EU agriculture update
Can European farmers be certain that a bottle of milk or a kilo of apples will remain more expensive than a bottle of mineral water?
Recently, the European Parliament, the Council and the European Commission agreed in December 2018 to develop a proposal for the first directive regarding unfair trading practices in business-to-business relationships in the food supply chain (the “Proposal”). This Proposal aims to regulate the supply chain of agricultural and food products.
The Proposal aims to protect small and medium-sized enterprises in the agricultural and food supply chain against the actions of purchasers who are not small or medium-sized enterprises. What is new is that the protection will cover not only small and medium-sized enterprises within the EU, but also those registered outside the EU but operating in the internal market.
FOOD SUPPLY CHAIN
The applicable field of the Proposal covers the entire food supply chain and accounts for the fact that unfair trading practices (“UTP”) are not always written in an agreement and in principle could arise at any stage of the commercial relationship between the buyer and the food supplier, even after the agreement is signed. In the Proposal it is considered that in certain cases the UTPs affect the weaker producers, such as farmers, even when they are not directed towards them. If the costs flowing from the UTPs are passed back along the food supply chain, their negative consequences at the bottom of the supply chain, for example between a retailer and a processor, can be felt in the opposite direction and eventually reach the farmers.
The scope of the concept of “supplier” as used in the Proposal is too wide and includes all suppliers selling food products in the chain, including farmers or individuals and legal entities, if they are small or medium-sized enterprises. The concept of “supplier” covers all individuals or legal entities established in the Union that purchase food products for commercial purposes.
PROHIBITIONS
The prohibited UTPs are listed in Art. 3 of the Proposal. The current version of Art. 3 implies that UTPs are separated into two groups: (i) absolute prohibitions and (ii) practices not agreed with clear and unambiguous terms when signing the supply agreement.
Absolute prohibitions, such as (i) paying for perishable food products later than 30 calendar days after receipt of the supplier’s invoice, (ii) supplier paying for the waste of food products that occurs on the buyer’s premises and that is not caused by the negligence or fault of the supplier, (iii) cancelling of orders of perishable food products at such short notice that a supplier cannot reasonably be expected to find an alternative to commercialise or use these products, and (iv) certain unilateral changes by the buyer with opposite effect on the terms of the supply agreement, are objectively justified and do not depend on the discretion of the parties in the agreement process, i.e. their implementation would be qualified as a UTP, which is prohibited by the new rules regarding UTPs.
The other group of UTPs covered by the Proposal are those which are not clearly and unambiguously agreed upon. The Proposal lists several examples of conditions which are unclear or ambiguous and could be viewed as a UTP. Those UTPs would not be the subject of an absolute prohibition, i.e. the affected party would need to prove that the respective UTPs have been implemented despite the lack of clear rules.
PROCEEDINGS FOR THE ESTABLISHMENT OF A UTP
The Proposal governs complaints submission and explicitly notes that the governing authority will be able to examine confidential complaints and – if it receives such a request – to protect the identity of the claimant. It is also envisaged that the governing authority would be granted the necessary rights to conduct investigations on its own initiative or based on a complaint, to gather information, to terminate violations, to fine and to publish the decisions taken to achieve a deterrent effect.
NEXT LEGISLATIVE STEPS
It is expected that the necessary steps for the adoption of the Proposal will be taken in the first quarter of 2019. After that, the Member States must implement the Directive in their national legislation within 24 months and, at the same time, accept standards for violation of fines. After another six months (from the date of implementation in national legislation) each of the Member States will apply the new legislation regarding UTPs.