Presidencia de la Nación

The National Commission for the Defence of Competition (CNDC, for its acronym in Spanish) issued an opinion under the terms of Section 14th, paragraph b), of Act No 27.442 on the Defence of Competition (LDC, for its acronym in Spanish), recommending to the Secretary of Industry and Commerce the subordination of the authorisation for the formation of Ingrear, a joint venture between Arcor and Ingredion for the development of the activities related to the wet milling of corn and the commercialisation of by-products, to the compliance with a commitment made up of seven (7) remedial measures.

Arcor is the parent company of an Argentine group organised into three business units: mass consumption food, agribusiness, and packaging. Regarding the production and commercialisation of food products, Arcor participates in the supply of candies, chocolates, ice creams, jams, preserves, oil, beverages, powdered juices, dairy products, and biscuits, among others, which are sold under renowned and long-established brands in the Argentine market, such as La Campagnola, Bagley and La Serenísima. It also produces certain inputs that it sells to third parties or uses to produce mass-consumption food products. This is the case of products derived from the wet milling of corn, an activity for which it has three production plants, two in the province of Córdoba and one in the province of Tucumán.

Ingredion is the local subsidiary of Ingredion Inc., a US multinational ingredients supplier that produces mainly starch, modified starches and starch sugars such as glucose syrup and high fructose syrup. In Argentina, it is dedicated to the production and commercialisation of ingredients, especially those derived from the wet milling of corn, an activity for which it has two production plants in the province of Buenos Aires.

The joint venture between the two economic groups consists of the consolidation into a single economic unit of the industrial transformation of maize through the wet milling process, and the subsequent marketing of the following products derived from this industrial process: syrups, fructose, dextrose, starches, oils, gluten feed, gluten meal, germ, glucose, maltodextrin and adhesives, among others. These derivatives are used as inputs in the food, beverage, paper and pharmaceutical industries.

In April 2022, the CNDC issued an Objection Report stating that the transaction had the potential to restrict or distort competition in these markets.

After analysing the operation, the CNDC concluded that its direct effect would be the disappearance of an independent competitor and a significant increase in concentration in the markets for corn wet milling and the marketing of its derivatives, given that, as a result of the operation, the first (Ingredion) and second producer (Arcor), in terms of their milling capacity, would be unified in a single economic unit, going from four to three competitors in the sector. In addition, possible vertical effects were verified, since the creation of the joint venture would have the potential to allow the practice of exclusionary conduct concerning Arcor's competitors in the downstream industries of production and marketing of food and beverages, in terms of market closures, increased costs, increased barriers to entry, among others.

This is because the notifying companies together account for a significant part of the installed capacity in the domestic maize wet milling market. It was also observed that the two companies produce 26 derivatives, of which there are overlaps in 18 by-products. In general terms, these derivatives can be classified into three main groups: sweeteners (fructose syrup, glucose syrup, etc.), starches and co-products (germ, gluten, etc.). In the market of these products, the combination of Arcor and Ingredion represents a considerable share in each category.

After the issuance of the Objection Report, the parties submitted a commitment involving conduct obligations, which was analysed and rejected by the CNDC as insufficient to mitigate the harm of the transaction. Subsequently, the parties offered new commitments, including structural and behavioural measures, intending to mitigate the unilateral and coordinated risks of domestic price increases for the products involved, as well as the vertical risks of exclusionary practices concerning Arcor's competitors in downstream industries. Following the analysis of these commitments and supplementary information submitted by the parties, the CNDC concluded that the remedies are appropriate and sufficient.

The remedies covered by the commitments submitted are as follows:

Remedy 1: Divestment of a production capacity volume of 350 tons/day of corn wet milling, which will consist of the sale of the milling equipment of Arcor's "PMHI" plant located in Arroyito.

Remedy 2: Make available at cost, and for 5 years, a volume of production capacity equivalent to 200 tonnes/day of wet milling to be purchased and traded by one or more competitors on the maize wet milling market on a capacity release basis.

Remedy 3: Transfer prices charged to Arcor shall be equal to or higher than the prices to be charged to Arcor's downstream competitors of similar volume for all products marketed for at least 5 years.

Remedy 4: The parties shall fulfil all purchase orders from Arcor's competitors as long as they have sufficient stock to satisfy such orders, and/or technical and operational capacity to supply them so that the level of services provided to competitors shall be equal or greater than the level of services provided to Arcor for a term of at least 5 years.

Remedy 5: engage a third-party antitrust specialist, independent of the parties, to develop an antitrust compliance programme at the disposal of the Chamber of Starch, Glucose, Derivatives and Allied Manufacturers (CAFAGDA) to ensure that there is no risk of coordinated practices within CAFAGDA.

Remedy 6: not to hire employees and/or executives of competitors for a period of at least 3 years.

Remedy 7: to export an average annual volume of not less than the equivalent of 550 tons/day of production capacity (measured in maize milling capacity equivalent) for a period of 5 years.

In particular, the divestment (remedy 1) and the assignment of production capacity (remedy 2) will allow the entry of a new competitor, or favour the consolidation of one of the established local players, as it is equivalent to 12% of the sector's installed capacity, mitigating the identified horizontal risks, as well as the vertical and coordinated risks identified.

At the same time, the CNDC identified that the joint venture would generate certain efficiency gains in terms of cost savings and increases in the quality, quantity and variety of products available. The cost savings would result from synergies related to innovation capacity arising from Arcor's knowledge of product and ingredient needs in mass consumer goods, while Ingredion would contribute R+D capabilities in ingredient development and information provided by access to the global network of Idea Labs laboratories. Improvements in product quality, quantity and variety include increased product availability in the local market and an increase in the quality and variety of nutrients in food products.

In accordance with international best practices, the implementation of the remedies foresees an independent auditor acting as a Monitoring Agent, who will submit to the CNDC progress and compliance reports on the remedies offered on a semi-annual basis. Likewise, the execution of Remedies 1 and 2 call for the participation of a third party as a Trading Agent to prevent the joint venture from having contact with competitors in the market.

The CNDC found that, as originally notified, the operation had the potential to diminish, restrict or distort competition, and could result in a detriment to the general economic interest, in violation of section 8 of the LDC. However, after analysing the measures proposed by the parties to offset the risks involved, the CNDC recommended to the Secretary of Industry and Commerce to subordinate the authorisation of the transaction to the fulfilment of the commitments submitted.