,8-2,6 Iron (mg): 1,1-1,6 Iron (mg): 1,6-2,3 Iron (mg): 1,3-5,5 Zinc (mg): 2,1 Zinc (mg): 2,9 Zinc (mg): 3,2 Zinc (mg): 4,9 2) Average price ( per real kilogram, 2010) 1024.49 1.139.78 1.578.21 1.665.70 (1) Source: INTA Universidad de Chile 27 y Facultad de Agronomía e Ingeniería Forestal, Universidad Católica 28 . (2) Source: FNE based on information gathered during the course of investigation Rol 1752-10 FNE. 56. There are nutritional characteristics that differentiate red and white meat. This way, in comparative terms, red meat has a higher level of iron, Purines 29 and fat 30 . 25 Mechanically shred chicken. 26 The FNE considers as relevant market that of a product or a group o products for which there are no close enough substitutes, in a geographical area in which it is produced, bought or sold, and in a timeframe in which it is likely that it may exercise its market power. Internal Horizontal Merger Guidelines of the FNE, available at: http://www.fne.cl. 27 Document by proffessor Verónica Cornejo; available at: http://www.sopraval.cl/wp-content/files_mf/1283805838inta_articulo_pavo.pdf. In relation to colesterol and proteind see, table 1, page 6. 28 Document available in: http://www.uc.cl/agronomia/c_extension/Revista/Ediciones/18/opinion.pdf In relation to iron and zinc, see table N° 3, page 4. http://www.fne.cl/ http://www.sopraval.cl/wp-content/files_mf/1283805838inta_articulo_pavo.pdf http://www.uc.cl/agronomia/c_extension/Revista/Ediciones/18/opinion.pdf This is an unofficial independent translation 17 57. Additionally, from the point of view of preferences of consumers, an increase in the consumption of white meats has been observed recently, in detriment of the red, due to, amongst others, the following factors: More efforts by the poultry producers to reduce the search costs and enhance the perception of attributes of this type of meat. Consumers’changes in life habits due to modernization and globalization. An increasing tendency to replace red meat, given the fact that they are perceived as harmful for the body in the long term 31 . 58. On the other hand, an analysis of wholesale prices demonstrates that there are significant differences between the different types of meat. In average, for the year 2010, the price of turkey was in real terms, $562,72 per kilo more expensive than chicken meat, figure that implies a price which is 54,9% higher; as for pig and veal meat they where respectively $115,29 (11,3%) and $641,21 (62,6%) per kilo more expensive than chicken meat. 59. This way, the correlation coefficients of the variations of the prices of each of these types of meat, test commonly used to verify substitution, are low or even negative. As it is observed in the following table, the coefficient of correlation between chicken and turkey is of 0,16; while the coefficient of correlation between chicken-pig and chicken-veal, is of -0,07 in each case. 29 Substances that come from the metabolism of the proteins and are transformed into uric acid in the body. 30 Specially saturated fat and cholesterol. 31 “Characterization of the Demand fo Bovine Meat and Evaluation of Substitutes” Study Elaborated for ODEPA by Intelligent Data. January 2007, pages 8-9. Available at: http://www.odepa.gob.cl/odepaweb/publicaciones/Estudio_Demanda_Carne_Bovina.pdf. http://www.odepa.gob.cl/odepaweb/publicaciones/Estudio_Demanda_Carne_Bovina.pdf This is an unofficial independent translation 18 Table N°4 Coefficient of the Correlation between different types of meat Source: FNE based on information gathered during the course of investigation Rol 1752-10 FNE. 60. Al the above mentioned, HON. Court, proves that the chicken meat constitutes a separate relevant market from other meats. Moreover, diverse compared case law have ruled with the same reasoning, considering the different types of meat as belonging to different markets 32 . 61. Now, in relation to the incidence of the imported meat in the relevant market, it must be pointed out that it has been unable to discipline the coordinated behavior of the Defendant Producing Companies. The foregoing, in spite of the fact that from 2004, inside APA and between the Defendant Producing Companies, there was already worry regarding imports. 62. Currently, these have not yet reached a significant market share, since according to the facts gathered by the FNE; the substitution between imported and national products is limited, mainly, due to the commercialization format of products and the need to develop a distribution channel. 63. This way, as to the commercialization format, it must be stressed that the importation of chicken to Chile is done almost exclusively in frozen format; on the other hand, the great majority of the national production commercialized internally, corresponds to fresh chicken. 64. It is the very producers of chicken and national players, who point out that clients prefer the fresh product, since they associate the purchase of this product to a recent elaboration, whereas the frozen would have been elaborated a long time before, an element which is 32 See for example: Case Nº IV/M.1313 Danish Crown/Vestijyske Slagterier European Commission; Decision N° 658, Tegel Foods Limited and Brinks Group Of Companies, of the Commerce Commision New Zeland; Decisión ME/3379/07, Tulip Limited of George Adams & SonsLimited and George Adams & Sons (Holdings) Limited, OFT; y Decisión N° 601/17.07.2008 of the Commisison for the Protection of Competiton of Bulgaria Chicken Pig Turkey Veal 1 -0,07 0,16 -0,07 This is an unofficial independent translation 19 incorporated in clients’ decision making process. For them, all things considered, the fresh product is better and healthier than the frozen 33 . 65. In the same way, they mention that fresh chicken has a better texture and taste compared to frozen, this would entail that the imported product is considered as inferior. 66. Ratifying the abovementioned, a report by an external consultant commissioned by APA in September 2008 34 , pointed out: “the previous evidence suggests that the substitution between Argentinean chicken and Chilean is far from being perfect” adding: “an explosive rise of imports does not occur simply because the local consumer does not perceive Argentinean chicken as a perfect substitute for Chilean chicken”. 67. On the other hand, the development of a distribution channel –in the relevant market in these proceedings- also explains the low penetration levels of imports. If some degree of substitution would be claimed to exist between the imported product and the national, a new entrant should be able to distribute its product along the country, and only in that way would it exert competitive pressure on the Defendant Producing Companies. 68. Notwithstanding, having the conviction that both products cannot be considered close substitutes, and that the cartelization of the Defendant Producing Companies originated several years before imports had any participation in the national market, the FNE, in order to quantify the power and the market concentration reached by the cartel, will carry out two analysis of market concentration, one in which the imported chicken meat will be included, and a second analysis that only considers the relevant market of these proceedings. So this HON. Court can verify with absolute certainty, that even including the imported chicken meat, the coordinated actions carried out by the Defendant Producing Companies, do not find a strong competitor in imports. 33 The FNE took several statements from different market players –importers, representatives of the traditional channel, supermarkets, amongst others-,all of which affirm that the frozen format is not perceived by consumers in the same way as the fresh. 34 September 2008: “Demand Projection of Chicken Meat in Chile” by Jorge Quiroz. This is an unofficial independent translation 20 69. Firstly, as can be observed in the following table, in 2010, without considering imports by third parties different from the Defendant Producing Companies, these concentrated jointly a 93% of sales (Agrosuper had a market share of 56%; Ariztía 29%; and Don Pollo an 8%). In the second scenario, including imports by third parties – which represented near a 12% of the total sales in the market- 35 , the Defendant Producing Companies still hold 82% of the total. Table N° 5 Market Share and index of concentration in sales (Millions of kilos 2010) Source: FNE, based on information gathered during investigation Rol 1752-10 FNE. 70. As can be seen, this is a highly concentrated market, from both proposed scenarios; the HHI 36 index exceeds by far the threshold considered by the FNE in order to determine the existence of competition risks 37 . 35 It must be taken into account that part of the imports are used as productive input for the elaboration of final products that are not commercialized as chicken meat (for example: sausages), situation that may generate a higher level of concentration in the market. 36 As this Hon. Court knows, the HHI Herfindhal Hirschman concentration index that is calculated by summing the square market shares. 37 Internal HorizontalGuideline FNE Available at: http://www.fne.cl. Company Market Share without imports (%) HHI without imports Market Share with imports (%) HHI with imports Agrosuper 56% 4.070 49% 3.293 Ariztía 29% 26% Don Pollo 8% 7% Santa Rosa 5% 4.5% Codipra 2% 1.5% Importaciones 12% Total 100% 100% http://www.fne.cl/ This is an unofficial independent translation 21 71. It must be stressed, on the other hand, that the cartel has benefited from the unfavorable entry conditions in this industry, to which, at least in the last 20 years, no new participants have entered. 72. On the contrary, what has happened in the last decades is the concentration of the industry. During the 90´s there were eight chicken meat producing companies in the country, whereas today there are only five. This reduction of players was produced mainly by several mergers. Pollos King was acquired by Agrosuper in 2000, on the other hand Kútulas and La Cartuja, by Don Pollo in 2001. 73. Also, and as will be proved during these proceedings, the main difficulties for entry in this market are originated by economies of scale, both in the production and in the distribution, vertical integration of the national poultry business 38 , costs, and the extended time needed to fulfill the environmental and sanitary norms to operate incubation, breeding and slaughtering of animals. 74. As this HON. Court will appreciate, the cartel that motivates the present accusation emerges in an industry with the following characteristics: homogeneous products, few players, high concentration, low competition with imported products and unfavorable entry conditions. III. THE LAW 75. Both the case law and legislation recognize that collusion is the conduct that deserves the greatest reproach from a competition point of view 39 . 38 That could restrict the access to input to potential entrants or gain access to them in disadvantaged conditions. 39 It is so recognized by our case law in Sentencia 94/2010“FNE against Transportes Central Ltda. And others: “That, secondly, as to the gravity of the conduct, this Tribunal considers collusion to be one of the most reproachable conducts for competition law, even more so when it affects the functioning of the market in services that are essential for the community” This is an unofficial independent translation 22 I.1 The Defendant Producing Companies have infringed article 3° of DL 211 76. The conduct by the Defendant, in the case at hand constitutes an infringement of competition laws. The legal description of this illicit behavior in its relevant part proscribes: “Whoever executes or enters into any act, agreement or convention, either individually or collectively, which hinders, restricts or impedes free competition, or which tends to produce such effects, shall be penalized with the measures indicated in Article 26 hereof, notwithstanding any preventive, corrective or restrictive measures that could be ordered in each case, with regard to said acts, agreements or conventions.” 77. As your honor knows, the quoted article adds examples of facts, acts or conventions that, amongst others, are considered to impede, restrict or hinder free competition or tend to produce such effects, in the following terms: “a) Express or tacit agreements between competitors, or concerted practices between them, which confer to them market power and which consist of fixing sale prices, purchase prices, or other commercial terms and conditions, restricting output, allocating territories or market quotas, excluding competitors, or affecting the results of tender processes (bid rigging).” 78. From these dispositions three necessary conditions derive to affirm that there is a cartel all of which are present in this case: (i) concurrence of wills between competitors; (ii) that such concurrence of wills has as an object restricting, affecting or eliminating competition in the relevant affected market, or at least, tends to produce those effects; and (iii) that the mentioned agreement confers on them sufficient market power to produce the previously mentioned effect 40 . 40 Sentencia N° 112 del TDLC, 22 de June 2011, “FNE against Radio Valparaíso Ltda. and others ”, 66. This is an unofficial independent translation 23 a) Concurrence of wills between the Defendant Producing Companies 79. The agreement that motivates the present action refers to the limitation of production and assignment of market quotas. The Defendant Producing Companies have executed the agreement throughout time, by the coordinated exchange of sensitive, strategic and detailed information. b) The concurrence of wills between the Defendant Producing Companies has as its object restricting; affecting or eliminating competition in the relevant affected market, or at least tends to produce such effects 80. Precisely, the cartel at hand has allowed: a) Limiting production; and b) Assigning market quotas to each of the three Defendant Producing Companies 81. Against this background, APA has played an essential role in the cartel, since it has facilitated its implementation, stability and success, coordinating and monitoring the behavior of the Defendant Producing Companies. APA has gathered, processed and sent to Agrosuper, Ariztía and Don Pollo strategic, sensitive and detailed information that has allowed them to adopt decisions in harmony with the cartel, impairing competition. c) The agreement has conferred the Defendant Producing Companies enough market power to produce the abovementioned effect 82. Coordinating their behavior, under APA, the Defendant Producing Companies, as previously pointed out, manage to control more than 92% of the national chicken production destined to the internal market and more than 93% of its commercialization in Chile, in a market where there are no appropriate substitutes for chicken meat and where imports do not represent a competitor capable of disciplining the cartel members. All of the above demonstrates the This is an unofficial independent translation 24 success of the cartel, reflected in the market power they have obtained, thanks to their joint action. I.2. Requested Sanction 83. As your honor knows, for the application of fines, DL 211 establishes certain circumstances that must be considered by this Hon. Court in the determination of the fine. Given the relevance of this case, the FNE will refer in detail to two: the gravity of the conduct and the economic benefit obtained by the cartel members. These circumstances justify, by themselves, that this Hon. Court applies the maximum fine established in the law to each of the Defendant Producing Companies, this is 30.000 UTA. Note by the translator: Up to an amount equivalent to 30 thousand annual tax units (UTA). The UTA is a currency legally defined for tax purposes. It corresponds to the UTM’s value in the last month of the commercial year, multiplied by 12. UTM value at April 4 2012: $39.570 Chilean pesos. a) Gravity of the conduct 84. An important factor established by DL 211 for the calculation of the fine, is the gravity of the conduct of the perpetrator. In this sense, as it has been pointed out, the evidence of the case, national and international case law and the doctrine have been consistently recognized that collusion or cartels constitute the most serious violation, from a competition law perspective. 85. Moreover, the cartel has had direct influence in a product that forms part of the basic consumption basket of the majority of Chilean homes. It is evident, therefore, that the effects of the agreement reached betweenthe Defendants are highly prejudicial and that it possesses a social dimension which is particularly relevant. b) Economic benefit obtained 86. The Defendant Producing Companies have implemented for years, an agreement aimed at limiting the production of chicken meat in Chile and allocate market quotas. This is an unofficial independent translation 25 87. The economic benefits that the Defendant Producing Companies obtained during one decade through their illicit behavior greatly exceed the maximum amount of fines established by the legislator. I.3. APA´s Behavior 88. Just as the legislation and case law provide, trade associations must comply with competition rules 41 . 89. This way, just as it has been exposed in this presentation, the highest executives of APA, amongst other actions, requested, received and delivered sensitive information that allowed the functioning of the cartel, projected the quantities to be produced and monitored the actual produced quantities, using as a basis the market shares previously defined amongst them. 90. The formation and sustainment of the cartel integrated by the Defendant Producing Companies has been possible due to coordination by APA. The conversations and communications regarding quantity projections and future strategies of business carried out under the trade associations, and orchestrated by it, lead to agreements or understandings that violate competition law. 91. In this sense, APA´s behavior is absolutely contrary to what may be expected from an entity of this nature in a competitive frame. Trade associations offer a number and by all means legitimate, opportunities of encounter for market players that compete amongst each other, as long, and only if, competition law is not violated. 92. For all the above reasons, APA should be condemned to pay the fine that is indicated our petitions. Also, given de deviation from the general objective for which the reunion of competitors is allowed in the frame of competition, and the fundamental roll that it played in the creation and sustainment of the cartel, it is appropriate that the Hon. Court declares the mentioned trade association dissolved. 41 Sentencia N° 74/2008 of September 2 2008, “FNE against AM Patagonia S.A. and others”, Sentencia N° 82/2009 of January 22 2009, “FNE against Asociación Gremial de Buses Interbus and others” y Sentencia N° 102/10 of August 11 2010 “FNE against Asociación Gremial de Dueños de Mini Buses Agmital”, all dictated by the TDLC and confirmed by the Supreme Court. This is an unofficial independent translation 26 In consequence, Hon. Court, given that -as it will be proved during the course of proceedings- the three Defendant Producing Companies, coordinated under APA, have infringed article 3° of DL 211, by celebrating and executing an agreement between competitors, consistent in limiting production, controlling and monitoring the quantity of chicken produced and offered in the national market, and assigning market quotas in the market for production and commercialization of the product, for more than a decade, there is no choice but to apply the sanctions requested in our petitions. WHEREFORE, under the merit of the exposed, and in accordance to the provisions laid out in articles 1°, 3°, 18, 19 and following, 26 and 39 of DL 211, and other legal provisions citied and applicable, TO THE Hon. COMPETITION COURT I REQUEST: To the receive the following action against Agricola Agrosuper S.A., Empresas Ariztía S.A., Agricola Don Pollo Limitada and Asociación de Productores Avícolas de Chile A.G., already individualized, initiate proceedings, and, in short, adjudge and decree that the Defendants, themselves and/or by their related (translator note: persons or companies), have executed and celebrated the conducts hereby accused, in contravention of article 3° of DL 211, in consequence: 1) The immediate cease of these practices should be ordered, prohibit the Defendant from renewing their unlawful agreements, directly or indirectly, by themselves or through related persons, under the warning of incurring in recidivism. 2) The imposition to Agricola Agrosuper S.A. of a fine amounting to 30.000 (thirty thousand) Annual Tax Units, or the amount that this Hon. Court deems appropriate according to law. 3) The imposition to Empresas Ariztía S.A. of a fine amounting to 30.000 (thirty thousand) Annual Tax Units, or the amount that this Hon. Court deems appropriate according to law. 4) The imposition to Don Pollo Limitada of a fine amounting to 30.000 (thirty thousand) Annual Tax Units, or the amount that this Hon. Court deems appropriate according to law. 5) The imposition to Asociacion de Productores Avícolas A.G. of a fine amounting to 20.000 (twenty thousand) Annual Tax Units, or the amount that this Hon. Court deems appropriate according to law. 6) Order the dissolution of Associacion de Productores Avícolas de Chile A.G. This is an unofficial independent translation 27 7) Order the Defendant to bear procedural costs. FIRST: Hon. Court, we request the following instruments be considered accompanied as means of proof, requesting the confidentiality of those indicated, since they contain sensitive information from its owners and/or they contain information which is commercial and strategic of their companies, since its knowledge by third parties may cause serious detriments to the economic and/or professional interests of the people or companies from which they originate: a. Public: 1) Copy of the interview published in the newspaper El Mercurio, to Mr. Ramón Cobarrubias Matte, of April 16 th 2007, in the magazine Revista del Campo. b. Confidential: 2) Copy of e mail from APA to Agrosuper, Ariztía and Don Pollo of January 10 th 2008. 3) Copy of e mail from Ariztía to APA of January 10 th 2008. 4) Copy of e mail from APA to Agrosuper, Ariztía and Don Pollo of January 11 th 2008. 5) Copy of e mail from Agrosuper to APA of January 11 th 2008. 6) Copy of e mail from Don Pollo to APA of January 11 th 2008. 7) Copy of e mail from Agrosuper to APA of January 11 th 2008; and 8) Copy of e mail from APA to Agrosuper, Ariztía and Don Pollo of January 11 th 2008; SECOND: Hon. Court, giving strict compliance to the provisions of Auto Acordado N°11/2008, this part herby accompanies the public version of the documents whose confidentiality is requested. THRID: I hereby request the Hon. Court to acknowledge, that for the purposes of notifying the present charges and all the tasks which require the presence of an attester, and notwithstanding the right of this party to revoke the designation in any moment, I appoint the following process bailiff: 1. Miss Juana Ortiz Madrid, domiciled in Bandera N° 465, office 704, city of Santiago. This is an unofficial independent translation 28 2. Miss Rosa Carmona Monje, domiciled in Av. Brasil N° 850, office 308, Rancagua. 3. Mr. Jorge Reyes Muñoz, domiciled in Salesianos N° 1179, office 2, San Miguel. 4. Miss Cecilia Arap Miranda, domiciled in en Merced N° 982, office 1, Melipilla. FOURTH: I hereby request that the Hon. Court acknowledges that my powers to represent the Economic National Competition Bureau (FNE) are attested in Decreto Supremo N° 211, of August 4 th 2010, of my appointment as Economic National Prosecutor, authorized copy of which is under the custody of the Secretary of this Court. Also, I hereby request this Hon. Court to acknowledge, that in my condition of qualified attorney, with the abovementioned address, I personally assume the representation of the FNE in these proceedings, and delegate powers of attorney to the attorneys of the FNE Mr. Cristián R. ReyesCid, Mdm. Vanessa Facusse Andreucci, Mr. Victor Snatelices Rios and Mr. Francisco Bórquez Electorat, qualified attorneys, domiciled in the same address, with whom I may act jointly and separately, and who sign next to me in approval.
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