Food distribution, fuel distribution, maritime services and waste management: the Autorité delivers its opinion on the competitive situation in Corsica island

1 - The Autorité's cross-cutting findings on the level of concentration in the Corsican economy and its recommendations for improving the regulation of competition

After examining several sectors, including fuel distribution, food distribution and waste management, the Autorité is convinced that new legal tools would make it possible to respond, more effectively than at present, to the competition concerns resulting from a structurally high level of market concentration in certain parts of mainland France, including in Corsica.

Entire sectors of the economy are affected a lack of competition due to the geographical and economic characteristics of these territories. These regional specificities may, for example, be due to logistical constraints linked to their insularity or the presence of mountain ranges or constraints resulting from the prevalence of tourist activities in the local economy.

When such a region is faced with this type of difficulty, the Autorité recommends that the public authorities adopt innovative mechanisms to ensure that competition policy is tailored to these specificities.

In order to prevent excessive concentration in certain sectors as a result of uncontrolled mergers and acquisitions, it would appear useful to grant the Autorité the power to examine, in a targeted manner, certain merger transactions below the thresholds. Although they do not reach the controllability thresholds set in terms of turnover, some transactions that lead to the creation or consolidation of dominant positions are nonetheless "structuring" for the local economy and can have lasting effects on the competitive dynamic.

In addition, where sectors are persistently highly concentrated and this leads to proven disturbances for businesses and consumers, a structural intervention tool would be useful. It would allow the Autorité to order structural or behavioural remedies.

Finally, as a supplementary measure in the event that none of these mechanisms is able to restore the normal functioning of competition, sectoral regulatory tools, such as oversight of wholesale prices and conditions of access to certain "essential infrastructure", could be envisaged in order to limit the effects of this lack of competition.

2 - Findings and recommendations of the Autorité in each of the economic sectors examined

Maritime transport: giving the transport regulatory body the power to assess public service needs and to define the terms and conditions of the provision of services to Corsica

Since the 1970s, the public maritime transport service between Corsica and the mainland has been organised in accordance with the principle of 'territorial continuity', which aims in particular to compensate for the island's insularity and to provide services to the island in accordance with terms and conditions and fares that are as close as possible to those applicable to exclusively mainland transport links.

Maritime services to Corsica are characterised by a high level of public intervention, with competing operators subject to a system of public service obligations (applicable to any operator wishing to serve Corsica from mainland France) operating alongside operators that are subject to public service delegation contracts, which currently operate several routes between Marseille and Corsica. This sector is subject to a set of binding European and national rules (internal market, state aid, public procurement, competition), which require in particular that a "public service need" resulting from a lack of private initiative be demonstrated prior to any public intervention. The framework applicable in this field is the so-called "SNCM test" resulting from the case law of the General Court of the European Union[1] ; this test requires, in particular, that assessments of the need for a public service be carried out before the public authorities can establish a public service delegation. However, despite the improvements made since the time of the SNCM case, the definition of the scope and level of intervention of the transport organising authority is still subject to significant methodological requirements established by the European Commission. The Commission is extremely vigilant about the public financing of services of general economic interest (SGEI) in the European Union within the framework of its state aid control mission.

• A level of public intervention that must be strictly proportionate

At present, the Corsican local and regional authority [Collectivité de Corse] justifies the conclusion of public service delegation contracts (PSD) on the basis of studies carried out in 2018 and 2019, which identify a quantitative public service need for the transport of goods and various categories of passengers (sick people, students and trailer truck drivers) for all Corsican ports. For the ports of Propriano and Porto-Vecchio, these studies identify a similar need for the transport of all passengers. In addition, a qualitative public service need (in terms of frequency and fares) has been identified on all routes, justifying, in parallel, the maintenance of a system of public service obligations (PSOs) for both goods and passengers.

However, there are some methodological weaknesses in these studies: the number of participants in the consultations and the market tests carried out by the Corsican local and regional authority are systematically limited to three operators already present on the market; the evaluation of the quantitative needs in terms of passenger transport from the ports of Propriano and Porto-Vecchio or from the other ports for sick people, students and trailer truck drivers needs to be substantiated by economic data ; the question of the substitutability of Marseilles for other mainland ports (e.g., Toulon) warrants further investigation; no distinction is made between the different types of goods and passengers; no account is taken of competition from air transport. These various aspects warrant that the preliminary studies be complemented in order to inform as well as possible the decisions of the public authorities.

• Rigidities observed in the operation of the PSDs and PSOs

The possibility of making the PSDs more flexible in terms of schedules and trip frequencies, not permitting stop-overs, as well as the type of vessels that can be used could also be raised in order to optimise the organisation of maritime services to Corsica.

Certain rigidities could unnecessarily restrict other competitors’ access to the market for maritime services. For example, the PSD limits the use of "Ro-Ro" vessels (primarily used for freight transport) on Marseille/Corsica routes, even though the port of Marseille has infrastructure suited to this type of freight transport. As Ro-Ro vessels are not subject to the same requirements in terms of equipment, safety, insurance and personnel as passenger vessels, they are less costly for freight transport purposes (costs on average 50% lower), which could allow for public subsidy savings to be made and freight transport costs to be reduced.

[1] General Court of the Court of Justice of the European Union,¹ March 2017, SNCM v Commission, Case T-454/13.

Fuel distribution: better regulation of the fuel storage and supply monopoly in Corsica

Despite a reduced VAT rate of 13%, compared with 20% on the mainland, the fuel price differential between Corsica and the mainland is significant - around +6.7% for diesel and +5.3% for SP95 (INSEE 2015 data). This differential weighs heavily on the budget of Corsican households, which are highly dependent on cars to move around.

• Structural reasons partially account for the additional fuel costs

Insularity, topography and seasonal demand explain, in part, these higher prices. Corsica is supplied with fuel by sea alone, which makes its transport more expensive than in other mainland areas. Once on the island, transporting fuel to petrol stations is also more expensive due to the topography of the area, with the mountainous terrain making travel times longer. In addition, the Autorité’s investigation has highlighted the role that the storage capacity of Corsica's oil depots plays in the formation of fuel prices. These capacities, which would be sufficient for the needs of the resident population in the off-season, are too limited in the summer to meet tourist demand. The only two depots, located in Ajaccio and Bastia (30,000 m³in total), are therefore managed on a "just-in-time" basis during the summer period, which leads to risks of fuel shortages or quotas, but can also give rise to significant additional costs.

• Risks related to the conditions of access to storage infrastructure

In addition to these structural factors relating to the island's geography and available infrastructure, the Autorité notes that the only two fuel storage depots on the island are controlled by a single player: Rubis group via the company Dépôts pétroliers de la Corse (DPLC). This monopoly was created following a gradual increase in Rubis Group's stake in DPLC between 2010 and 2017. This takeover can be seen as a takeover of an essential infrastructure [2], given the essential nature of the depots for all those involved in the distribution and sale of fuels on the island. Since another subsidiary of the group is also responsible for coordinating the supply of fuels distributed across Corsica, these depots must therefore be used for any fuel distribution to petrol stations in Corsica.

Fuels are sold downstream within the network of service stations through three oil operators: Rubis (Vito Corse), Total Corse (Total) and Ferrandi (Esso): each of the 133 service stations on the island operates under one of these brands.

The oligopolistic configuration of the fuel distribution sector does not seem to be open to challenge by the entry of low-cost retailers or supermarkets. These models of distribution of cheaper fuels are not favoured by the local public authorities, which prefer to maintain the territorial network of service stations on the island, some of which are sometimes the only local shops in some mountainous areas. This context does not foster the entry of new actors in Corsica.

[2] An essential infrastructure is a resource owned by an operator, which cannot be reproduced by competitors, and without which the latter would not be able to perform their activity.

Hypermarkets and supermarkets: revising the threshold for below-cost selling to take better account of the specific features of Corsica

Corsica is one of the regions in France with the lowest average incomes per capita: it was 1,669 euros per month in 2017, which is almost 5.1% below the national average (1,759 euros per month).

Measures have been taken by the public authorities to remedy this situation, such as the establishment since 1986 of 2.1% VAT on food for human consumption, compared with 5.5% or 20% on the mainland depending on the product category. In 2019, an initiative involving a basket of 230 low-priced products was set up by the Corsican local and regional authority and supermarket chains.

However, it should be noted that although the application of a reduced rate of VAT in Corsica was intended to tackle the high cost of living on the island, it has had very little effect on the final price paid by consumers, suggesting that the reduction in VAT has been captured by the sales margins of certain companies. Indeed, several economic studies point to the fact that consumer prices for food products in supermarkets and hypermarkets are, overall, still higher in Corsica than on the mainland.

The higher prices observed, on average, in hypermarkets and supermarkets in Corsica are partly the result, as in the case of fuels, of constraints linked to insularity and seasonal demand. Having to use maritime transport lengthens the logistics chain from the purchasing offices in the south of France. The limited storage capacity of Corsican warehouses also means that more frequent deliveries of goods are required than on the mainland. This limited storage capacity means that they cannot benefit from the same discounts as on the mainland. Finally, the seasonal fluctuations in economic activity, with a high concentration of tourist activity during the summer period, mean that Corsican supermarkets and hypermarkets have to tailor their retail space and employment levels to the peak of summer demand, which generates specific additional costs (buildings, personnel). The commercial density of hypermarkets and supermarkets is also higher in Corsica than on the mainland (in 2018, 3,959 m²per 10,000 inhabitants in Corsica compared to 2,885 m² on the mainland, i.e. 37.2% more).

Despite the high level of presence of hypermarkets and supermarkets and even though certain areas, particularly in the suburbs of Ajaccio, have seen an increase in competition in recent years due to the establishment of large retail spaces, the Autorité notes that certain catchment areas are characterised by a high degree of concentration. This is for example the case in Grossetto-Prugna and Corte, which can contribute to the high price of products in these areas. It is not uncommon, in these catchment areas, for an operator to own more than 60% of the market share in terms of retail space. This lack of competitive stimulation and alternatives for consumers is a factor that contributes to the increase in prices in the areas affected.

Finally, some national and local regulations are difficult to reconcile with the objective of tackling high living costs. On the one hand, in a region where all foodstuffs are transported by sea, the ban on below-cost selling, which includes transport costs in the definition of the below-cost selling threshold, and, particularly, the trial of a 10 % increase in this threshold and the supervision of special offers provided for by the Agriculture and Food law penalise Corsican consumers and the trade margin generated by this measure is not necessarily passed on to suppliers, in particular farmers. On the other hand, the establishment of new hypermarkets and supermarkets is nowadays hampered by strict local policies aimed at protecting local commerce. However, a weakening of competition, which is detrimental to the interests of consumers, resulting from the current levels of concentration, means that policy makers need to reconcile local urban planning objectives with the equally asserted desire to enable Corsican consumers to benefit from lower prices.

Household waste management: quickly find a sustainable landfill or waste recovery solution for the island

Corsica produces more household waste per capital than the national average: 740 kg/inhabitant compared with 580 kg for the whole of France in 2018. In addition, the production of this waste is not uniform in respect of space and time:

• Firstly, population density varies greatly on the island: though low on average (38 inhabitants per km2 compared to 106 in France as a whole), it can reach more than 2,300 inhabitants per km2 in Bastia. In addition to the concentration of inhabitants, there is also the concentration of tourists on the coast, which has a clear impact on the geographical distribution of the waste produced.
• Secondly, the influx of tourists leads to a significant increase in the amount of waste produced during the summer period.

The result is a doubly complex situation. In rural and remote areas, the low volume of waste is not conducive to the installation of waste management infrastructure, which is considered to be uneconomic. At the same time, insularity generates land constraints, which make it difficult to set up new waste collection and treatment centres in highly waste-producing and densely populated areas.

This situation generates a significant additional cost. Thus, the cost of the public waste service to be financed by the public authorities, also known as the assisted cost[3], is well above the national average: 243 € excl. tax compared with an average of 93 € excl. tax per capita in France. This additional cost of + 161 % is partly borne by Corsican taxpayers - through the household waste collection tax - whose average municipal rates are 5 percentage points higher than elsewhere in mainland France.

Despite the undeniable efforts made by stakeholders in Corsica to reduce and sort waste, the waste generation is increasing, particularly as a result of the increase in the number of residents and tourists. Moreover, the waste recovery rate is below the national average: due to the lack of an incinerator on the island, waste continues to be placed in landfill at only two facilities, which currently operate on a just-in-time basis and will soon reach their maximum capacity. New sites in Moltifao or Giuncaggio, for example, could improve the total landfill capacity in Corsica, but they will only open, at best, in a relatively distant future.

This chronic waste treatment under-capacity on the island creates a context of scarcity that is not conducive to public tendering, which is needed in order to provide public household waste management services. Difficulties in finding bidders that submit reasonable financial bids have thus been observed, in particular by the Regional Court of Auditors in Corsica, in respect of public tenders awarded for the storage and road transportation of waste in Corsica and for the maritime transport of the same waste for treatment on the mainland.

[3] According to the definition given by the ADEME, this "assisted cost" of waste management comprises “all costs (structure, collection, transport, etc.) minus industrial revenue (sales of materials and energy, services to third parties), support from eco-organisations (extended producer responsibility/ERP streams) and public aid. This cost reflects the residual cost to be financed by the public authorities. It is often expressed in euros per capita excluding tax as the financing of this cost is expressed using this unit of measurement and to show users the structure of the costs to be financed. When expressed in euros per tonne excluding tax, it accounts for the residual economic weight of each waste stream in order to put it into perspective ". See the National benchmark of costs of the public waste prevention and management service - 2017 version, accessible online.