On 7 September 2010, the Office of Fair Trading ("OFT") announced the launch of a market study into the UK aggregates market to assess whether the market delivers good value for tax payers and end consumers. Aggregates are granular materials which are formed from rock and are employed largely in the construction industry. They are used to make cement and concrete, and as a base for foundations, roads and railways.
During the course of the OFT's merger work, it received a number of representations from parties raising possible issues in the aggregates sector which has prompted this market study. Five mergers in the sector have been considered by the OFT since 2004 - four of which were cleared and one of which was abandoned after being referred to the Competition Commission. The most recent merger, between Aggregate Industries and Atlantic Aggregates was only cleared after divestment undertakings were given.
The aggregates sector had a turnover of £4.8bn in 2008 and is seen as an important sector in its own right. Heather Clayton, Senior Director of Infrastructure at the OFT, noted that "because the cost of aggregates is reflected in the price consumers, and tax payers, pay for essential infrastructure, from housing through to roads and major capital building projects, it is important that the market is as competitive as possible".
The study will look at a number of factors which may affect competition, including:
- the high barriers to entry and the extent to which these barriers differ depending on the type of aggregates involved;
- the amount of competition between aggregates producers at the local level, particularly in light of the increasing concentration and integration of operations; and
- how the specific mineral planning system, which controls annual outputs, affects customers. In England and Wales, the supply of aggregates is managed at a local or regional level by Mineral Planning Authorities. There are also Regional Aggregates Working Parties, of which there are nine in England and two in Wales. The regimes in Scotland and Northern Ireland will also be assessed.
Potential outcomes range from a reference to the Competition Commission for an in-depth review of the market through to a clean bill of health. Recommendations for change in relevant laws or regulations may also be made, particularly if the mineral planning regime is found to raise issues.
The OFT expects the initial phase to last four months and for the market study as a whole to be completed by July 2011.
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