The impact of unfair trading practices in food and farming

Maryam Duale, in ETI's Food and Farming team, writes about the potential impact of a proposed new EU Directive on Unfair Trading Practices in the agricultural sector.

BLOG UPDATE 20 December 2018

ETI member Traidcraft has advised us that the EU Directive against unfair trading practices in business-to-business agri-food supply chains has now been approved and has outlined for us the following key takeaways:  

• It requires each member state to set up a regulator (many already have something in place).
• That regulator is required to tackle unfair purchasing practices in agri-food supply chains (along the whole chain from grower to retailer).
• There are 12 practices that are defined as unfair (including refusal to enter into a written supply agreement, late cancellation of orders, late payment of invoices).
• Suppliers are able to complain about unfair practices if they are selling to a larger buyer
• The biggest suppliers (over 350m EUR turnover) are out of scope
• The directive also protects suppliers based outside the European Union selling agri-food products into the EU market.
• The directive extends to the behaviour of buyers based outside the EU buying agri-food for sale into the EU (this is to ensure that Swiss-based buying groups are within scope).
• There is provision for unions, producer organisations and NGOs to make complaints on behalf of a supplier.

Traidcraft expects that the UK will probably not have to bring this Directive into UK law because of Brexit but believes that it nonetheless has significant implications for UK exporters to the EU.

Unfair trading practices, or UTPs, are defined as business-to-business practices that deviate from good commercial contact and are contrary to good faith.

The agricultural sector is particularly at risk of UTPs due to the unequal balance in bargaining power between small and larger players. Often, as the European Commission (EC) points out, smaller operators and farmers lack any necessary leverage.

Some European Union member states have laws protecting business from UTPs.

However, no pan-European legislation currently exists that addresses business-to-business relationships across the EU.

The EC is therefore proposing for the first time that there be a standard level of protection against UTPs across Europe – and wider.

Banning common UTPs

The EC proposes banning some of the most common UTPs that farmers in supply chains face. These include:

• late payments for perishable food products.
• last minute order cancellations.
• unilateral changes to contracts.

The EC has also proposed that each EU member state assign an authority to enforce the new rules and set out minimum enforcement powers.

Italian MEP Paolo De Castro, is Europe’s rapporteur for unfair trade practices and lead negotiator for the bill, which was overwhelmingly approved by MEPs.

De Castro was then mandated by the European Parliament on 25th October to start so called “trialogue” negotiations on the UTP Directive.

Trialogue negotiations are the negotiations that take place between Europe's Commission, Parliament and Council which decide the fine details of what will be included in a final bill.

Proposed directive extends overseas

At present, among the UTP details, it’s important to note that the Directive extends overseas. As it is currently drafted, buyers will have to comply with the terms of the directive including if they are:

• Sourcing from non-EU suppliers.
• Based outside the EU but selling into the EU market (although we have been told that this latter provision is being very hotly-contested so may not make it into the final directive).

Crucially, suppliers will be able to make a complaint about an unfair trading practice to relevant enforcement authorities. Producer organisations, unions and NGOs will also be able to do so on their behalf.

In the meantime, there are potential clouds on the horizon.

The highly influential trade group, EuroCommerce, which represents the retail and wholesale sectors in Europe, says that the scope of the Directive should not be expanded to everyone in supply chains, but rather be limited to smaller suppliers and bigger buyers.

De Castro and EU farmers’ association, Copa-Cogeca, argue – rightly in our opinion – that the scope of the Directive should be expanded to all operators, stating that if something is unfair it is “unfair for all.”

Not only that, as Paulo De Castro says, “We have 20 national laws on UTPs in Europe in different member states. All these national laws have no limits, so why must there be limits in the Directive?”

The pressure is also on to ensure talks not only begin but are finalised before the end of the year.

There is a limited window of opportunity for the necessary approval processes to take place before the upcoming European Parliament elections in May 2019.

A valuable initiative

We believe that all progressive companies should welcome the Directive.

Put simply, it’s a valuable initiative that aims to tackle some of the worst unfair trading practices in EU food supply chains.

Having an authority empowered to tackle UTPs in each European member state is a big step forward towards fairness and sustainability.

But of course, a lot will depend on the quality of enforcement and whether suppliers feel confident that their complaints will be acted upon.

Even so, the Directive has great potential and we will be watching the conversation closely.