“Delete this email and empty the recycling bin” – summons details alleged price-fixing conspiracy in Chilean fishmeal market

The 22-page summons served 19 December by the Chilean National Economic Prosecutor's Office (FNE), accusing four salmon aquafeed producers of colluding for years to fix prices, references emails, phone calls, and meetings to substantiate its allegations.

In the document, presented to the antitrust watchdog Tribunal de Defensa de Libre Competencia (TDLC), FNE said that between 2003 and 2015 BioMar Chile SA, Comercializadora Nutreco Chile Limitada (Skretting), Ewos Chile Alimentos Limitada, and Vitapro Chile SA (Salmo Food) worked in collusion to fix the prices of fishmeal, fish oil, and other raw materials. The actions infringe Chile’s Law Decree 211 “in holding and executing an agreement or concerted practice that consisted in fixing the sale prices of salmonid foods, traditionally known as ‘diets,’ which are manufactured and sold to the salmon industry for the cultivation, breeding and fattening of these fish … This price setting was done by the Defendants directly, by coordinating the prices of the diets, or indirectly, by coordinating the prices charged to customers for raw materials of such foods.”

“To implement the agreement, the executives, normally [the companies’] general managers and commercial managers would make contact via emails, meetings, and telephone calls,” FNE said. The meetings began around 2000, when the accused companies got together to plan how to compete with Exapesca, an organization that groups different fish oil sellers. In that context, the company executives would say “’hey, give me your price list, tell me the price you’re at’ and they began to ask us not to touch certain clients,” Salmo Food General Manager Ian Lozano was quoted as saying in the summons.

By 2003, the defendants were allegedly carrying out the agreement, fixing prices of the diets in quotations and tenders called by the salmon companies. The coordination would allow the accused to determine percentages of the volume of supply requested by clients, thereby moving to maintain the market status quo.

Evidence presented by the FNE includes:

An April 2003 internal email with a Word document attached from Salmo Food Commercial Manager Juan Carlos Petersen that reviews each client’s situation with respect to the “pact.” It specifically mentions quotations made “under agreement” and the prices offered by the competition. “Since the agreement was reached, a total of seven clients have approached Salmo Food – clients with which Salmo Food has not broken the pact … Salmo Food is the one that would less lose and most gain breaking the pact,” according to the document.

An email the same month from Petersen to an Ewos executive asking for the latter’s price list of several months in order to set Salmo Food’s own price increases.

An internal email from Alitec (a company that participated in the pact that was later purchased by BioMar) in April 2003 from the general manager to two executives, detailing the increased price of diets for Ewos, BioMar, and Skretting, using as an explanation the supposed increased costs of raw materials but “this definitively is about recovering margins in a somewhat masked way, but against which the market has not reacted negatively… I think we should apply the maximum increase, since during the year there will be no other opportunity to increase prices.”

A February 2006 email from BioMar general manager Carlos Díaz to managers of Alitec, Ewos, and Skretting, asking about Ewos’ price of pigment following a customer complaint of high prices. “I’d like to know directly if you offered something lower, which was not what we had agreed. Alitec needs to raise its prices, since it is by far the lowest and has space to increase … It has been demonstrated that if we remain firm, things work out, as long as none of us play dirty.”

An internal Ewos email in September 2006 which outlines prices which Ewos, BioMar, and Skretting had defined for the raw materials: fish oil, fishmeal, vegetable oil, gluten, soy, and feathers. Those suppliers that were able to negotiate lower purchasing prices, could then increase their sales price in accord to what the competition was offering.

An internal Ewos email in September 2007 reporting on a telephone call with Skretting General Manager José Miguel Barriga to discuss acquisition costs of raw materials for Skretting, BioMar and Salmo Food, in order to define fourth quarter prices.

Various emails from February 2008, March 2011, and May 2014 which urge recipients to “read and then delete this email,” “delete this email and empty the recycling bin,” “do not communicate by email with contacts of the competition,” respectively.

An Excel file seized from Skretting which shows the costs of BioMar and Ewos of an extensive list of raw material used to make the diets, in which there is also a comment regarding BioMar’s Q3 2009 price of USD 607 [EUR 547] for corn gluten, stating “they will price it at USD 700 [EUR 631] since the replacement is near USD 800 [EUR 721].”

An internal BioMar email from June 2013 in which supply manager Lisandro Encina explains to incoming general manager Martín León that “there is a communication between companies that is done before coming out with the prices. [Outgoing general manager Felipe Ureta] used to do this.”

A December 2014 email from BioMar which reveals it knew the purchase price of fishmeal and fish oil from competitors Ewos and Skretting and “this would provide us space to raise prices a bit.”

A March 2016 email from Encina, BioMar’s supply manager, referring to Cargill having left the pact. “It will be increasingly difficult to continue the raw materials game with this client. We can continue stretching it but at some point it will snap… [The client] is clearly well-informed of the real commodity prices and it also seems that our competition is selling at real costs and doing business the other way. [This is an] issue for the next coordination meeting.”

Currently there are six salmon food suppliers in Chile: Ewos, Skretting, Salmo Food, BioMar, Exportadora Los Fiordos, and Salmones Antártica S.A. (SASA), FNE noted. However, the latter two firms are vertically integrated with salmon companies and do not sell feed to other companies. According to the Economic Prosecutor’s Office, during the period in question the remaining four controlled virtually 100 percent of the aquafee market: Ewos (37 percent), Skretting (32 percent), BioMar (21 percent), and Salmo Food (10 percent).

The salmon farmers would have a difficult time replacing these suppliers due to the high storage, transport, and other logistics costs, and the short shelf-life of the food itself, regarding imports or integrating a supplier vertically. The aquafeed suppliers have highly technical operations and are located in the south, close to salmon operations, for the same reason.

Because of this, the FNE determined that market entry conditions are restrictive. The limited number of competitors, unfavorable conditions for market entry of a new player, the high level of interaction between competitors, similar cost structures and movement of executives between the companies led to advantageous circumstances for the illicit agreement. “This, together with the fact that this has been a cartel for a long time … prove that this collusion was very difficult [for client companies] to challenge,” FNE said.

Given the “seriousness of the infraction, the economic benefit obtained, conscience of the illicitness of their conduct and the dissuasive effect,” FNE asked the TDLC to levy the maximum fine of 30,000 annual tax units, known as UTAs, equivalent to CLP 17.9 billion (USD 23.6 million, EUR 21.3 million) for each of the three offenders, regardless of their size in the market.

The fourth actor, Ewos, was pardoned by FNE. When Ewos was purchased by U.S.-based Cargill in October 2015, the latter soon discovered “practices in the salmon feed industry in Chile that were inconsistent with the Cargill competition policy and possibly violated the Chilean competition law. We immediately initiated an investigation, self-reported to the FNE in January 2016, and ceased participating in the problematic conduct,” Cargill said in a statement.

Under Chilean law, whistleblowers are automatically exonerated from having any charges brought against them regarding the illicit activity on which they are reporting.

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