The commercial practices of major food retailers have already been the subject of much discussion. The European Commission estimates that their abusive practices would cost agricultural and agri-food SMEs between €2.5 and €8 billion each year. For the first time, a European directive aims to put an end to certain practices considered unfair.

Context and objective

One year after the European Commission’s proposal, Directive 2019/633 on unfair trading practices in business-to-business relationships in the agricultural and food supply chain was published in the Official Journal on 17 April 2019.

The directive intends to curb certain practices of large companies, but also of medium-sized companies, which buy agricultural or food products from smaller suppliers. The criterion used by the Commission is the relative size of a supplier compared to a buyer (for example, a supplier with a turnover of less than €2 million will be protected by the Directive if his buyer has a turnover of more than €2 million). Suppliers with an annual turnover exceeding €350 million and those selling to buyers with an annual turnover of less than €2 million are not protected by the Directive.

The Directive concerns the sale of agricultural and food products between a supplier (a producer organization, a wholesaler, a processor, etc.) and a buyer (a retailer, a retail chain, a wholesaler, etc.), at least one of whom is established in the EU. Agreements between supplier and consumer or between distributor and consumer are not concerned.

 

The targeted unfair practices

The Directive prohibits 16 unfair commercial practices.

It distinguishes a “black” list and a “grey” list of practices. While unfair blacklisted commercial practices are prohibited under any circumstances, greylisted practices are permitted if the supplier and buyer agree clearly and unequivocally in advance. The Directive therefore does not contain a general standard prohibiting unfair commercial practices in general, but targets those practices considered to be the most harmful.

The unfair practices included in the black list are the following:

  1. setting payment deadlines of more than 30 days for perishable agricultural products and foodstuffs and more than 60 days for other agri-food products;
  2. the early cancellation of orders for perishable agri-food products. However, school and health care contracts are not covered by this prohibition;
  3. contract amendments decided unilaterally by the buyer;
  4. payments unrelated to the sale of agricultural and food products;
  5. the transfer of the risks of loss and damage to the supplier;
  6. the buyer’s refusal to confirm in writing the supply contract to the supplier, despite the latter’s requests;
  7. the unlawful obtaining, use or disclosure of supplier’s trade secrets by the buyer;
  8. retaliation or threat of retaliation against the supplier, if the buyer exercises his legal rights;
  9. the transfer of costs related to the examination of customer complaints to the supplier.

The practices covered by the grey list are as follows :

  1. the buyer returns unsold agricultural and food products to the supplier without paying for those unsold products or without paying for the disposal of those products, or both;
  2. the supplier is charged payment as a condition for stocking, displaying or listing its agricultural and food products, or of making such products available on the market;
  3. the buyer requires the supplier to bear all or part of the cost of any discounts on agricultural and food products that are sold by the buyer as part of a promotion;
  4. the buyer requires the supplier to pay for the advertising by the buyer of agricultural and food products;
  5. the buyer requires the supplier to pay for the marketing by the buyer of agricultural and food products;
  6. the buyer charges the supplier for staff for fitting-out premises used for the sale of the supplier’s products.

Member States will have to designate bodies to investigate unfair practices. National enforcement authorities will also have the power to carry out unannounced on-site inspections, impose fines, take provisional measures, publish their decisions or otherwise sanction the companies concerned. A complaint mechanism, including the anonymity of the complainant, will also have to be put in place.

 

Entry into force

By 1 May 2021, the Directive shall have been transposed into the national law of the Member States, which shall enter into force by 1 November 2021 at the latest. Existing contracts will have to be revised to comply with the Directive by 1 May 2022.

 

The key points

This directive also constitutes a minimum harmonization directive. Member States may therefore maintain or introduce stricter rules aimed at combating unfair trading practices than those laid down by the Directive. However, they may not adopt provisions which make the regime laid down by the Directive more flexible. Different legal regimes will therefore necessarily exist between Member States.

From Belgium’s point of view, the adoption of the Directive takes place in the context of the revision of Books IV and VI of the Code of Economic Law, which do not only cover the food sector, but all relations between companies. These new rules, which have just been published in the Belgian Official Journal on 24 May, prohibit the abuse of economic dependence, unfair terms in contracts between companies, as well as misleading and aggressive practices towards companies.

It will be interesting to examine how the legislator will ensure the coexistence of these two regimes, both of which will fundamentally change business practices, particularly in the food sector.

 

 

Grégory Sorreaux

Partner THALES Attorneys – Commercial, IP & Food Law

gregory.sorreaux@thales.be

 

 

 

About Thales

Thales is an independent law firm specializing in business law, with more than 30 legal professionals in three offices (Brussels, Antwerp and Namur), including 15 lawyers in Brussels. Grégory Sorreaux, a partner in the Brussels office, deals with issues relating to competition, distribution, advertising and intellectual property, mainly in the agri-food sector. Member of the Brussels Bar since 2001, he is the author of the reference book “Publicité et étiquetage des denrées alimentaires” published in 2016 ; founder of BFSO Legal, the Belgian association for food law and vice-president of the Association for the Study of Competition Law (AEDC/VSMR).