The government is to refer the industry to the Monopolies and Mergers Commission (MMC) following a report in July this year into the distribution system operated by UK market leader Birds Eye Wall's, which is owned by Unilever, Europe's number one ice cream maker.

The MMC ruled that the company's wholesaling operations in the sector gave it an unfair monopoly as it was providing shops with freezer cabinets for the exclusive use of its own ice cream products, thereby denying access to competitors' products.

The complaint was first made by rival Mars in 1994.

The European Commission is also investigating the monopoly and ruled in March against the exclusive distribution of freezers in Ireland.

Freezing out competition

The Office of Fair Trading (OFT) is still not satisfied that Birds Eye Wall's has rectified its anti-competitive practices.

John Bridgeman, OFT director general said: "The commission has drawn attention to a number of issues including freezer exclusivity - where a manufacturer provides a freezer to a retailer on condition that only that manufacturer's products are stored."

The investigation will concentrate on what is known in the trade as impulse ice cream buying - any iced product purchased for immediate consumption.

High mark-up price

Ice cream has reportedly one of the highest mark-ups in the retail trade. A cone of soft ice cream can sell for over £1, even though it costs less than 10p to produce.

Unilever unit Birds Eye Wall's said it was "disappointed" that the OFT had referred the ice-cream industry to the MMC again.

Ice cream has one of the highest mark-up prices in the retail trade

"The inquiry is premature in examining an industry which is in the process of implementing changes from previous enquiries and when the on-going matter of cabinet exclusivity remains under the scrutiny of the European courts," it said in a statement.

Chairman of Birds Eye Wall's Iain Ferguson said: "Wall's has achieved its position in the ice cream market through innovation, market forces and fair competition and is not behaving anti-competitively."