Officeof Fair trading drops prosecutions into price-fixing of dairy products

Sainsbury's, Asda, Tesco and others agree to pay millions for breaking competition law, but watchdog has 'insufficient evidence'

Britain's consumer watchdog has dropped major lines of inquiry in its long-running probe into price-fixing in the dairy industry despite the fact some of the parties involved had already agreed to pay fines in exchange for leniency.

The Office of Fair Trading said it had "insufficient" evidence to make all its allegations stick and had dropped two out of five lines of inquiry. Seven companies, including Sainsbury's, Asda and Dairy Crest, had already accepted that their actions broke competition law and agreed to pay fines totalling £116m. But with two cases now closed, that sum has been commuted down to £70m. Arla Foods, the maker of Lurpack butter, which blew the whistle, received immunity from any financial penalty.

The OFT was originally looking at whether competition law was broken in the liquid milk and cheese markets in both 2002 and 2003, and also whether parties fixed the price of butter in 2003.

The watchdog said it did not have enough evidence to pursue Tesco on three counts relating to milk and butter prices. Tesco, the only company involved in the inquiry not to admit guilt, maintained throughout that, "acting independently", it had increased prices to aid farmers during a difficult time for the dairy industry.

The diminished scope of the investigation means Morrisons is no longer caught in the OFT net at all. The grocer, which has spent close to £2m defending itself, had always protested its innocence. Indeed, it sued the OFT for defamation, winning £100,000, after it issued a press release containing several "serious errors" including that the grocer had been "warned" about anti-competitive behaviour before.

Tesco corporate and legal affairs director Lucy Neville-Rolfe said the retailer had agreed to pay any fine relating to the cheese allegations, albeit at a 10% discount, despite disputing the OFT's analysis of events: "We firmly maintain we are innocent of all allegations against us and at no point sought to collude with other retailers or dairy processors on prices," she said. "But given the passage of time and the cost of litigation, we are keen to bring this process to a close."

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