EC calls for new rules to eliminate unfair trading – but do they go far enough?

13 Apr 2018 --- The European Commission plans to ban unfair trade practices in the food supply chain in a bid to help farmers and small and medium-sized businesses get fairer treatment.
The Commission is targeting the more damaging unfair trading practices and wants to see sanctions imposed by authorities if any new rules are breached.

The move comes because there are so many cases of smaller operators and others in the food supply chain, including farmers, that are vulnerable to unfair trading practices employed by partners in the chain. 

For instance, smaller farmers often lack bargaining power and alternatives to get their products to consumers and are therefore at a big disadvantage in the market, unable to compete on fair terms, particularly when compared to large operators who have more sway. 

This imbalance of bargaining power undermines the economic viability of operators in the chain, according to Vice-President Jyrki Katainen, responsible for Jobs, Growth Investment and Competitiveness at the EC. 

“There are imbalances of bargaining power in the food supply chain and with this proposal the Commission is tackling the unfair trading practices head-on,” he said. 

“By setting minimum standards and reinforcing the enforcement, the proposal should ensure that these operators are able to compete on fair terms, thereby contributing to the overall efficiency of the chain. This is a clear statement for more fair business conduct.”

What would be banned?
The unfair trading practices to be banned include late payments for perishable food products, last-minute order cancellations, unilateral or retroactive changes to contracts and forcing the supplier to pay for wasted products. 

Other practices will only be permitted if subject to a clear and unambiguous upfront agreement between the parties: a buyer returning unsold food products to a supplier; a buyer charging a supplier payment to secure or maintain a supply agreement on food products; a supplier paying for the promotion or the marketing of food products sold by the buyer.

Member States would need to designate a public authority to enforce the new rules, under the Commission’s proposal, and punish infringements. This enforcement authority will be able to investigate complaints that have been filed confidentially and perhaps anonymously from trading partners. 

The code of conduct of the voluntary Supply Chain Initiative has been running for quite some time, but the Commission’s proposed new measures are much broader and focus on stronger regulation. 

Is the scope of the proposed law enough? 
Several key organizations around Europe have joined together on this issue following the Commission’s Directive on unfair trading practices (UTPs) yesterday (April 12).

AIM is the European Brands Association, CEJA (which represents the political interests of around two million young farmers from across Europe), The Liaison Center for the Meat Processing Industry in the European Union (CLITRAVI), Copa and Cogeca the voice of farmers and agri-cooperatives in the EU, EFFAT, the European Federation of Food, Agriculture and Tourism Trade Unions and FoodDrinkEurope, all welcome the move but are questioning the scope of the Directive. 

Others calling for more to be done include IFOAM EU which represents more than 190 member organizations in the EU-28 and UEAPME, an employers’ organization representing Crafts and small and medium enterprises (SMEs) from the EU. 

Such a proposal for a Directive has the potential to create a minimum harmonization at EU level without endangering well-functioning existing systems already in place in some Member States, say the signatories. 

However, the groups and organizations are concerned with the “limited scope of the proposal,” covering only SMEs suppliers. 

They claim a better approach to fighting unfair trading practices would be to make new rules applicable to all players in the supply chain, regardless of their size.

“Moreover, it is crucial to ensure an effective cooperation between enforcement authorities addressing transnational UTPs that could otherwise be left unchallenged,” says a statement from all the signatories. 

“Now is the time to act to protect the economic, social and environmental sustainability of our food supply chain, strengthening Europe’s competitiveness and growth to build a stronger and more inclusive Europe.”

The signatories call upon the co-legislators – the Council of Ministers and the European Parliament – to jointly work on the Commission’s proposal and ensure its timely adoption.

European dairies 
Meanwhile, the European Dairy Association (EDA) says the EU-wide framework on unfair trading practices in business-to-business relationships in the food supply chain reinforces the position of SMEs. 

But, the association is also questioning the scope of the directive. 

The proposed list of prohibited trading practices will be instrumental in the downstream food supply chain and strengthen the position of SME dairies vis-à-vis the retailer power, according to the association. 

“In an ever more concentrated retail environment, all dairies face unfair trade practices today. It isn’t a question of small dairies, it touches all dairies across Europe that deserve the same level of protection,” said EDA secretary general Alexander Anton.

The acknowledgment of the specificities of the dairy sector, and all industries at first processing level of agricultural products, within the SME definition, would be the next important step to increase the impact of the proposed legislation, adds the EDA. 

It claims that the current SME definition limits the annual turnover to less than €50 million, which excludes relatively small, regional dairies as soon as they collect milk from more than 200 average dairy farms.

The Commission's proposal will take the form of a European law (directive) and will now be submitted together with an impact assessment to the two co-legislators, the European Parliament and the Council, where Member States' governments are represented.

“Any chain is only as strong as its weakest link. An efficient and effective food supply chain is a fair one. The proposal is fundamentally about fairness – about giving voice to the voiceless – for those who, through no fault of their own, find themselves the victims of a weak bargaining position,” said Agriculture and rural development Commissioner Phil Hogan.

“The initiative to ban unfair trading practices is about strengthening the position of producers and SMEs in the food supply chain. The initiative is equally about providing strong and effective enforcement. We are looking to eliminate the ‘fear factor’ in the food supply chain, through a confidential complaints procedure.”

By Gaynor Selby