The National Competition Commission (Conacom) issued opinion D/07/2023 (the "Opinion") in connection with the bill titled "On promotion and protection of small and medium producers of yerba mate - Ilex paraguariensis" (the "Bill") passed by the National Congress and awaiting, at the time, enactment or veto by the Executive Branch.
The purpose of the Bill is to promote and protect producers (small, medium and others) of the raw material yerba mate leaf, through the promotion and increase of production, as well as the implementation of measures to ensure a fair economic reward, recognizing the cultural value as an item of national production.
Regarding the fixing of minimum prices, the Bill establishes that the Ministry of Agriculture and Livestock (MAG), in its capacity as enforcement authority, shall issue an annual resolution, which will be binding, establishing the base cost of production of the raw material, based on the opinion of a mixed multidisciplinary commission or on the basis of other technical studies. In other words, the minimum price will be equal to the approved production base cost and any payment below the production base cost will be subject to penalties, applying the sanctions provided for in the Bill (warning, suspension or cancellation of registrations, confiscation and/or fine).
In addition, the Bill proposes that the Banco Nacional de Fomento (BNF) and the Crédito Agrícola de Habilitación (CAH) provide credit lines specially designated for small and medium-sized producers registered with the MAG, subject to compliance with certain requirements.
It is Conacom’s duty to analyze whether there are or could be barriers to competition resulting from the Bill. This analysis is based on the principles established in the 'Guide for regulation with competition criteria'[1] adopted by the institution during 2023.
If regulatory barriers to competition are identified, Conacom analyzes them in the light of three main principles:
- Principle of necessity: the objective should be to correct a market failure or to achieve the protection of a public or general interest that justifies the intervention of economic activity to be considered necessary.
- Principle of proportionality: the regulation must be proportionate to the harm it seeks to prevent. In other words, the cost-benefit analysis must show that the benefits of the regulation outweigh the costs, both direct (those resulting from compliance with the regulation) and indirect (undesirable collateral effects due to incentives). To this end, it is essential to analyze the alternatives that could effectively meet the identified need, taking into account the scope of the measure and its duration.
- Principle of neutrality or non-discrimination: this is essentially based on the premise that the government should not grant competitive advantages to certain companies, regardless of whether they are State-owned or not.
In the analysis of the possible anti-competitive effects, Conacom joins the position of the OECD, which allows minimum prices as a measure of extremely vigorous competition, generally used as a measure to protect small suppliers from unfair competition. In this particular case, the explanatory memorandum of the Bill mentions that the sector of yerba mate leaf producers is affected by overpricing of inputs, usury and underpricing of their products.
Conacom’s Directors state that they are not aware of the existence of studies on the necessity and proportionality of the measure included in the Bill. However, they emphasize the effects of minimum price fixing, citing among others the loss of economic efficiency resulting from supply and demand, the impairment of the effects of innovation, the creation of a favorable climate for the formation of cartels that influence the fixing of other commercial conditions among market participants, and even the promotion of informality.
The Opinion clarifies that both the available public information and the explanatory memorandum do not provide any justification for the imposition of minimum prices, nor do they provide for transitional or exceptional measures.
With regard to the granting of credit lines by the BNF and the CAH, Conacom notes, on the basis of what UNCTAD[3] has pointed out, that government support measures, in this case the granting of credit, may lead to an improvement in the conditions of competition if the intended objective is achieved. In this case, the difficulty of access to credit for small and medium-sized producers is a known fact that justifies the imposition of a measure that could be considered discriminatory.
The Opinion concludes that any interventionist measure, such as the fixing of minimum prices, must be supported by independent technical studies demonstrating its necessity, proportionality and non-discrimination, and must be exceptional and temporary. In Conacom's Opinion, the Bill lacked such support, so it recommended that the Executive partially veto certain articles of the Bill and that the MAG carry out a market study to facilitate decision-making and the evaluation of alternatives that guarantee the general interest. Finally, the Executive issued a partial objection to the Bill, in particular to articles 3 and 8[4], taking into account the Opinion, together with the Opinion of other public bodies.
[1] Available in spanish here; https://drive.google.com/file/d/1Lca7nllN701sAF10itI3sSV-FzsFNK8C/view
[2] Organisation for Economic Co-operation and Development
[3] United Nations Conference on Trade and Development
Article 3: "The enforcement authority of this law is the Ministry of Agriculture and Livestock. It is empowered to convene public and private institutions respectively to establish dialogue instances among all sectors of the Yerba Mate production chain. Additionally, it can issue regulatory resolutions aimed at achieving efficient and effective action in favor of small, medium, and other producers of Yerba Mate leaf raw material. The Multidisciplinary Joint Commission for the study of Yerba Mate issues, created by Decree No. 19820 in 1998 and its amendments, serves as a consulting body to the Ministry of Agriculture and Livestock. It must provide technical opinions to establish the production base cost in October of each year, before the start of the following agricultural harvests of Yerba Mate leaf raw material. The Ministry of Agriculture and Livestock, by resolution to be issued no later than November 10 of each year, must establish the production base cost of Yerba Mate leaf raw material according to the technical opinion of the Multidisciplinary Joint Commission or, in its absence, based on updated technical studies. The price to be paid to small, medium, and other producers shall be above the production base cost, and any price paid below the production base cost of Yerba Mate leaf raw material shall constitute a serious offense and be subject to sanctions. Resolutions issued by the Ministry of Agriculture and Livestock shall be enforceable, and the involved sectors are obligated to comply, under penalty of suspension or cancellation of registrations and/or authorizations as operators in the Yerba Mate production chain."
Article 8: "Any violation or non-compliance with the obligations established in this law will be sanctioned by the enforcement authority, following the instruction of an administrative summary that guarantees the alleged infractor the right to defense. The applicable sanctions may include a warning, suspension, or cancellation of registrations with the relevant institutions, as well as confiscation and/or a fine of up to 200 (two hundred) minimum daily wages for unspecified activities in the Republic. The procedure for applying these sanctions, the circumstances of the commission of the acts and/or behaviors that generate them, their severity, and the maximum amount that may be imposed for each infringement, within the limit set by this law, as well as the appropriateness of other sanctions, will be regulated by the Executive Branch. Fines imposed under this law must be allocated to the institutional strengthening of the Ministry of Agriculture and Livestock for the fulfillment of the technical assistance and training function for small and medium Yerba Mate producers. Violations falling under the competence of the National Service of Quality and Phytosanitary and Seed Health will be sanctioned according to its legislation."
