Europe Approves Cargill's DFI Buy

BRUSSELS - Mar 29/06 - SNS -- The European Commission has cleared the proposed acquisition of the food ingredients business of Germany's Degussa AG by the US-based Cargill group.

The Commission was initially concerned about horizontal overlaps of the parties' activities on the markets for lecithin and therefore opened a detailed inquiry.

"However, the in-depth investigation has shown that the new entity would continue to face sufficient competition," the commission said in a press statement. "Thus, the Commission has now concluded that the transaction would not significantly impede effective competition in the European Economic Area or a significant part of it."

On 21st October 2005, the Commission received a notification whereby Cargill intends to acquire sole control of Degussa's Food Ingredients branch (DFI). Both Cargill and DFI produce a number of food ingredients and hold a relatively strong position in the markets for different types of lecithin.

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.

As lecithin has a wide functionality beyond its emulsifying properties and carries a unique good-for-you image, the Commission had found that most buyers of lecithin could not switch to another product. The investigation also showed that, European food producers only use non-genetically modified (non-GM) lecithin as otherwise, Commission regulations 1829/2003 and 1830/2003 would require them to acknowledge on the label of their products that they may contain genetically modified (GM) food or food ingredients.

Since Cargill had recently entered the markets for lecithin, on which DFI is already a major actor, the Commission was concerned that the merger would remove effective competition on these markets and decided to open a detailed investigation.

However, in the course of this detailed 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.

Finally, the Commission has found that Cargill's position in the non-GM lecithin market is not, on its own, as competitive as initially assumed at the beginning of the investigation.