Garvey defends role in Sherry cartel scandal

The Sherry cartel scandal “was never a price-fixing scam”, says Tim Holt, regional sales manager for The Garvey Group, as he defends its role as whistle-blower in the affair.

In an exclusive interview with the drinks business, Holt explained that Garvey’s complaint actually centred on an attempt by Sherry’s Consejo Regulador to change the rules on production limitation.

Although no price-fixing took place, Holt maintained “that would have been the end result” of the measures, which he argued were “trying to squeeze us out in favour of Fedejerez bodegas.”

While not part of the Consejo Regulador, Fedejerez is a generic export body whose members include many of the biggest and best known Sherry bodegas, although Garvey itself is not part of the association.

The proposed quota changes would have altered the method used to calculate how much Sherry a bodega is allowed to release each year. Imposed as a measure to ensure quality, the quota is currently set at 37% of a bodega’s stock. The new proposals would have seen this total become based on an individual bodega’s average sales over the past five years.

As a bodega currently increasing its sales each year, Garvey felt that this approach would have severely and unfairly affected its ability to compete with other Sherry producers. Holt explained: “If you’re increasing sales then the average is likely to be less than last year’s sales. Instead of a 37% limit, we suddenly had a 14% limit on sales.”

This restriction would have required Garvey to purchase Sherry from competitors in order to fulfil already agreed contracts with major European supermarkets, despite having 90,000 butts in its own bodega. In the longer-term, the group would have been required to reduce its sales in order to fall within its quota.

Having failed in attempts to obtain clarification on the situation from either the Consejo Regulador or Fedejerez, Holt argued: “We could either let the competition grind us down, or we could fight our corner.”

After Garvey’s lawyers submitted a formal complaint, Spain’s National Competition Commission found in the group’s favour and fined the Consejo Regulador, Fedejerez and nine bodegas a total of almost €7 million.

Despite being a member of the Consejo Regulador, Garvey escaped a penalty on the grounds that it never voted in favour of the proposed quota amendment. Other bodegas received fines based on the size of their global business.

As a result of the Competition Commission’s findings, the proposed changes have now been scrapped, with the existing 37% quota set to remain in place.

Gabriel Savage, 02.09.2010