Unfair trading practices explained
Unfair trading practices in business-to-business relationships deviate from good commercial conduct and are contrary to good faith and fair dealing. The food supply chain is vulnerable to unfair trading practices due to stark imbalances between small and large operators. Often farmers and small operators in the food supply chain do not have sufficient bargaining power to defend against them.
The European Union therefore decided to improve the protection of farmers – as well as of small and medium and mid-range sized suppliers – and provide mandatory rules that outlaw certain unfair trading practices.
The Directive on unfair trading practices in the agricultural and food supply chain was adopted in April 2019. EU countries are required to transpose the Directive into national law by 1 May 2021 and apply it 6 months later.
This is part of a wider governance agenda, which aims at achieving a more efficient and fairer food supply chain, and which also includes producer cooperation and measures to enhance market transparency. The Farm to Fork strategy is also designed to contribute to improving farmers’ position in the food supply chain.
Combatting unfair trading practices
To improve farmers’ and small and medium sized businesses’ position in the food supply chain, the EU has adopted legislation that bans 16 unfair trading practices. The Directive distinguishes between “black” and “grey” practices. Whereas black unfair trading practices are prohibited, whatever the circumstances, grey practices are allowed if the supplier and the buyer agree on them beforehand in a clear and unambiguous manner.
Ten black unfair trading practices
- Payments later than 30 days for perishable agricultural and food products
- Payment later than 60 days for other agri-food products
- Short-notice cancellations of perishable agri-food products
- Unilateral contract changes by the buyer
- Payments not related to a specific transaction
- Risk of loss and deterioration transferred to the supplier
- Refusal of a written confirmation of a supply agreement by the buyer, despite request of the supplier
- Misuse of trade secrets by the buyer
- Commercial retaliation by the buyer
- Transferring the costs of examining customer complaints to the supplier
Six grey unfair trading practices
These are allowed only if agreed beforehand in a clear and unambiguous manner.
- Return of unsold products
- Payment of the supplier for stocking, display and listing
- Payment of the supplier for promotion
- Payment of the supplier for marketing
- Payment of the supplier for advertising
- Payment of the supplier for staff of the buyer, fitting out premises
The Directive provides minimum harmonisation on unfair trading practices in all EU countries. This will ensure a level playing field on those practices, which the legislator identified as the most problematic.
Key rules of the directive
Protection of weaker suppliers against stronger buyers
The directive provides for the protection of weaker suppliers against stronger buyers, which includes any supplier of agricultural and food products with a turnover of up to €350 million with differentiated levels of protection provided below that threshold. This covers not only farmers, but also producer organisations and distributors below the threshold. This also applies to suppliers and buyers located outside the EU, provided one of the parties is located within the EU.
When transposing the Directive into their national law, EU countries can choose to be stricter than the Directive and go beyond its scope. However, they cannot offer less protection than foreseen by the Directive.
Each EU country has to designate a competent authority to enforce these rules and these authorities must have the power to both launch investigations and fine operators who break the rules.
The Directive contains measures, including the protection of the complainants, to help weaker suppliers exercise their rights. They can choose to which enforcement authority they want to file a complaint: their national authority or the authority of the EU country, where the buyer is located.
Agricultural markets task force
The European Commission’s efforts to strengthen farmers’ position in the food supply chain draws on the work of the Agricultural markets task force.
This group of 12 high-level experts on the food supply chain under the chairmanship of Cees Veerman met between January and November 2016 to discuss a wide range of issues affecting agricultural markets and, in particular, the role of farmers. A final report was issued on enhancing the position of farmers in the supply chain.
Other European Commission initiatives designed to improve the functioning of the food supply chain include the high level forum on the better functioning of the food supply chain established in 2010.