EU eyes crackdown on unfair practices by powerful food buyers

Brussels is proposing a crackdown on powerful food buyers that force predatory terms on small suppliers, in a move to protect producers that has alarmed some large European retailers. 

Phil Hogan, EU agriculture commissioner, will on Thursday unveil a package of reforms to ban “unfair” contract terms and empower national authorities to police the conduct of big buyers such as supermarkets and food production companies. 

The proposal would set minimum standards so member states can take action “to protect the more vulnerable [suppliers] in the food chain,” said Mr Hogan in an interview with the Financial Times. “If there are not unfair trading practices happening, then they [buyers] have nothing to fear,” he added. 

Many small-scale food producers, such as dairy farmers or fruit growers, work on tight margins and have little bargaining power when they deal with the large companies that buy their products. This leaves them vulnerable to being squeezed on contract terms they have little choice but to accept.

These small suppliers are also hesitant to complain for fear of being labelled a trouble maker or excluded from future deals

Unfair trading practices have been on Brussels’s agenda for some time, but the EU has avoided intrusive regulation. Instead, it has developed a voluntary code of conduct called the supply chain initiative, which outlines fair business practices throughout the supply chain and helps resolve disputes. 

 

Political gestures do not make for good or better regulation. This directive will not do anything to help farmers – Christian Verschueren, EuroCommerce director-general

However, some EU member states have gone further at a national level — which is one reason the European Commission thinks further action from Brussels is justified. 

Mr Hogan singled out the UK’s groceries code adjudicator set up four years ago as “a wonderful example” of what can be done.

The body monitors the 10 largest UK food retailers and their relationships with their direct domestic and international suppliers. They work with companies to address concerns but can also consider confidential complaints, make binding recommendations and levy fines of up to 1 percent of annual turnover.

After an investigation of Tesco’s payment terms in 2015, it made recommendations that all UK retailers had to implement. It recently launched a second investigation into practices at the Co-operative Group.

The EU’s proposed approach has worried some buyers, who fear it will distort the market without helping farmers in practice.

“The Commission has not produced any evidence of a structural problem or of the utility of EU legislation in resolving it,” said Christian Verschueren, director-general at EuroCommerce, an association representing retailers and wholesalers. “Political gestures do not make for good or better regulation. This directive will not do anything to help farmers.” 

The commission proposal would ban unilateral or retroactive changes to contracts and outlaw taking longer than 30 days to pay suppliers of perishable products. Another group of arrangements would only be acceptable if both buyers and sellers agreed. 

Member states would also have to designate a national enforcement authority to hear confidential complaints, launch investigations and examine suspect practices.

This national enforcer would be able to fine big buyers who unfairly trade with small and medium-sized food suppliers, defined as a company with less than 250 employees or €50m annual turnover. The size of any fines would be left to member states. The rules will cover all small suppliers, both those inside and outside of the EU.

Farmers’ representatives welcomed the proposal. “We favour strong enforcement led by an independent authority able to initiate and conduct investigations and apply deterrent sanctions in case of non-compliance,” said Pekka Pesonen, secretary-general at farmers association Copa-Cogeca.

“We want to ensure that the food supply chain works better and this needs to be done through legislation at EU level as we have clearly seen that voluntary approaches alone do not work.”

Rochelle Toplensky