A Commerce Commission investigation of Dairy Board subsidiary, Livestock Improvement Corporation (LIC), will increase competition in dairy breeding markets.

Commission Chairman John Belgrave said that the investigation has ended with a settlement in which LIC has given signed undertakings of how it will change its behaviour to ensure that it does not breach the Commerce Act.

The Act prohibits contracts that substantially lessen competition and the use of a dominant position in a market for an anti-competitive purpose in any market.

"In our view, LIC was at risk of breaching the Act," Mr Belgrave said.

The Deed of Settlement includes the Commission's views, the signed undertakings, and a statement from LIC that it does not accept that it has breached the Act and that it entered into the Deed to avoid what it describes as "unnecessary litigation".

In the Deed of Settlement, LIC has given signed undertakings, including:

  • details of how it will make access to the database easier (this includes deadlines on how quickly LIC must process applications for access to the database and the appointment of an independent technical expert to the Dairy Herd Improvement Tribunal);
  • that it will not offer discounts on products which combine contestable and non-contestable services once its existing contractual commitments end on 31 May 2000;
  • that if it does not honour the Deed the Commission can take further action; and
  • that the Commission may publicise the settlement.

Media contact:

Commerce Act Manager Geoff Thorn

Phone work (04) 498 0958

Communications Officer Vincent Cholewa

Phone work (04) 498 0920

Commission media releases can be viewed on its web site www.comcom.govt.nz

Background

The relevant markets are:

  • the New Zealand market for dairy cattle database services;
  • the New Zealand market for the provision of dairy herd recording and testing services;
  • the New Zealand market for the provision of dairy cattle artificial insemination services; and
  • various regional markets for the provision of farm advisory services to dairy farmers.

LIC operates in all those markets and the Commission considers it to be dominant in the two markets for database services and herd recording and testing services.

In the Commission's view, LIC used its dominance in the database market to limit competitors' ability to get information from the database and, through that, to restrict their ability to compete in other markets. That is, LIC was at risk of breaching section 36 of the Commerce Act.

LIC also offered discounts to dairy farmers who bought bundles of several services from LIC. The bundles included services for which LIC does not face competition and other services that competitors can provide.

These bundles were marketed under the "Investmate" and "Ulti" brands. "Investmate" combined herd testing, herd recording and artificial breeding services. "Ulti" combined farm consultancy, herd testing, herd recording and artificial breeding services.

In the Commission's view, LIC's contracts for the two bundled products substantially lessened competition in the way they offered discounts over the whole bundle of non-contestable and contestable services. Competitors could not match LIC's total discounts unless they made much larger discounts on the contestable services only. That is, LIC was at risk of breaching section 27 of the Act.

Mr Belgrave said that it is important to note that it is not a breach of the Act to offer lower prices to customers who will buy bundles of services. However, problems may arise if contestable and non-contestable services are bundled together.

He strongly advised any businesses considering offering such bundles to get advice from lawyers with expertise in competition law before going ahead.