The good governance of the food supply chain and the protection of vulnerable operators have become something of a mantra for policy-makers at both national and EU levels. One example of this is the European Commission’s recent proposal for a directive on Unfair Trading Practices (UTPs) in business-to-business relationships in the food supply chain in spring. In the absence of a common EU legal framework for UTPs, the proposed Directive aims to reduce their occurrence by providing for a minimum standard of protection for small and medium-sized suppliers – in particular for agricultural producers, regardless of their place of establishment, or the member state into which they sell food.
This new set of rules essentially consists of a shortlist of specific prohibited UTPs including, but not limited to, unilateral and retroactive changes to supply agreements, last minute order cancellations of perishable products, and buyers’ claims for wasted and unsold products. Similarly, the Commission is considering introducing minimum enforcement requirements. These would include the designation of a competent enforcement authority capable of carrying out own initiative investigations, receiving and treating complaints confidentially to safeguard complainants from exposure to the risk of retaliation, and imposing pecuniary fines.
On the face of it, the initiative should be welcomed, at least by food producers. UTPs indeed have the potential to squeeze the profits and margins of those smaller businesses with weak bargaining power and, in some cases, to drive them out of the market, thereby increasing the purchasing power of large retailers and buyers.
The new proposed approach is not exempt from criticism
With the proposed measures, it is anticipated that food businesses at the upstream part of the chain will now be able to compete on fair terms, maintain their economic viability and profitability and increase their capacity to invest and innovate.
Likewise, while the definition of a list of clearly damaging UTPs is expected to reduce legal uncertainty for commercial transactions, the existence of national authorities with effective enforcement powers should act as a behavioural deterrent against future infringements of UTP rules. However, the new proposed approach is not exempt from criticism. It would take the form of a partial (minimum) harmonization, meaning that member states should be able to adopt stricter national laws. But concerns are that, if adopted, it would fail to provide member states with enough room for manoeuvre to implement national provisions that reflect differences between their supply chains.
It has been further argued that the issue of UTPs in the agri-food supply chain would be best addressed through national legislation and that the proposed measures would cut across the operations of the Groceries Code Adjudicator, the UK domestic regulator, thus possibly undermining its effective- ness. While it’s unclear if the implementation deadline of the proposed directive will fall after the end of the expected Brexit transition period on 31 December 2020, the UK Government is currently developing national measures to tackle UTPs at a domestic level.
Finally, UTP legislation is likely to entail compliance costs for operators, including costs related to the training of new and existing staff to ensure familiarity with and understanding of their obligations.