In both Europe and the Netherlands, the agricultural and food sector are high on the (political) agenda. The recent developments are addressed in this blog.
European Directive on unfair trade practices in the food supply chain
In April 2018, the European Commission (the “Commission”) published a Directive to control unfair trade practices in the food supply chain. The reason for doing so was that an earlier voluntary code of conduct, the Supply Chain Initiative, had proven insufficiently effective. A study by the Commission showed that producers in the agricultural sector are in a weak (negotiating) position in relation to retailers. To improve this position, the Commission intends to explicitly prohibit the following trade practices of retailers by means of the Directive:
- Late payment for perishable products
- Short-notice order cancellation
- Unilateral and retroactive changes to contracts
- Having suppliers pay for discarded products
Furthermore, the following three practices will be permissible only if the supplier and the customer (retailer) enter into a clear and unambiguous agreement:
- Obligation to take back unsold products
- Contribution to the promotion and marketing of products
- Payment of a fee for storage and inclusion in the customer’s range of products
To guarantee the effectiveness of the Directive, Member States must designate an authority that can impose sanctions on breach of the rules. That authority may take action following an own investigation, but also on the basis of an (anonymous) complaint. The Directive is based on minimum harmonisation, allowing Member States to adopt stricter rules.
It is not yet certain when the Directive will be adopted. The Commission intends to do so before the current mandate of this European Parliament ends (in May 2019). The Dutch government has announced that it supports the Directive. If adopted, the Directive will have to be implemented in the Netherlands. Minister Schouten of Agriculture, Nature and Food Quality has already communicated that she is in favour of a swift implementation in the Netherlands. She has also announced that the exact impact of the Directive and the necessity of introducing additional rules in the Netherlands are being investigated together with the Netherlands Authority for Consumers and Markets (“ACM”). Minister Schouten will provide further clarity on this in 2019.
Recently, some amendments have been made to the Directive. The Agricultural Commission of the European Parliament has adopted an amendment that broadens the scope of the Directive. Not only SME operators with annual turnovers of up to €50 million (as set out in the initial proposal) should be able to challenge unfair trade practices, but also other (larger) businesses in the agricultural value chain. The reason for this is that unfair trade practices may occur throughout the chain, not necessarily depending on the size of the business. This amendment immediately gave rise to discussion. The retail sector, for instance, has sounded the alarm. One thing is for sure: the last word has not yet been spoken on this point.
ACM agri-food value chain taskforce
The Dutch government has stated in its coalition agreement that it intends to set up a special taskforce at ACM for agricultural markets. Minister Schouten recently announced that ACM is currently establishing the taskforce, which will set to work in 2019. The issues on which the taskforce will focus include problems that occur in the food supply chain. The taskforce will also work on an agricultural value monitor on pricing in the food supply chain. In 2009, almost ten years ago, ACM (named NMa at the time) published a similar monitor and in 2014 the ACM ordered Wageningen Economic Rsearch (named LEI Wageningen UR at the time) to research pricing in the food sector. One of the conclusions of the monitor at the time was that supermarket chains generated the highest margins for various products (such as sweet peppers, onions and potatoes) compared to other actors in the food supply chain, such as the farmers. Although a prominent finding in the research of 2014 was that due to the complexity of pricing in the food sector it was impossible to make general remarks about which actors benefitted from the highest margins, it was clear that supermarkt chains relatively had the highest margins on paprika's, unions, potatoes and apples. Dutch and foreign studies suggest that that situation has not changed. One question that this raises is what ACM will do after reaching this conclusion once more. That question is all the more relevant because ACM has not named the problems that occur in the agri-food value chain as one of its spearheads for 2018/2019.
One issue that the NMa failed to investigate in its agricultural value monitor in 2009 and in the research of 2014 is who should pay what part of the bill for making the agricultural value chain more sustainable. A great deal is being said about how to deal with non-statutory requirements (such as additional organic and other quality marks) that customers increasingly expect from producers of agricultural and horticultural products. An expressed concern of producers of agricultural and horticultural products is that they will largely be stuck with most of the sustainability bill. Will producers be able to obtain a price from supermarket chains for the non-statutory requirements set that covers the (structural) additional costs, or will they (regularly) have to supply below cost price? Whether and to what extent that is currently the case should form part of the study by ACM’s taskforce for agricultural markets, particularly since the government is focussing on a speedy and drastic switch to more sustainable circular agriculture sector. For various reasons, that aim has been met with mixed feelings in the agricultural and horticultural sector. The current Dutch (Rutte III) cabinet claims to appreciate the problem identified by the agricultural and horticultural sector that producers such as (small) farmers are paying the costs of the proposed sustainability. The coalition agreement of the Dutch cabinet states, for instance, that farmers should be paid higher prices if non-statutory requirements are set regarding sustainability and animal welfare. The coalition agreement does not state how exactly that will be achieved in the Netherlands. In various countries such as France and Belgium, sales below cost of certain agricultural and horticultural products are prohibited by law. If the Dutch government intends to suit its actions to the coalition agreement, such a prohibition should be included in the list of options. ACM’s agricultural value monitor on pricing in the food supply chain could play an important role in answering the question whether the option of such a statutory prohibition is desirable or even necessary. In other words, even though the agri-food value chain is not on ACM’s agenda of spearheads, it is very much possible that ACM’s taskforce for agricultural markets will be faced with a challenging question in 2019.
Room for Sustainability Initiatives Bill (“Wetsvoorstel Ruimte voor duurzaamheidsinitiatieven”)
Market-wide agreements may be desirable or even necessary in order to speedily and successfully implement sustainability initiatives. An example is the “tomorrow’s chicken” -initiative, which was aimed at removing factory-farmed broilers from supermarket shelves. The relevant parties in the food supply chain agreed on introducing a minimum standard for that purpose. However, ACM considered the joint introduction of this minimum standard in breach of the cartel prohibition. This example again proves that ACM has difficulty fitting sustainability initiatives into the competition law framework. By means of the Room for Sustainability Initiatives Bill, the Dutch government wishes to facilitate that sustainability agreements are not unnecessarily hindered by competition law. The bill offers market parties a procedure to present a sustainability initiative to the Minister. The Minister will then assess this initiative and may include the initiative in a statutory scheme. According to the Ministry of Economic Affairs, this will remove a number of obstacles to the success of sustainability initiatives. In addition to competition law aspects, broader social interests also play a role in the assessment. In 2018, the Council of State adopted its advice on the bill. According to Minister Schouten, the final bill will be presented to the Lower House of the Dutch Parliament in the autumn of 2018. Until the bill is enacted, companies will have to make do with what they have. Eight practical tips on how to get sustainability agreements off the ground can be found in this blog.
Investigations on joint purchasing by retailers
The increasing purchasing power of cooperating retailers is being critically viewed in various European countries. In 2017, the European Commission carried out dawn raids as part of its investigation into purchasing alliances of supermarkets. As part of that investigation, the Commission looked into the commercial strategies applied by supermarkets by means of those purchasing alliances when purchasing products. The French competition authority is investigating the impacts of the pooling of purchasing resources of two French sales alliances: those between Auchan/Metro/Shiever and Carrefour/Système U. As part of that investigation, the French competition authority is looking into the impact that those alliances have on suppliers (the upstream market) and consumers (the downstream market). In England, similar questions have been raised regarding the alliance between the Tesco and Carrefour supermarket chains. It is clear that competition authorities in several EU Member States have a growing interest in this matter.
