For over 10 years, the European Union have been tasked with ways on how to tackle unfair trading practices in agricultural supply chains. On 10 April 2019, this activity finally bore fruit and the ground breaking EU Unfair Trading Practices Directive was formally adopted. For the first time there will be a shared minimum standard for fair trading practices enforced throughout Europe. This will provide regulatory certainty to buyers and confidence to suppliers – even those based outside the EU – that they will be able to access protection regardless of where their European buyer is based.
Agricultural supply chains include businesses from small-scale family farms to huge multinational enterprises. This means that smaller suppliers are vulnerable to unfair treatment – such as last-minute cancellation of orders and late payments. The impact on small businesses’ costs can put food safety and workers’ conditions at risk. “
Unfair trading practices are business-to-business practices that grossly deviate from good commercial conduct and are contrary to good faith and fair dealing. They are typically imposed unilaterally, by a stronger party on a weaker one.” (European Parliament, 2019)
WHAT IS COVERED?
The unfair trading practices covered in the Directive include:
Other practices, such as the return of unsold products to suppliers, will only be permitted if clearly pre-agreed by both parties.
The new Directive now needs to be transposed into the law of each EU Member State within the next 2 years. EU Member States have to designate an enforcement authority – a public body with the power to investigate suspected unfair trading practices and impose penalties.
Further unfair trading practices, such as buying and selling below cost, using two-stage auctions to drive down prices, or de-listing a supplier without genuine commercial reasons, are not currently included in the list of banned practices. The possibility is left to Member States to extend the list in their national law.
WHO IS AFFECTED?
The Directive covers the buying practices of businesses that purchase agri-food products if they are:
This includes retailers, brands, processors and public bodies.
Suppliers of agri-food products can access protection under this law if they are:
This includes farmers, processors and brands.
Taking size as an indicator of market power, the Directive groups companies into six size categories, the smallest being €0–2 million and the largest >€350 million.
Businesses in the middle of the supply chain will often be both buyers and suppliers.
HOW WILL THE NEW DIRECTIVE AFFECT ACP SUPPLIERS?
Farmers in ACP countries are often particularly vulnerable to unfair trading practices. They are less likely to have links with alternative markets, and may have less access to legal support, a functioning union, or the information they need to challenge the unfair practices of large European customers. The new Directive provides protection to suppliers who are based outside the EU but selling to an EU-based buyer.
Knowing that an order will not be cancelled provides producers with more predictable incomes enabling them to invest in their businesses or in other expenses such as improving housing or paying for children’s education.
The success of the Directive relies on suppliers coming forward. Many suppliers – especially ACP suppliers – may not have the time, training, support or language to understand the implications of new EU laws. It is crucial that Member States work with trade attachés, producer associations and international NGOs to provide vulnerable producers with legal assistance, including providing resources where necessary. Even suppliers who are aware of the law may be reluctant to complain for fear of commercial retribution, and must be reassured that complaints are confidential and their identity will not be disclosed. A hard-won feature of the Directive is that it allows other organisations (such as NGOs, producer organisations and unions) to make complaints on behalf of suppliers, making it more likely that complaints will be made to highlight illegal practices.
Experience from national-level enforcement shows that the very existence of a law, and the potential of a fine, is enough to ensure that buyers hold themselves to a higher standard in their supply chain relationships.
FOR MORE INFORMATION
European Parliament (2019) ‘Food: protecting farmers and small firms from unfair trading practices’. News, 11 March. www.europarl.europa.eu/news/en/headlines/society/20190307STO30717/protectingfarmers-and-small-firms-from-unfair-trading-practices
Wills, T. (2019) ‘What is the EU’s new Unfair Trading Practices Directive?’ Traidcraft Exchange blog, 19 February.