ICA Takes Broad Enforcement Measures against Food Suppliers

In May 2023, the Israel Competition Authority’s Director General announced that seven major food suppliers would face financial sanctions exceeding ILS 23 million in aggregate. Imposition of the sanctions follows alleged violations of the Promotion of Competition in the Food Industry Law (commonly known as the Food Law). The sanctions are to be imposed within the framework of agreements reached between the Director General and the food suppliers, which include Strauss, Tnuva, Osem, Unilever, S. Schestowitz, Leiman Schlussel, and Angel. The agreements were published for public comments for 30 days.

The Food Law

The social protests against the cost of living that broke out in 2011 led to the enactment of the Food Law. The law aims to increase competition in the food and consumer products sectors and reduce retail prices. Inter alia, the Food Law prohibits food suppliers and retailers from engaging in various commercial arrangements that could prevent small suppliers or retailers from competing. The prohibition of such agreements is not contingent upon the degree of their actual impact on competition.

In early 2022, the Director General began, for the first time, a sector-wide examination of the agreements between the major food suppliers and the major food retailers, focusing on the conduct of the major suppliers. The Director General’s examination revealed evidence of Food Law violations by suppliers, including the following:

• Intervention or recommendation by a supplier in arranging products in retailers’ stores, inter alia, a request or instruction to display products at the front of the store or near the cash registers and a recommendation or instruction regarding how products should be arranged in various means of display.
• Intervention or recommendation by a supplier regarding the prices retailers should charge consumers for its products.
• Intervention or recommendation by a supplier to increase the selling space retailers extend to the supplier’s products and regarding display locations in stores.
• Transfers of payments from a supplier to retailers in violation of the Food Law’s prohibitions. For example, suppliers transferring monthly payments or a “holiday envelope” to retailers exceeding the permitted discounts per product unit, transferring payments in respect of branch openings, and providing means of display and refrigerators to retailers at no charge.

According to the Director General’s announcement, after presenting concerns about violations of the Food Law to the suppliers and hearing their arguments, most of the suppliers reached agreements with the Director General in lieu of conducting resource-intensive law enforcement proceedings. As part of the agreements, the suppliers committed to paying fines to the State treasury. The fines range from ILS 571 thousand to ILS 8.19 million per supplier, resulting in a total aggregate exceeding ILS 23 million. It is important to note that the suppliers did not admit to any violations of the law. The Director General’s announcement indicates the investigation is ongoing for several other major suppliers and that the Competition Authority will institute law enforcement proceedings against suppliers that fail to reach agreements. To our understanding, the Director General may act similarly toward major retailers for Food Law violations.

Enforcing the Food Law – Part of the Battle against the Cost of Living

The sector-wide examination of all arrangements between major suppliers and major retailers, along with the substantial increase in monetary sanctions compared to previous cases, suggests the Director General is prioritizing enforcement of the Food Law. These efforts are part of the broader battle against the cost of living in Israel.

This is one of several measures designed to contend with the cost of living in Israel. Additional measures in this regard include, inter alia:

• A draft bill to amend the Food Law to apply also to the consumer product and drugstore sector (including toiletries, medicines, and baby products).
• The Supervisor of Prices in the Ministry of Economy contacted 15 major food and consumer goods suppliers (some of which are private companies) and demanded data on their manufacturing costs and profitability. Among the companies who received the demand were Diplomat, Unilever, Osem, S. Schestowitz, Sugat, Hogla-Kimberly, Central Company for Beverage Distribution, Strauss, Willi Food, Sano, Jafora-Tabori, and Wissotzky. 
• Within the framework of the Arrangements Law, a plan was legislated to enhance competition in the food and toiletries sector. The plan includes prohibiting mergers between large and medium-sized suppliers, as well as certain types of discount arrangements between suppliers and retailers.

We can assume measures to combat the cost of living will continue in the near future, leading to new legislative initiatives and additional law enforcement actions.

We also assume the Director General will exert significant efforts in the near future to detect violations of the law by players in the food and consumer goods sectors, and will intensify the current trend of opposing mergers in these sectors, or at least of making mergers significantly more difficult.

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Our firm’s Competition and Antitrust Department is at your service to advise and handle matters deriving from the Food Law, including competition and antitrust issues.

Adv. Gal Rozent heads BarneA Jaffa Lande’s Antitrust and competition department.

Adv. Irit Brodsky is a partner in the department.