The scoop on Kraft’s coffee price fixing woes…

August 10, 2010

One benefit from reading SEC filings is that they allow us to distill some of the details about matters that have previously only been reported in a general way.

A good example comes from the 10-Q that Kraft Foods, Inc. (KFT) filed August 6.

In early June, a story broke that Germany’s Federal Cartel Office fined several companies 30 million Euros (about $35 million USD) for fixing prices on coffee. In this account, the companies allegedly met between 1997 and 2008 and coordinated their increases and cuts to the wholesale price of coffee.

While we knew that the fines followed a surprise raid that the German regulatory authorities conducted back in January, and we also knew that one of Kraft’s subsidiaries – Kraft Foods Ausser Haus Service GmbH, Bremen (Kraft Foods AFH) – was among the companies fined for price fixing, we didn—t know how much of the fine it was paying— until last Friday.

The filing confirmed that the Federal Cartel Office determined that Kraft Foods AFH was among the companies that had engaged in price fixing. It further disclosed that Kraft conceded to the findings and agreed to pay 4,660,000 Euro (approximately $6.1 million USD) in exchange for the regulator’s agreement to resolve the case.

This isn—t the first time that price fixing has been a problem for Kraft’s subsidiary in Germany, and it also doesn—t appear that the problems are over.

Last winter, Kraft’s German Jacobs coffee unit escaped paying a fine in another price fixing case because it reportedly self-disclosed its illegal activities to German regulators. In that case, Germany’s Federal Cartel Office fined a trio of coffee companies and some of their managers more than 159 million Euros for price fixing.

But it appears that other price fixing investigations are underway. The filing states on p. 52:

—Our wholly owned subsidiary, Kraft Foods Deutschland GmbH, is also cooperating and in contact with the [Federal Cartel Office] in the context of possible anticompetitive activity in the German [Fast Moving Consumer Goods] sector, involving a number of companies including Kraft Foods Deutschland. At this time, we cannot predict with certainty the course or the outcome of these investigations.

We—ll keep an eye on this issue and let you know if price fixing matters in Germany continue to cause problems for Kraft.

Image source: Selma90 at flickr

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