Some of Germany’s biggest sugar companies, including Pfeifer & Langen, Südzucker and Nordzucker, have spent the last few months sending negotiators to visit chocolate factories, big bakeries and dairies, each with check book in hand. Their mission is to stop their biggest customers from taking them to court. At the moment, the customers are furious. They feel they have been cheated out of several hundred million euros by the sugar companies.
At first glance, they have a case. Sugar in Germany is expensive; compared with internationally competitive prices, sugar has been overpriced in Germany by at least 15 percent.
Competition regulators of the Federal Cartel Office already imposed fines of €280 million in 2014. Now Nestlé, Müllermilch, Katjes and many other companies are looking for compensation.
Up to now, according to information obtained by Handelsblatt, 31 companies filed lawsuits against their sugar suppliers, and several others are in the starting blocks. ”The consequences of civil lawsuits could prove more dramatic for the cartel members than the fines themselves,” said anti-trust lawyer Stefan Ohlhoff, who is representing one plaintiff. Total damages of around €315 million are being claimed, and this figure is expected to exceed the 500 million mark soon.
The accused parties reject the claims but they are alarmed at this display of hostility from their most important customers. In fact, there has been a real boom in similar lawsuits in Germany, with companies suing what they believe to be cartels. German Railways (DB), for example, has been targeting cartels for several years now with some success: Thyssen-Krupp and Voestalpine had to pay out €200 million for fixing the price of rail tracks.
And now it’s the turn of the sugar companies. The list of plaintiffs is like a Who’s Who of the food industry: It includes giants like Nestlé, Theo Müller, Lindt & Sprüngli, Zott, Zentis, but also mid-sized firms like Rübezahl chocolates, Lauterecker fruit juices and Lambertz.
One plaintiff lawyer described the collusive agreements in question as “one of the most serious and effective cartels in Germany.”
Most of the cases are being tried by the regional court of Mannheim, where 21 firms are seeking compensation. They argue that Pfeifer & Langen, Südzucker and Nordzucker have at various times made sure there was absolutely no competition between them; that they had divided up clients and sales areas and stuck rigidly to this practice for more than a decade.
And now the whole industry is watching what will happen. One landmark case begins on January 29 when fruit gum manufacturer Katjes, which wants damages of €37.2 million, appears in court. It is one of the biggest cases brought by an individual company. A consortium consisting of Bauer, Ehrmann and Zentis also wants €118 million and Nestlé is demanding €50 million in damages. The Mannheim regional court is doing pioneer work. Katjes will be its second case of this nature, following sweets manufacturer Vivil, which got the ball rolling.
“The inaugural proceedings made it clear that the court will deal with the case very carefully indeed,” said Vivil lawyer Andreas Grünwald of the Morrison & Foerster chancellery.
One plaintiff lawyer described the collusive agreements in question as “one of the most serious and effective cartels in Germany.” According to experts, the regulation of the sugar market makes it quite clear that the manufacturers ripped off their clients. The E.U. had intervened because European sugar manufacturers were unable to compete with their prices on the global market.
E.U. market regulations came to the rescue. They guaranteed that the E.U. itself would pay a minimum price for sugar. It also subsidized exports and imposed customs duties on imports. Pfeifer & Langen, Südzucker and Nordzucker actually succeeded in keeping their prices above the level of the E.U. intervention price. However, without collusion that would hardly have been possible.
Even the sugar giants themselves had to concede their transgressions. They have already paid €280 million to the Federal Cartel Office. Nordzucker, based in Brunswick, near Hanover, paid one of the lowest amounts, a single-digit million euro share of the fine, by admitting to collusion. It proved a painful experience for the MDax listed concern Südzucker: It had to pay €195.5 million, and Pfeifer & Langen the rest.
The sugar companies still insist they had no impact on prices. Südzucker points to a trade report on the market in France, where they claim prices had been comparable. Sugar market experts, on the other hand, counter that prices had been manipulated there too, and subsidiaries of the German sugar manufacturers had even been involved.
The accused parties also want to prove that sugar clients didn’t suffer any damages at all – even if they had paid too much. The price of a chocolate bar or a milkshake depended on their ingredients, and is calculated accordingly. The plaintiffs deny that it was possible to pass on the high sugar prices to the retail trade and consumers.
But despite going on the defensive, the sugar companies are also looking at ways to open dialogue with its clients. In a statement, a Nordzucker spokesman told Handelsblatt that: “We want to put our business relationships on a new, reliable foundation. We have been able to settle out of court in a number of cases.” She still believes however that none of their customers were damaged.
“We are convinced that no damages were incurred due to the strong market regulation of the European sugar market with fixed quotas and prices,” she said. However, Nordzucker expects it to take years for the first verdicts to be returned, and the risks would be “taken into account” for balance-sheet purposes.
Südzucker has made provisions of around €135 million and thinks that will ‘cover all possible risks.’ The Cologne-based manufacturer Pfeifer & Langen did not reply to a query about the provisions it is making.
The three big German sugar producers were not prepared to say with whom out-of-court settlements had been concluded and for what amounts. However, it is conspicuous that up to now there has been no sign of lawsuits from some big sugar clients. Coca-Cola and Haribo, for example, were not prepared to comment. The biscuit manufacturer Bahlsen said it was currently looking at possible options and expected to make a decision in the coming weeks.
A number of other plaintiffs are in the starting blocks. It shouldn’t take long for the record demand of €118 million to be exceeded.
Volker Votsmeier is an editor with Handelsblatt's investigative reporting team. Christoph Kapalschinski covers consumer goods, textiles and food for Handelsblatt. To contact the authors: [email protected] and [email protected]