EC clears Cargill Degussa acquisition

By Anthony Fletcher

- Last updated on GMT

Related tags European union

The EC has cleared Cargill's acquisition of Degussa's food
ingredients business after ruling that the move would not stifle
competition within the lecithin market.

Degussa initially agreed to sell its food ingredients business, which makes flavours and texturants for drinks and confectionery, for € 540 million back in October 2005.

But clearance of the acquisition only came this week after a detailed Commission inquiry, which was set up following concerns over horizontal overlaps of the parties activities within the lecithin sector.

Competition Commissioner Neelie Kroes said in December 2005 that the investigation, called for under the EU Merger Regulation, was necessary to ensure that the acquisition of Degussa's Food Ingredients branch (DFI) "will not detrimentally affect customers like food manufacturers and, consequently, European consumers"​.

The Commission was aware that Cargill had only recently entered the markets for lecithin, on which DFI was already a major actor, and that the merger would remove effective competition.

Degussa said at the time however that it "continues to be confident that the detailed examination will dispel the EU Commission's initial reservations, and that the transaction will be successfully concluded".

It would appear that this has indeed finally been achieved. In the course of the investigation, the Commission found that, although barriers to entry are rather high, several producers from Brazil and India have been able to enter the markets due to their easy access to the raw material (non-GM soybeans) and their partnership with distributors established in Europe.

Some of these producers are in the process of establishing their own distribution networks in Europe. Since these new competitors are often also the suppliers of Cargill and DFI, the Commission has concluded that the merged companies will have very little scope to increase prices.

The EC is therefore satisfied that the new entity will continue to face sufficient competition. US authorities have already given their clearance for the deal.

Lecithin is mainly extracted from soybeans and used as an emulsifier by companies in the food industry such as chocolate manufacturers and bakeries, and to a lesser extent in other industries such as animal feed. The ingredient has a wide functionality beyond its emulsifying properties and carries a unique good-for-you image, thus making it a valuable commodity.

Furthermore, the market for non-GM lecithin has increased in importance for the European food industry, as regulations 1829/2003 and 1830/2003 require the labelling and traceability for genetically modified food and food ingredients. Indications from food manufacturers suggest that genetically modified lecithin is only a limited substitute for non-genetically modified lecithin.

Both DFI and Cargill are active worldwide in the development, production and sale of several food ingredients such as emulsifiers, pectin and flavours. The merging companies are two of the four leading suppliers of lecithin and are well-placed to become particularly strong in the field of non-genetically modified (non-GM) lecithin.

Related topics Ingredients

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