Banning Unfair Trading Practices

The adoption by the AGRI committee of rules to combat Unfair Trading Practices in the agri food sector is a welcome move, even if it is long overdue. 

We tend to take for granted the high quality food we enjoy every day.  However, in the background there are a chain of actors –  farmers, processors and retailers – working to ensure that this quality is maintained.

Within this complex chain, however, Unfair Trading Practices often take place, to the detriment of the primary producer in the first instance – the farmer – who is in the weakest position, but ultimately to the detriment of all operators along the chain, from farmer to consumer. 

These Unfair Trading Practices must be addressed because they stifle investment and innovation, and they load risks and costs onto food suppliers, meaning unsustainable, uncompetitive supply-chains. They contribute to income insecurity, food waste and lower food standards among food producers across the EU and around the world.

What are they, these Unfair Trading Practices? Well they’re defined as ‘practices that deviate from good commercial conduct and are contrary to good faith and fair dealing’. One trading partner, who is in a dominant position, usually imposes them unilaterally on another. Due to the obvious large differences in bargaining power, the producer in the weakest position, the food-supply-chain is particularly vulnerable to Unfair Trading Practices, and that’s been the case for years now.

This move by the AGRI Committee means that for the first time ever at EU level, Unfair Trading Practices will be banned in the food supply chain.

Article 3 of the directive sets out some of the core trading practices that are to be prohibited. These include:

  • Late payments for perishable food products;

  • Last minute order cancellations;

  • Unilateral or retroactive changes to contracts;

  • Forcing the supplier to pay for wasted products. 

In addition, the following 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.

Equally important, the proposal includes effective enforcement provisions.  National authorities can impose sanctions where infringements are established.  The Directive when implemented will require Member States to designate a public authority to be in charge of enforcing the new rules. In case of proven infringement, the responsible body will be competent to impose a proportionate and dissuasive sanction. This enforcement authority will be able to initiate investigations of its own initiative or based on a complaint. In this case, parties filing a complaint will be allowed to request confidentiality and anonymity to protect their position towards their trading partner. The Commission will set up a coordination mechanism between enforcement authorities to enable the exchange of best practices.

It's not perfect, and there are aspects that could have been stronger, for example:

  • Why go for a Directive and not a Regulation, which which would have been much stronger, ensured a level playing field across the EU?

  • Below-cost selling is not addressed in a strong enough manner;

  • The concept of ‘economic dependance’ on which a case could be built has been substantially weakened in the compromise amendments, which will undermine the effectiveness of the directive.  I didn’t support this in the vote as the original text was much stronger, but it does highlight the opposition to this type of legislation.  

Will it be enough? Implementation will be key. As I said above, given that this is a Directive and not a Regulation the onus is very much on the Member State to step up to the plate and incorporate it into National legislation. Time will tell if this softer approach, combined with National Governments traditional unwillingness to take on the vested interests, will allow big multinationals to circumvent, obstruct and undermine this directive.

We hope to agree a legal text with the Commission and the Council on this Directive before Christmas, but I’ll keep ye updated.