© Springer-Verlag Berlin Heidelberg 2015
Pierre Kobel, Pranvera Këllezi and Bruce Kilpatrick (eds.)Antitrust in the Groceries Sector & Liability Issues in Relation to Corporate Social ResponsibilityLIDC Contributions on Antitrust Law, Intellectual Property and Unfair Competition10.1007/978-3-662-45753-5_18

18. Ukraine

Timur Bondaryev  and Lana Sinichkina 

Arzinger Law Office, Kiev, Ukraine



Timur Bondaryev (Corresponding author)


Lana Sinichkina

18.1 Introduction

As food prices are both highly volatile and highly visible, the grocery retail market is the object of intense scrutiny by governments and competition authorities, particularly in periods of price instability of agricultural products. Competition authorities, either spontaneously or at the urging of government, have in many countries engaged in market studies or sector inquiries of the food and/or the grocery sector to better understand the pricing of foodstuff. The pricing of milk, bread, oil, flour, sugar, shrimps, mussels, meat, fruits, bananas, vegetables, beer and wine has been analyzed in a variety of countries.

The structure of the retail grocery sector is, in most countries, evolving structurally. Small traditional stores increasingly have to coexist with retail chains, commercial groupings and large-scale stores, and market concentration in the distribution of grocery products is often on the rise both locally and nationally. Also, “non-structural aggregations” of firms, such as retailers’ cooperatives, retailers’ voluntary associations, franchising contracts and alliances by companies to undertake joint purchasing and logistics functions, have considerably expanded in the last 20 years. Furthermore, recently we have witnessed the emergence of Internet food retail distributors competing with brick-and-mortar distributors.

At the vertical level, there have been, first, concerns that the most powerful retail chains are able to enter into agreements with the largest suppliers, which may increase barriers to entry and restrict both interbrand and intrabrand competition, for example, through category management agreements that reserve access to sensitive market information to a few partners or make access to shelf space more difficult for the competitors of the category captains. Second, in a number of countries, there has been a more general concern that large distributors may abuse their buying power vis-a-vis small suppliers and impose unfair terms and conditions on them, such as abusively low buying prices or abusively long payment delays or the imposition of upfront access payments, “pay to stay” fees, listing fees, slotting allowances or other unilaterally set contractual conditions. Third, the functioning of purchasing alliances and the multilayered negotiations between suppliers and various levels of intermediaries has also attracted scrutiny. Fourth, the conditions of cooperation between suppliers and large retailers in the launching of private labels and the competitive impact of such labels have also been investigated.

At the horizontal level, there are concerns about increasing concentration in the retail grocery sector because of the sustained merger and acquisition movement that has made the collective exercise of market power on the selling side by the most powerful grocery retail chains easier by, inter alia, facilitating the coordination of their policies, as well as the coordination of their marketing promotions policy and the exchange of sensitive commercial information among them. But beyond this, there has also been a concern in some countries that commercial estate management and affiliation contracts between independent retailers and retail chains, franchises and cooperative, which include “golden shares” aimed at blocking chain switching, exit fees for distributors wanting to leave a chain, long postagreement nonreaffiliation and noncompete clauses of long duration, as well as overlapping opaque contractual obligations of excessive duration, entry fees and the like, constitute barriers to changing chains and therefore restrict competition.

Even though competition authorities have tended to aggressively use their traditional enforcement instruments—such as merger control to fight excessive concentration of retail, control of abuse of dominance by retailers or sanctioning price fixing by grocery retailers and/or grocery product manufacturers or exchange of information among them—their enforcement actions have occasionally been considered ineffectual to redress some of the most obvious perceived competition problems in the retail grocery sector, such as the rapidly rising price of food products at certain periods, the disappearance of traditional small-scale grocers and the increase in concentration at the local level or the concentration of supply of grocery products in reaction to the increased concentration at the retail level.

As a result, in many countries, the retail grocery sector is subject not only to traditional competition law but also to regulations that tend to create barriers to entry for large-scale retailers. For example, planning laws may regulate the size and location of shops. In addition, specific sectoral laws restrict various aspects of the strategic freedoms of large-scale retailers with respect to their suppliers or competitors, through bans on resale below cost or the imposition of minimum resale prices for foodstuff. It is argued that such laws constitute better means of preventing monopoly pressure on suppliers and guarantee fair competition. The question of whether the standardization of contracts between food growers and retailers could alleviate both the instability of prices and the risk of unfair treatment of small farmers has also been debated in the number of countries.

Competition authorities have in general used their competition advocacy tools to try to discourage governments from adopting laws or provisions deemed to be potentially anticompetitive and/or to fight the proposals to exempt the food sector from competition law—thus allowing, for example, small farmers or fishermen to collectively negotiate with the powerful retailers—but more often than not such advocacy has fallen on deaf ears.

When such provisions are part of the competition law, competition authorities may have difficulties enforcing them because they tend to be loosely worded and seem to be based on concepts of “fairness” or “level-playing fields,” which have, in some cases at least, the potential of being at odds with the logic of efficiency that underlies traditional competition law. There is an abundant jurisprudence when the sectoral laws related to the retail grocery sector are enforced by courts or by bodies other than competition authorities, but the risk of contradiction between this body of jurisprudence and the approaches followed by competition authorities is more pronounced.

Overall, the important and controversial questions are whether competition law can in itself be a powerful enough instrument to achieve efficiency in the retail grocery sector, whether competition failures not easy to handle through competition law require that regulation specific to the retail sector or to the grocery sector exist to complement competition law, whether other socioeconomic goals than the pursuit of economic efficiency justify regulatory intervention in the retail grocery sector and, if there are competing goals, whether there are mechanisms to ensure that inconsistencies between competition law and sector-specific regulations are kept at a minimum.

18.2 Economic and Legal Background

18.2.1 Economic Background

According to the information of the Antimonopoly Committee of Ukraine (the “AMCU”) for 2008, in 2005–2007 the number of companies has decreased in several sectors of the national economy, in particular agriculture, together with hunting and forestry—by 5.6 %; production of foodstuff, beverages and tobacco products—by 8.9 %; retail—by 5.7 %.1

In accordance with the report of the AMCU for 2009, reduction of competition was reported by executives of retailers interviewed. In particular, in the first quarter of 2009, only 40 % of companies felt strong competition compared with 65 % in early 2005 and 53 % in early 2008.2 At the same time, only 2 % of retailer executives interviewed in 2009 considered that there are no competitors on the market at all.3 In the agricultural sector, the competition decreased in the first and second quarters of 2009 compared to previous periods—by 3 %. In this sector, unlike all other, external competition was the same, or even higher, than internal competition.

Pursuant to the AMCU’s report for 2010, there was strong reduction of production volumes in a number of industries with competitive market structure, in particular in retail, in Ukraine this year. The interviews with executives about how the competition influences their market behavior show that the diminution in demand due to the financial and economic crisis did not increase much the manufacturers’ competition for their consumers on internal markets. Instead, the majority of retailers noted that competition decreased in 2010 compared to 2009.4 Only the agricultural sector showed some strengthening of the competition.

Besides, in 2010, the situation on the internal market began to stabilize. Specifically, preliminary assessment of the State Statistics Committee showed that the GDP in Ukraine grew by 4.5 % compared to 2009, volume of industrial production by 11 %, including processing industry—by 13.5 % and retail—by 7.6 %.5

In early 2011 compared to 2010, the most competitive markets were retail and intermediary services, with 82 % of the gross sales volume, and the agroindustry, with 68.1 % of the gross sales volume in the sector.6 That year, attention of the AMCU in the agroindustry was focused on the price abuse of the monopoly (dominant) position on the grocery market, principally bread and flour, eggs, milk and butter. During the year, over 50 of such infringements were detected and ceased in Volyn, Zaporizhzhia, Ivano-Frankivs’k, Kiev, Kirovograd, Poltava, Sumy, Kharkiv, Khmelnyts’k, Cherkassy, Chernigiv regions, the AR Crimea and Kiev.7

In 2012, some positive trends of monopolization decrease were seen on the markets of grocery, textile and wood, rubber and plastic industries, metallurgy, manufacture of machines and equipment, coke, construction, vehicle sales and repair, etc. The best structural conditions for competition remain in retail—75.4 % of goods are sold on markets with competitive structure. Positive structural preconditions for competition remain in the agriculture industry, where 59.1 % of goods, works or services are sold on markets with competitive structure.8

It should be mentioned that circulation and sale of foodstuff in Ukraine has three main phases: production, processing, retail/wholesale. Production

The production phase is currently in transition. During Soviet times, there was only one state procurer that united the production in the whole USSR and sold all the products to consumer unions that ensured equal distribution of the products.

According to information as of 2011, after liquidation of the previous system, the production volume has fallen temporarily by 17 % compared to the production level at the moment of the USSR’s collapse,9 still at the moment the competition is developing and new market participants are emerging.

In general, the following entities produce groceries: business companies, private enterprises, agricultural production cooperatives, state agricultural enterprises, farms, husbandries.

At this, husbandries take 49 % of the market and all companies share 51 % of the market, which means that there are many small husbandries and few industrial enterprises.10 Processing

According to information for 2011, the value of the foodstuff processing market is USD 19,500,000.11

According to information for 2011, export of processed foodstuff amounts to 25 % of Ukraine’s general export volume, which is more than the same in EU countries. At the same time, the imported goods make up 10 %, which corresponds to the common European index. Direct foreign investments into the foodstuff processing industry amount to USD 2,070,000,000.12

It should be mentioned that at the time of the USSR’s collapse, foodstuff producers sold 96 % of their goods to processing enterprises. According to the information for 2011, this index amounts to 16 % only. The majority of goods go to the secondary market.13

Production of meat products almost completely satisfies the needs of the internal market in the country. The total production volume of meat products in in-kind equivalent amounted to 6 % of the gross foodstuff production in 2010. Export of meat and edible by-products amounts to less than a quarter of import for the same period. The most exported goods are cattle meat, poultry meat and edible by-products. The most imported goods based on import volume in money equivalent are pork meat and poultry.

Production of dairy products is clearly seasonal. The maximum volumes are produced in the second and third quarters of a year. Production of liquid milk and cream is dominant based on production volumes in in-kind equivalent. Export of dairy products in 2010 exceeded the import by four times. The main part of the imported goods makes cheese of any kind—45 % of the industry’s import in monetary equivalent. Twenty-nine percent of import covers butter and milk fat. Condensed milk, condensed cream and sour milk drinks, such as buttermilk, yoghurt or kefir, make 10 % of the import each. The remaining milk products make 6 % of the import in monetary equivalent.

Production of alcoholic beverages makes up 16 % of the general volume of the produced goods in 2010. Eighty-four percent of the gross volume of alcoholic beverages makes malt beer. The second largest group of alcoholic beverages is vodka—74 % of all alcoholic beverages, except beer. Liquors, ratafia, infusions make 20 %, brandy—6 %.14 Wholesale and Retail

The modern commercial formats did not arise in Ukraine at once. Already in USSR there was a centralized network that united over 800,000 grocery stores, supermarkets, pavilions in the whole Soviet Union, and 116,000 of them were located in Ukraine.

After USSR’s collapse, this system was basically ruined. Alternative forms of retail market began to emerge: kiosks, where everything was sold—from chocolate to haberdashery; grocery markets; combined grocery and nongrocery goods markets. Then kiosks started to specialize, and in 2000 first supermarkets for mass consumers began to open. It was between 2000 and 2008 that the volume growth in retail circulation started to enhance by 8–29.5 % compared to previous years.

Retail evolution stages in Ukraine: legacy of the centralized store chains of the USSR; emergence of small business elements, such as kiosks and markets; emergence of first “elite” supermarkets; emergence of modern retailers for mass consumers, development of Internet stores; etc.

According to the State Statistics Committee, the total volume of the commodity circulation in Ukraine in January–October 2012 grew by 15 % and amounted to UAH 650,380,000,000 (approximately USD 79,850,000,000 or EUR 61,110,000,000). The circulation of commodities in enterprises grew by 13.9 % and amounted to UAH 329,000,000,000 (approximately USD 40,390,000,000 or EUR 32,920,000,000) in the same period, which makes about 51 % of the total commodity circulation.15 In 2011, foodstuff made 39 % of the commodity circulation.

Taking into account the retail market structure in Ukraine, it shall be noted that according to research conducted by analytical organizations, such as Roland Berger Strategy Consultants, the market is dominated by big organized marketing companies (70 %), but retail chains come short in this volume with 44 % of the organized marketing market.16

Based on the form of activity, there are the following groups of chain retailers: supermarkets, 37 %; Cash & Carry, 16 %; hypermarkets, 15 %; discounters, 14 %; grocery (convenience) stores, 13 %; others, 5 %.17

As for 2009, the retail market in Ukraine is dominated by national operators: international operators, 14 % of the market; national operators, 51 %; regional operators, 17 %; local operators, 18 %. Therefore, local and national grocery retailers are the main driving force in the development of the retail market in Ukraine. In late 2009, 50 biggest retail chains in Ukraine were named, among which discounters, convenience stores, supermarkets and Cash & Carry.18

In conclusion, it must be said that the share of retail chains in the organized marketing amounts to 45 %. The most popular format for retail shops at the moment is supermarket, but it is expected that in the next future more discounters will appear. National operators whose share amounts to 51 % of the Ukrainian market remain the main driving force for the development of the retail market.19

18.2.2 Legal Background General Review

The competition law in Ukraine, in particular the Law of Ukraine “On Protection of the Economic Competition”20 and the Law of Ukraine “On Protection against Unfair Competition,”21 is applied to the grocery sector to the fullest. It includes a ban on unfair competition, as well as the prohibition of anticompetitive practices.

The Law of Ukraine “On Protection against Unfair Competition” prohibits unfair competition, in particular:


illegal use of company’s business reputation, such as illegal use of denotations, illegal use of goods produced by other manufacturer, copying the trade dress and comparative advertising;



creation of obstacles for other business entities in competition and obtaining illegal competitive advantages, such as defamation, coercion to boycott, coercion to discrimination of a buyer (client), bribing supplier’s employees or officers, bribing buyer’s (client’s) employees or officers, obtaining illegal competitive advantages or dissemination of misleading information;



illegal gathering, disclosure or use of commercial secrets, such as illegal gathering of commercial secrets, disclosure of commercial secrets, coercion to disclosure of commercial secrets or illegal use of commercial secrets.


The Law of Ukraine “On Protection of Economic Competition” prohibits both anticompetitive concerted actions and abuse of the monopoly (dominant) position on the market.

Pursuant to Article 6 of this Law, anticompetitive concerted actions but not limited to, the following but not limited to, the following:


maintaining prices or other terms for purchase or sale of goods;



restricting manufacture, commodity markets, technical and technological development, investments or control of the same;



allocation markets or supply sources according to territory, assortment of goods, sales or purchase volumes, circle of sellers, buyers or consumers or according to other characteristics;



bid rigging during auctions and tenders;



removing from or limiting access to the market or withdrawal from the market of other business entities, buyers, sellers;



applying different terms to equivalent agreements with other business entities creating competitive disadvantages for them;



entering into agreements provided other business entities undertake additional obligations which according to their substance or fair business and trade practices are not related to the subject of such agreements;



limiting considerably competitiveness of other business entities on the market without objectively justified reasons.22


Pursuant to Article 13 of the Law of Ukraine “On Protection of the Economic Competition,” abuse of the monopoly (dominant) position includes


establishing such prices or other terms for purchase or sale of goods which would be impossible provided considerable competition on the market;



applying different prices or terms to equivalent agreements with other business entities, sellers or buyers without objectively justified reasons therefor;



entering into agreements provided other business entities undertake additional obligations which according to their substance or fair business and trade practices are not related to the subject of such agreements;



limiting production, markets or technological development which incurred or may incur damages by another business entities, buyers, sellers;



partial or complete refusal to purchase or sell commodities if there are no alternative sources of sale or purchase;



limiting considerably competitiveness of other business entities on the market without objectively justified reasons;



creating obstacles for the market access or market withdrawal for or removing from the market other business entities.


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