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Document 52018SC0092

COMMISSION STAFF WORKING DOCUMENT IMPACT ASSESSMENT Initiative to improve the food supply chain (unfair trading practices) Accompanying the document Proposal for a DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on unfair trading practices in business-to-business relationships in the food supply chain

SWD/2018/092 final - 2018/082 (COD)

Brussels, 12.4.2018

SWD(2018) 92 final

COMMISSION STAFF WORKING DOCUMENT

IMPACT ASSESSMENT

Initiative to improve the food supply chain (unfair trading practices)

Accompanying the document

Proposal for a

DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL

on unfair trading practices in business-to-business relationships in the food supply chain

{COM(2018) 173 final}
{SWD(2018) 91 final}
{SWD(2018) 93 final}


1    Introduction    7

1.1    General    7

1.2    Political context    8

1.3    Unfair trading practices and their relevance in the agricultural sector    9

2    Problem definition    11

2.1    Overview of the problem definition    11

2.2    Introduction    11

2.3    Occurrence of unfair trading practices in the food supply chain    12

2.4    Under-protection against UTPs in Member States    13

2.5    Harm caused by unfair trading practices    15

2.5.1.1    Operators    15

2.5.1.2    Consumers    18

2.6    What are the problem drivers?    20

2.6.1    Imbalance of bargaining power    20

2.6.2    Divergence of UTP rules at the national level    21

2.6.3    Lack of coordination among enforcement authorities    22

2.7    How will the problem evolve?    22

2.8    Prior evaluations    26

3    Why should the EU act?    26

3.1    Legal basis for EU action    26

3.2    Subsidiarity: Necessity of EU action    28

3.3    Subsidiarity: Added value of EU action    28

4    Objectives: What is to be achieved?    34

4.1    General objectives    34

4.2    Specific objectives    35

4.3    Consistency with other EU policies    35

5    What are the available policy options?    37

5.1    Introduction    37

5.2    Degree of harmonisation of substantive UTP rules    37

5.2.1    Baseline    37

5.2.2    Options discarded at an early stage: detailed harmonisation of substantive UTP rules    37

5.2.3    Partial harmonisation of substantive UTP rules    38

5.3    Scope of UTP prohibition    38

5.3.1    Baseline    38

5.3.2    UTPs subject to generally formulated prohibition (based on fairness)    38

5.3.3    Prohibiting specific UTPs    39

5.3.3.1    Unilateral and retroactive changes to contracts    41

5.3.3.2    Last-minute order cancellations‎ concerning perishable products    42

5.3.3.3    Claims for wasted or unsold products    42

5.3.3.4    Payments for perishable products later than 30 days    42

5.3.3.5    Claims for contributions to promotional or marketing costs of buyer    43

5.3.3.6    Requests for upfront payments to secure or retain contracts without consideration    44

5.3.3.7    Criteria concerning the assessment of unfairness of the practices    44

5.4    Operationally, an EU approach based on the options set out in section 5 should incorporate the said considerations and be shaped accordingly. Coverage of products    44

5.4.1    Baseline    44

5.4.2    Agricultural and processed agricultural products covered    45

5.4.3    Agricultural products covered    45

5.5    Operators covered by UTP rules    45

5.5.1    Baseline    45

5.5.2    UTP rules apply in situations characterised by weak bargaining power    45

5.5.3    UTP rules apply to all operators    46

5.5.4    UTP rules ‘benefit’ 3rd country suppliers    46

5.5.5    UTP rules ‘benefit’ suppliers situated in the EU    46

5.6    Enforcement    47

5.6.1    Baseline    47

5.6.2    Options discarded at an early stage    47

5.6.3    Minimum enforcement requirements “plus”    47

5.6.4    Minimum enforcement requirements    49

5.7    Coordination of enforcement authorities    49

5.7.1    Baseline    49

5.7.2    Coordination    50

5.8    Legal instrument to be used    50

5.8.1    Recommendation    50

5.8.2    Legally binding instrument    51

6    What are the impacts of the policy options?    51

6.1    Introduction    51

6.2    Impact on operators, consumers and Member States    52

6.2.1    Impact on economic operators    52

6.2.1.1    Benefits    52

6.2.1.2    Harm    54

6.2.1.3    Costs    56

6.2.2    Impact on consumers including impact on innovation    57

6.2.3    Impact on Member States    58

6.2.4    Social and environmental impacts    61

6.3    Impact of the specific option components    61

6.3.1    Scope of UTP rules: Specific list of prohibited UTPs or general (‘principles-based’) prohibition    62

6.3.2    Coverage of products: agricultural products or agricultural and processed agricultural products    63

6.3.3    Scope in terms of operators: (i) all operators in the food supply chain protected or protection restricted to weaker operators; (ii) question of coverage of third-country suppliers    64

6.3.4    Enforcement: minimum requirements or minimum requirements "plus"    65

6.3.5    Coordination: network of dedicated authorities or baseline (High Level Forum)    65

6.3.6    Legal instrument: soft law (recommendations) or legally binding instrument    65

6.4    Option packages    66

7    How do the options compare?    67

8    Preferred option    68

9    Monitoring and evaluation    69

List of Annexes    71

Annex 1: Procedural information    74

1    Lead DG, Decide Planning/Commission Work Programme references    74

2    Organisation and timing    74

3    External expertise and evidence base    75

3.1    Joint Research Centre academic workshop on UTPs in the food supply chain    75

3.2    Study on UTPs at Member State level    76

4    Regulatory Scrutiny Board    77

Annex 2: Stakeholder consultation    82

1    Stakeholder consultation process    82

2    Summary of stakeholder consultation results    82

2.1    Inception impact assessment    82

2.2    Open public consultation    83

2.3    Targeted questionnaire to undertakings    86

2.4    Targeted questionnaire to consumer organisations    86

2.5    Questionnaire to Member State public authorities    87

2.6    Joint Research Centre academic workshop on UTPs in the food supply chain    87

2.7    Ad hoc meetings with food supply chain stakeholders    87

2.8    Civil Society Dialogue groups    87

Annex 3: Who is affected and how?    88

1    Practical implications of the initiative    88

2    Effect on food supply chain operators    88

3    Summary of costs and benefits    91

Annex 4: Analytical methods    93

Annex A: Relevant EU documents concerning unfair trading practices    94

Annex B: The “fear factor” and different enforcement approaches to unfair trading practices    95

1    Fear factor    95

2    Judicial redress    95

3    Administrative redress    96

4    The voluntary Supply Chain Initiative    97

Annex C: UTPs, agriculture and the agri-food sector: quantitative evidence    98

1    The food supply chain    98

2    Economics of agriculture    101

3    Agriculture specifics    102

4    Structure of the different stages of the food chain    105

5    Price transmission    109

6    Rules on UTPs and price evolution    111

7    Intra-EU Trade    113

8    Share of cooperative products in retail sales    121

9    Share of agricultural products (in the meaning of the Treaty) in retail sales    121

Annex D: Table on transposition of Late Payment Directive in Member States in terms of payment terms    124

Annex E: Comparison of policy options    132

1    Degree of harmonisation of substantive UTP rules    132

2    Scope of UTP definition    133

3    Coverage of products    134

4    Operators covered    134

5    Enforcement    135

6    Coordination of enforcement    136

7    Legal instrument    137

8    Comparison of option packages    137

Annex F: Study - Overview on “Specific regulations on Unfair Trading Practices in Member State in the Business-to-Business Retail Supply Chain”    140

Annex G: Study annexes - Overview on “Specific regulations on Unfair Trading Practices in Member State in the Business-to-Business Retail Supply Chain”     196

Annex H: Economic impact of unfair trading practices regulations in the food supply chain (DG Competition)    260


Glossary

Term or acronym

Meaning or definition

AUSD

Australian Dollar

B2B

Business-to-business

B2C

Business-to-consumer

CAP

Common Agricultural Policy

CF

Charter of Fundamental Rights of the European Union

CMO

Common Market Organisation

CR5

Concentration ratio of the five largest firms

ECB

European Central Bank

EP

European Parliament

EU

European Union

EUR

Euro

GBP

British Pound

GCA

Grocery Code Adjudicator (UK)

MTK

The Finnish Farmers' Association

OECD

Organisation for Economic Co-operation and Development

SCI

Supply Chain Initiative

SME

Small and medium-sized enterprises

TFEU

Treaty on the Functioning of the European Union

UK

United Kingdom

UTP

Unfair trading practice



1Introduction

1.1General

The present impact assessment report examines the case for introducing EU rules governing unfair trading practices (UTPs) in the agri-food chain including their enforcement. It addresses questions such as the nature and scope of the problem as well as the added value of EU measures over existing Member States’ measures and self-regulatory initiatives.

The options discussed in sections 6 and 7 of this report would aim to complement existing rules in Member States and the existing self-regulatory initiatives (EU-wide or national) rather than replace them.

Possible measures enhancing transparency in the food supply chain, which constituted a second component of the inception impact assessment of July 2017 1 , will be subject to a separate work strand. The third component of the said inception impact assessment concerning producer cooperation was covered by recent changes to basic acts decided in the framework of the so-called Omnibus regulation. 2 It is therefore not subject of this impact assessment.

UTPs can be broadly defined as practices which grossly deviate from good commercial conduct, are contrary to good faith and fair dealing and are unilaterally imposed by one trading partner on another (business-to-business). 3 The European Commission identified four key categories of UTPs that “an effective regulatory framework should cover”: 4

- one party should not unduly or unfairly shift its own costs or entrepreneurial risks to the other party;

- one party should not ask the other party for advantages or benefits of any kind without performing a service related to the advantage or benefit asked;

- one party should not make unilateral and/or retroactive changes to a contract, unless the contract specifically allows for it under fair conditions;

- there should be no unfair termination of a contractual relationship or unjustified threat of termination of a contractual relationship.

There are strong indications that UTPs occur frequently in the EU food supply chain and that they can be detrimental mainly to otherwise viable smaller operators such as agricultural producers and SME processors of food products.

Twenty EU Member States’ have laws, regulations and administrative provisions specifically on UTPs. While different in shape and form, these provisions generally prohibit certain unfair behaviour between businesses, often with a view to protecting the position of weaker parties. Together with self-regulation, such as the voluntary Supply Chain Initiative 5 , they aim to ensure the good functioning of the food supply chain.

There are, as of yet, no EU horizontal rules on unfair trading practices between businesses. 6 EU rules on unfair commercial practices apply to business-to-consumer (B2C) situations. They do, as such, not cover business-to-business (B2B) situations although Member States may choose to extend their scope.

1.2Political context

The discussion about UTP measures at the EU level dates back to 2009 (see Annex A for a selection of relevant documents). 7 The European Commission’s “Communication on a better functioning food supply chain” of 28 October 2009 8 and its Communication “Tackling unfair trading practises in the business-to-business food supply chain” of 15 July 2014 9 are important documents in this regard.

In 2013, the Commission carried out a public consultation on the basis of questions in a “Green Paper on unfair trading practices in the business-to-business food and non-food supply chain in Europe”. 10  

A European Commission report from January 2016 concluded that at that juncture a harmonised regulatory approach under EU law would not add value. 11 Nonetheless, it committed the Commission to re-assessing the need and added value of EU action before the end of its mandate. 12

In June 2016, a European Parliament resolution, which garnered exceptionally strong support, invited the European Commission to submit a proposal for an EU-level framework concerning UTPs. 13  

In September 2016, the European Economic and Social Committee published a report calling upon the Commission and the Member States to take swift action to prevent UTPs by establishing an EU harmonised network of enforcement authorities, so as to create a level playing field within the single market. 14

In November 2016, an independent high-level group of experts nominated by the European Commission presented its findings in a report entitled ‘Improving Market Outcomes – Enhancing the Position of Farmers in the Supply Chain’ (Report of the Agricultural Markets Task Force). 15 It recommended EU legislation in the areas of unfair trading practices for agricultural products, producer cooperation and market transparency, among others.

The Council Conclusions of December 2016 invited the Commission to undertake, in a timely manner, an impact assessment with a view to proposing an EU legislative framework or other non-legislative measures to address UTPs. 16  

In the recent Omnibus context, the EP proposed an amendment which meant to commit the Commission to submit a legislative proposal on UTPs by mid-2018. The amendment was not retained due to the European Commission’s institutional prerogative but the European Commission made a declaration on the topic of unfair trading practices. 17  

The Commission Work Programme for 2018 states that the Commission "will propose measures to improve the functioning of the food supply chain to help farmers strengthen their position in the market place and help protect them from future shocks" (new initiative). 18  

1.3Unfair trading practices and their relevance in the agricultural sector

The integration of EU agriculture and food supply chains in global markets presents opportunities but also risks. 19 Successive reforms of the common agricultural policy (CAP) since 1992 have led to a paradigm shift from price to income support. 20 Accordingly, primary producers do no longer enjoy systematic price support via market measures. Support through the CAP rather is granted through decoupled income support (direct payments). 21 Trade barriers have been removed through more liberal trade agreements. This has resulted in EU prices of agriculture products being largely aligned with world market prices. EU farming and EU agriculture have become competitive in this new global context and have made an important contribution to the annual trade surpluses the EU has achieved in food products since 2009. 22 But the removal of price support and the insertion into global markets have exposed the EU agri-food sector to global market instabilities and their corollary, price volatility and higher income variability. 20% of farmers experience income drops of more than 30% each year. 23

The CAP’s rationale roots in the socio-economic specificities of the sector. 24 While business risk is inherent in all economic activity, agriculture is particularly fraught with uncertainty, in particular due to weather which has a direct impact on the variability of the quantity and the quality supplied. Everyone needs food for survival, but demand for food is relatively inelastic: it does not change significantly if prices fall or increase. This means that farmers cannot rely on simply selling more of their output to compensate for lower prices. Over-supply therefore has a significant impact on the price levels as well as on the volatility of prices. 25 Moreover, there are long production lags due to the biological processes on which agricultural production depends. For example, it takes two years for a dairy cow to reach the stage where it produces milk. Production decisions have to be taken in advance with limited knowledge of final outcomes and against possibly changing market situations. These factors can have a significant impact on farmers’ incomes, and yet they have virtually no control over them.

Agricultural producers are particularly vulnerable to UTPs 26 as they often lack bargaining power that would be equal to that of their downstream partners. Their alternatives in terms of getting their products to consumers are limited (this vulnerability is exacerbated where so called hold-up situations occur which may make alternatives virtually non-existing due to the perishability of a product 27 ).

In an agricultural policy environment which is distinctly more market oriented than before and which aims at harnessing free trade opportunities, the good governance of the food supply chain has become more important for operators including farmers. Such good governance should ensure that they are able to develop their business and compete on fair terms, thereby contributing to the overall efficiency of the chain. Unfair business conduct by operators wielding significant bargaining power that is not prohibited or respective redress possibilities that lack in effectiveness are liable to undermine the economic viability of victims of UTPs as well as their trust in the overall fairness of the food supply chain. 28  

The second highest priority for citizens concerning the common agricultural policy (CAP) is strengthening the farmer’s role in the food chain (45%). 29  

The EU’s Common Agricultural Policy (CAP) does provide for measures which aim to strengthen farmers’ position in the food supply chain. 30 These include start-up funding (rural development regulation) for producer groups and regulatory exemptions from competition law for farmers´ organisations. However, these policies have not fundamentally changed the fragmentation of agricultural producers. What is more, producer organisations, even where they do exist, can often not compensate for the lack of bargaining power of farmers in relation to their larger and more concentrated partners in the supply chain. The CAP does not currently cover UTPs. 31  

2Problem definition

2.1Overview of the problem definition

 

Figure 1: Schematic overview of market dynamics, drivers, problems and consequences

2.2Introduction 

Operators with significant bargaining power can impose pressure on other weaker operators in the food supply chain.  32 At times, this pressure occurs in the form of a party being subjected to unfair trading practices (UTPs). UTPs put companies’ profits and margins under pressure, which can result in a misallocation of resources and even drive otherwise viable and competitive players out of business. 33 In such situations, a well-targeted regulation of certain trading practices aiming at ensuring fairness between actors in the food supply chain can help to resolve specific issues. 34

For illustration, being faced with a retroactive unilateral reduction of the contracted quantity for perishable goods means income foregone for an operator who may not easily find alternatives. Being paid for perishable products only months after they are delivered and sold by the purchaser in a store constitutes extra financial cost for the supplier. Obliging suppliers to take back products not sold by the purchaser may constitute an undue transfer of risk to a supplier that has repercussions on his security of planning and investment. Being asked to contribute to generic in-store promotional activities of distributors without drawing a commensurate benefit unduly reduces a supplier’s margin.

According to the OECD, “there are concerns with ‘fairness’ and that the increased bargaining power of downstream food processors and retailers, has a potentially negative impact on the farm sector”. 35   Fairness considerations also inform the reactions to surveys undertaken in relation to the occurrence and impact of UTPs on the functioning of the food supply chain. 36

2.3Occurrence of unfair trading practices in the food supply chain 

There is a wide-spread consensus that UTPs occur throughout the food supply chain. 37 Their frequency distinguishes the food supply chain from other supply chains in terms of the magnitude of the problem. 38 Three European Commission communications since 2009 have focused on the food supply chain including unfair trading practices. 39 Specific UTP rules in 20 Member States 40 bear witness to the significant concern about UTPs at the national level. Of the 20 Member States which have UTP rules, 12 Member States have adopted legislative instruments specifically applicable to the food supply chain. 8 Member States have adopted legislation applicable horizontally; some of these include specific provisions for the food and groceries trade. 41

The open public consultation of 2017 confirms the perception that UTPs are an issue in the food supply chain: 90% of respondents agreed or partially agreed that such practices existed. Confirmation rates ranged between 80% for trade organisations to 98% for civil society respondents, 93% for organisations in the farming sector and 86% for organisations in the agri-food sector. 42 A 2016 study also concluded that UTPs occurred across all Member States and at all stages of the food supply chain and that they were perceived as serious by most stakeholders. 43 While there may be questions about some of the reported practices’ meeting the UTP definition, the outcome confirms the reactions to the European Commission’s Green Paper of 2013. 44  

94% of farmers and 95% of agri-food cooperatives report having been exposed to at least one UTP according to a survey by Dedicated Research in 2013. 45 Another survey conducted by Dedicated Research in 2011 had a similar result (96% of respondents {manufacturers of food products} reported to have been subject to at least one UTP). 46 The exception as regards the question about the occurrence of UTPs is retail sector organisations: in the open public consultation, only 12% of them agreed or partially agreed that UTPs existed in the food chain. 47

UTPs manifest themselves not only in the guise of unfair contractual terms such as for example specific contract clauses but also occur "behaviourally" after contracts have been established. 48 A survey of milk producers carried out in four Member States in 2016 (Germany, France, Spain, Poland) indicated they are likely to occur before, during and after the contractual phase (respectively 25%, 87% and 4% of the cases). 49

2.4Under-protection against UTPs in Member States

The heterogeneity in the treatment of UTPs in Member States is significant. 50 In certain Member States, there is no or only very little specific protection against UTPs meaning that operators cannot rely on UTP rules to seek redress.

No UTP legislation:

Estonia, Luxembourg, Malta, Netherlands

Limited scope legislation

(mainly consumer-type UTP approach):

Belgium, Denmark, Finland, Sweden

Specific legislation on UTP:

Austria, Bulgaria, Croatia, Cyprus, Czech Republic, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, United Kingdom

Table 1: Member States by UTP legislation 51

The fact that a Member State has opted to not introduce legislation does not mean that stakeholders consider the problem as non-existing. 52 The link between perceptions by operators to what extent UTPs occur and the efforts made by the Member States to tackle them by legislative measures is relatively weak.

Member States have different rules as regards UTP enforcement. 53 General (contract) law may prohibit certain practices and victims have the option to seek redress before a court of civil law. But general contract law, to the extent it covers the practice at issue, may de facto be difficult to enforce: a weaker party to a commercial transaction is often unwilling to lodge a complaint for fear of compromising an existing commercial relationship with the stronger party (“one may win the case, but lose the business”). 54  

Fear of retaliation 55 is an important driver for lack of effective enforcement and the limited amount of UTP cases coming to the fore; enforcement modalities which take this fear factor into account can improve protection. 56 Fear of retaliation is consistently being pointed out as a significant concern in consultations that were carried out among stakeholders 57 and also informs the design of certain Member States’ regimes. 58 The fear factor and its importance in relation to specific forms of enforcement regimes are discussed in greater detail in Annex B. 59  

Under-protection is therefore also be related to the quality of enforcement modalities. Some Member States entrust competition authorities with ensuring respect of unfair trading rules (Germany), or provide redress possibilities through administrative bodies other than competition authorities, for instance by having recourse to ombudsman-type systems (UK) or dedicated UTP authorities (France). A 2018 study shows that in as many as 18 Member States’ administrative authorities other than ordinary courts have powers to enforce rules addressing selected UTPs. 60 In 17 Member States, administrative authorities can conduct own initiative investigations concerning UTPs. In 14 Member States, administrative authorities can receive confidential complaints. But in less than half of EU Member States (13) do administrative authorities have the power to do both. 61

2.5Harm caused by unfair trading practices

2.5.1.1Operators

Farmers, processors, traders, wholesalers, retailers and consumers are all actors in the food supply chain. Smaller operators in the food supply chain are particularly prone to be the victims of UTPs due to their, in general, weak bargaining power in comparison to the significant bargaining power wielded by large operators at other levels of the chain. UTPs are less likely to occur when the parties to a transaction have symmetric bargaining power. 62 In the 2017 open public consultation, respondents identified farmers as being most exposed to negative effects from UTPs in the food supply chain although such effects can occur at all levels of the chain. 63  

Having said this, there is little empirical data going beyond a few case studies which makes it difficult to establish the overall harm caused by UTPs. The so-called fear factor (see Annex B), plays a significant role in this absence of empirical evidence at EU level, as does the lack of a precise definition of UTPs.

Agricultural producers, including their associations, can be direct victims of UTPs. But UTPs affect producers even if they are not directly exposed to them, by virtue of the pressure to pass on UTP-induced costs until the weakest party is reached. 64 This is congruous with a view of the food supply chain as a continuum of vertically inter-related markets. 65 The negative effect of a UTP which occurs downstream, for instance between a processor and a retailer, often cascades backward in the chain to ultimately reach farmers. 66  

A series of surveys undertaken during the last few years shows that UTPs occurring in the food supply chain are seen as detrimental by a large majority of operators, in particular smaller ones. They perceive UTPs to endanger their profitability and ability to compete fairly and to affect their capacity to invest. 67 They decrease the part of the added value generated that these operators would otherwise be able to appropriate. Qualitative research demonstrates suggests for instance that ex post unilateral changes to supply cause farmers and their organisations harm. 68

Literature 69 also identifies negative welfare impacts, competition issues, investment and productivity effects, network effects and market failure. Concerning welfare effects, UTPs decrease the part of the added value generated that these operators would otherwise be able to appropriate with possible lower returns to suppliers and/or financial gains not necessarily passed on to the final consumer. Farmers, often already experiencing downward pressure on their incomes and a historically diminishing share of the added value accruing to them in the food supply chain 70 , can ill afford being the subject of UTPs. UTPs are liable to have significant consequences in times of decreasing income support, increased price volatility and long-term trends of low commodity prices.

In the 2017 open public consultation, 94% of respondents agreed or partially agreed that such appreciably negative effects occurred in relation to farmers. 83% agreed they occur in relation to processors, 38% in relation to retail organisations, 35% in relation to retailers, 39% in relation to traders and 60% in relation to consumers. According to a 2013 survey of farmers and agricultural cooperatives, the estimated damage from UTPs amounted to EUR 10.9 billion per year. 71 The cost effect on manufacturers of food products was estimated to amount to 0.5% of the turnover of the manufacturers participating in a survey in 2011 72 , which would be equivalent to EUR 4.4 billion if extrapolated to the overall food industry turnover in that year. A specific consultation of undertakings in the food chain carried out in 2017 73 showed that 60% of the respondents considering themselves suppliers (farmers and processors mainly) stated that the commercial significance of UTPs represent more than 0.5% of the annual turnover. The weighted average of the modest number of suppliers who accepted to answer despite the “fear factor” to such consultation, can indicatively be estimated at 1.5 to 1.8% of their turnover 74 , roughly in the same order of magnitude of previous surveys. While these numbers are based on perceptions, they are indicative of the magnitude of the problem.

The divergence of Member States’ regulatory approaches to UTPs results furthermore in dissimilar conditions of competition for operators. Under the current piecemeal approach, the extent of protection from UTPs that operators are granted depends on the Member State. 75 Divergence of rules is liable to lead to differences in the conditions of competition and the business conduct of operators, for example large manufacturers or retailers, which may be detrimental to operators subject to the rules of countries with low UTP protection. 76 For illustration, in the context of one practice discussed later (payment delays), the preamble of the Late Payment Directive 77 states that "distortions of competition would ensue if substantially different rules applied to domestic and trans-border operations". Late payments’ having a negative impact on operators’ bottom line is confirmed by EuroCommerce which states that the reduction in payment terms due to the Late Payment Directive had, in a number of countries, generated significant cash transfers. 78 The problem perception concerning the divergence of rules in Member States is however of a lesser order of magnitude than that relating to not being afforded effective protection against UTPs in Member States. And yet, competition between suppliers is an important characteristic of the EU food supply chain. 79

Last but not least, the absence of common rules also entails uncertainty for operators who engage in trade in the EU. 80 The uncertainty concerning the identification of applicable UTP rules is likely to increase the risk and costs linked to possible cross-border disputes, which is a problem in particular for SMEs with limited resources. 81  While UTPs may involve mainly domestic suppliers and buyers they also occur in transnational supply chains. 82 The results of the open public consultation in 2017 show that 84% of respondents who believed EU action on UTPs should be taken thought it would have positive or very positive effects in allowing smoother commercial transactions between operators in different Member States. 24% of the respondents stated that they were "often or in a significant number of cases" in a situation where UTPs occurred in connection with cross-border trade, and 19% that this had a negative effect on their ability to seek redress. 83 In a 2011 survey among operators in the agri-food market, 46% of the respondents found that UTPs have a negative effect on access to new markets or cross border activities. More specifically, 40% said that UTPs had negative effects on their EU cross-border trade and 38% said that the risk of UTPs discouraged them from taking up activities outside their Member State of origin. 84  

2.5.1.2Consumers

The lack of rules governing UTPs and poor application of these rules have also been identified as being liable to undermine operators’ ability to invest and innovate with regard to the quality of products and services offered. 85 UTPs can therefore eventually have negative effects on consumers in terms of product quality and choice. 86 However, evidence concerning the overall net impact of UTPs on consumers and innovation is inconclusive.

The relation between UTPs and innovation is two-fold. They can render innovation more difficult for small operators as they make them more vulnerable to any disruption of their contracts. For example, suppliers covering costs for additional services like upfront payments may end up increasing prices for consumers. 87 On the other hand, it is argued that upfront payments can, if not disproportionate, compensate retailers for the risks taken by making space available to new products and may act as a signalling mechanism for consumers. 88  

Several studies and surveys indicate possible consequences of UTPs in terms of lower investment capacity in new technologies and uncertainty regarding costs. 89 In a survey performed among more than 400 professionals in the agri-food sector, 64% of the respondents stated that UTPs created uncertainty regarding costs, 59% that they were leading to a reduction of investments for modernisation of production facilities and 50% that UTPs had a negative impact on investment in new technologies. 90 In a 2011 survey, some of the agri-food suppliers provided an estimate of the effects that UTPs had on investment in new technologies (on average an annual reduction of 3.4%) and employment (on average an annual reduction of 1.6%). 91 Payment delays are reported to have had a negative impact on investments undertaken at the farm level, particularly in the context of countries in transition. 92 Some national competition authorities have also "alerted against the risks of certain commercial practices that even if in the short term may not entail an immediate anti-competitive effect, may however in the long term undermine the competitive process of the food supply chain or entail negative effects on consumer welfare by decreasing investment and innovation or reducing consumer choice." 93  

According to Consumers International, inordinate buying power "fosters abusive buying practices" which in turn may ultimately have negative effects not only for the affected businesses but also for consumers. 94

Both in the case of payments without consideration and retroactive contract changes, there is evidence that the higher the oligopolistic structure on the buyers’ side and the higher the substitutability of the products at stake (commodities), the stronger the likely negative effect on consumer welfare, on the variety of products and the rate of innovation. 95

The studies quoted above identify possible effects on individual suppliers. There are no studies identifying and quantifying effects on a whole sector or a whole market. It is not obvious that a given sector may be affected negatively overall because some operators in that sector are negatively affected by the practices of some larger operators. The evidence about the effects of concentration of suppliers and retailers is mixed. A 2014 study indicated that increased concentration of suppliers had a negative effect on innovation while a strong bargaining position of retailers (no reference to UTPs) appears to have a positive overall impact on innovation in the chain. 96  ECB studies show that higher concentration of retailers (including through buying alliances) at national level and the related increase in bargaining power can be beneficial for consumers as lower prices would be passed on (the study was not concerned with UTPs). 97 UTPs may even offer short-term benefits to consumers where they lead to lower producer prices being passed on to consumers, thereby increasing consumer welfare. However the longer term impacts, in terms of market concentration and reduced choice, and their potential negative impacts on consumers, are not known. Some theoretical studies examine under which circumstances lower purchase prices induced by UTPs are likely to be passed on to consumers.

2.6What are the problem drivers?

2.6.1Imbalance of bargaining power

A significant enabling factor for the occurrence of UTPs is that the food supply chain is characterised by considerable differences of bargaining power of its operators (although the existence of significant bargaining power does not in itself indicate the abuse of this power, rather it is undertakings’ actual conduct that matters). 98 This, in turn, can lead to the unfair exercise of bargaining power to the detriment of weaker operators. 99 Farmers, small processors, small traders or small retailers often have little bargaining power and few alternative options for selling (or buying), while certain of their business partners, such as large food processors and increasingly concentrated retailers are in a position of using considerable power to shape a commercial relationship. 100 An indication and result of existing imbalances are, for example, farm-retail spreads over time (see Annex C) and the stickiness of upward moving retail prices when producer prices fall (price transmission). 101

While agricultural production is generally highly fragmented and largely comprised of small units in physical terms 102 , there are high concentration levels in both the food processing and food distribution sectors. This concentration has generally been increasing over the last few decades through consolidation in the food processing and retailing companies through natural growth and mergers, particularly in the case of retailers in the 1990s. 103 Having said this, the food processing sector is also characterised by a significant share of SMEs. 104 The food distribution tier is highly concentrated with the retail sector standing out. Food products are mostly distributed through supermarkets, hypermarkets and discounters, which account on average for 71% of total packaged food sales in the EU Member States. 105 In 2016, based on Euromonitor data (not covering on-line and other non-store sales 106 ), the CR5 (concentration ratio of the five largest firms) in the grocery retail sector is above 60% in half of Member States (above 80% in Sweden and Finland) and below 40% only in Italy, Bulgaria and Greece. The food retailing sector is also characterised by the existence of numerous SMEs (over 99% of the enterprises representing 54% of the turn-over and 56% of total employment). More detailed data and trends concerning the food supply chain and the balance between its operators can be found in Annex C.

2.6.2Divergence of UTP rules at the national level

UTPs have been subject to a variety of heterogeneous legislative measures in Member States over the years. 107  Annex F and Annex G provide an overview of Member States' instruments addressing UTPs including enforcement aspects and show their heterogeneity. 108 Enforcement modalities in Member States include, inter alia, judicial redress (in most Member States), actions by competition authorities under national rules on unilateral conduct (e.g. Spain, Germany), administrative redress (e.g. France), extension of competition rules (e.g. Germany) and adjudicator systems (e.g. the UK).

UTPs are not tackled equally in all Member States by means of mandatory rules, both as regards the substance of protection and enforcement. In some Member States or regions there are voluntary initiatives which are the only governance tools, in others there is no specific governance at all. In the absence of a common framework, there is no required minimum level of protection in Member States.

2.6.3Lack of coordination among enforcement authorities

With no common framework in place, there is also very little coordination among enforcement authorities. The High Level Forum on the Better Functioning of the Food Supply Chain provides a political platform wherein to discuss ideas but cannot replace a coordination mechanism of technically competent authorities such as, for example, the European Competition Network does in the field of competition rules. Such a forum facilitates exchanges of views on the regulatory approaches but also enable the gathering and comparing of data that allows adopting a perspective which transcends national boundaries.

The voluntary Supply Chain Initiative does have a centralised governing body and encourages national platforms. 109 Although it has promoted cultural change concerning UTPs in the food supply chain and offers amicable dispute resolution options certain of its shortcomings make that it cannot effectively replace public enforcement (see sections 3.2 and 3.3).

2.7How will the problem evolve?

The incentives for operators with significant bargaining power to apply UTPs are not likely to abate in view of the continued disparity of bargaining power of operators in the chain. Reductions in concentration levels downstream of primary production are not expected on current trends. 110 At current trends, the degree of concentration of business downstream of primary production, in particular in retail, processing and manufacturing, will continue to increase, subject to competition law constraints (merger control). However, also in the retail and processing sectors there are still many SMEs.

By the same token, consolidation of agricultural production into huge corporate farms (which could restore some symmetry among parties in supply chains) will remain a very limited option, due to social, geographical, and economical constraints. 111  Reasons inherent in agriculture and the food manufacturing basis in the EU make it unlikely that a consolidation process of agricultural producers will obviate the imbalance of bargaining power. In agriculture, scale economies exist but tend to be more limited than in other economic sectors: costs decrease over a certain size range, but then they become flat. 112  

This is true notwithstanding CAP measures which aim to help farmers organise in producer organisations so as to strengthen their bargaining power vis-à-vis large operators in the food supply chain. Regulatory exemptions from competition law for farmers´ organisations are one tool provided for in the common market organisation regulation. 113 In the fruits and vegetables sector, EU support is linked to operational programmes of producer organisations and this has improved the degree of organisation.

Important considerations related to food security and safety, environmental sustainability of an activity with a strong territorial dimension and the maintenance of the rural social fabric tend to further limit the pace of structural change and increase in size of economic units in agriculture in the EU. 114

Member States’ approaches, which are not subject to any binding UTP common framework, will continue to diverge. It is unlikely that they will – short of such a framework – start to converge. So far, this has not happened. The degree of dissimilarity of conditions of competition to which they give rise is therefore likely to continue to exist.

The voluntary Supply Chain Initiative (SCI) is unlikely to develop into a comprehensive governance framework that would make public governance measures including enforcement superfluous. As of today, it exists alongside national mandatory measures of Member States. The SCI constitutes an agreement among associations of operators of the food supply chain to promote fair business practices in the food supply chain as a basis for commercial dealings. 115 It was developed within the framework of the Commission’s High Level Forum on the Better Functioning of the Food Supply Chain (HLF). 116 Since its creation the SCI has played an important role in Member States in raising awareness about UTPs and fostering fairness of business conduct. 117 It provides a forum for early and non-litigious dispute resolution. 118 Recent advances such as the designation of an independent chair to act as a recipient for aggregate confidential complaints 119 show the SCI’s ability to evolve. 120  

Having said this, participation in the SCI is voluntary and the SCI does not, therefore, cover all operators in the food supply chain. 121 Buying alliances of retailers do not participate. What is more, most farmer organisations do not participate in the SCI. They did not join the SCI since, in their view, it did not ensure sufficient confidentiality for complaining parties and did not provide for independent investigations and sanctions. 122 For example, MTK, the Finnish farmers’ association, pulled out of the SCI’s national Finnish platform because of enforcement concerns 123 and in most Member States national farmers’ associations are not participating in the national platforms to the extent they exist 124 , with exception of Belgium (Flanders), Germany and the Netherlands. 125

Certain limitations of a voluntary code may be all but structural. 126 The SCI has no capability of imposing sanctions, nor are decisions published (deterrent effect 127 ). One-on-one disputes are not dealt with in a manner that would ensure confidentiality of complaints 128 , if only in the early stages of the procedure, and there is no ability to carry out own initiative investigations. 129 The concerns about effective enforcement account for the continued low level of participation of farmers (and meat processors) in the SCI. 130 A voluntary initiative cannot have of itself an impact on the fragmentation of UTP rules in Member States.

A January 2016 survey on the application of the SCI substantiated the perceived shortcomings and a majority of the survey respondents considered that there was a need for a mixed approach to UTPs:

“[S]urvey respondents indicated as the most preferred approaches in tackling UTPs the combination of voluntary initiatives and public enforcement (33% of total answers) or a specific legislation at EU level (32%); on the other side, reliance on voluntary initiatives alone at national or EU level resulted to be the less preferred approach, with 4% and 9% of preferences, respectively. [...] the key aspect […] is whether the ‘soft’ (voluntary, self-regulatory) approach of the SCI – basically subject to the goodwill of the stronger parties to cooperate with the weaker ones – can be enough to effectively address, by itself, the issue of UTPs in the food supply chain, also taking into account that the deterrent of potential sanctions applied by the SCI in case of unfair behaviour appears to be limited.” 131  

The study concluded that:

“elements from the reviewed literature, insights from interviewed stakeholders and independent experts, and the clear preference expressed by survey respondents for ‘specific legislation at EU level’ or for a ‘combination of voluntary/self-regulatory initiatives and public enforcement’, lead the study team to conclude that a mixed system, envisaging self-regulatory schemes enforced by an independent authority with wide powers (e.g. the possibility to promote investigations ex officio and to consider also confidential complaints), within a general regulatory framework provided by EU-level specific guidelines or provisions, would constitute an approach which combines effectiveness with the acceptance of stakeholders.” 132  

In the open public consultation, 75% of respondents were of the opinion that the SCI was insufficient in and of itself to address UTPs.

Digitalisation presents opportunities (‘smart farming’) and challenges for farmers. It increases transparency and ease of communication, i.e. farmers can more easily find out what prices others are paid or exchange experiences among themselves.

Moreover, internet platforms can present additional outlets for fresh and processed food products. 133 Their transformative impact on the marketing of fresh produce is less evident than it has been the case in other sectors of the economy. 134 The longer-term impact of the internet in terms of fostering short supply chains and direct marketing of food products to consumers is difficult to predict. The logistics and costs of home-delivery of fresh produce are challenging. 135 It remains to be seen whether online platforms can alleviate the lack of bargaining power of weaker operators in the chain or whether greater imbalances are looming should even greater concentration of demand and oligopoly power occur through network effects in the platform business. 136  

2.8Prior evaluations

As there is no EU legislative framework to address UTPs yet, it is not possible at this stage to present an evidence-based evaluation on how EU measures perform. However, some Member States have performed ex ante or ex-post evaluations with respect to the effectiveness and efficiency of the UTP policies. Information from these evaluations is being referred to in section 6.2.1.

3Why should the EU act?

3.1Legal basis for EU action 

A key objective of the CAP is to ensure a fair standard of living for the agricultural community (Article 39 TFEU). Pursuit of the objective of ensuring a fair standard of living for the agricultural community should be balanced with the other objectives listed in Article 39 TFEU and, in particular, with the aim to ensure reasonable prices for consumers. For example higher prices for operators in the food supply chain may ultimately raise prices for consumers. The EU’s constitutional emphasis on producer welfare which co-exists with the objective of reasonable consumer prices is unique to the agricultural sector hinting at the comprehensive responsibility of the CAP for European agriculture.

Article 43 TFEU specifies that the common market organisation shall ensure conditions for trade within the Union "similar to those existing in a national market". In a national market one would expect uniform UTP rules. Article 40 TFEU stipulates furthermore that the European common market organisation ought to exclude discrimination between agricultural producers (or consumers) within the Union.

The patchwork of UTPs rules or the respective absence of UTP rules in Member States is liable to impair the objective of ensuring a fair standard of living for the agricultural community. UTPs jeopardise the profitability of farmers and lead to downward pressure on their market income. Their governance falls therefore within the CAP’s remit.

Based on the general rationale for the CAP as laid down in the Treaty, the absence of a common UTP framework 137 is a consequential gap, marking a distinct contrast to other areas with direct relevance for operators such as competition rules 138 , state aid rules and marketing standards. In the said areas, the common market organisation (Regulation (EU) No 1308/2013) lays down common rules relevant to the competitive conditions of operators in the EU so as to contribute to economic and social cohesion 139 , as well as to a level playing field in the single market. 140 The protection of a well-functioning internal market ensuring a level playing field for all producers across the EU is acknowledged to be a ‘key asset’ of the CAP. 141

According to Article 38(2) and (3) TFEU the CAP primarily covers the agricultural products listed in Annex 1 to the TFEU. However, the European Court of Justice has explicitly confirmed that food products not listed in Annex I TFEU (Annex I products are deemed “agricultural products” under the Treaty) 142 can be covered by acts adopted under Article 43 TFEU if this contributes to the achievement of one or more of the CAP objectives and agricultural products are principally covered. 143  

Moreover, an approach which protects agricultural producers and their associations (cooperatives and producer organisations) also must take into account indirect negative effects they may suffer through UTPs occurring downstream in the food supply chain but being passed - in terms of their negative effect - through to them, i.e. normally by operators who are not agricultural producers but whose weak bargaining position in the chain makes them vulnerable to UTPs. SME operators negatively affected in their bottom line by the exercise of UTPs in the food supply chain are unlikely to be able to simply absorb such costs. They will pass them on to their trading partners such as farmers who often are their upstream suppliers and do not normally have sufficient bargaining power to resist such pressure. Protection against UTPs applying also downstream would furthermore prevent unintended consequences on farmers due to trade being diverted to their small investor-owned competitors - e.g. at the processing stage - which would not enjoy protection (e.g. less legal risk for purchasers to be confronted with UTP claims).

In light of the foregoing, Article 43 TFEU, which entrusts the Union legislator with the legal powers to establish a common organisation of agricultural markets in the EU, can in principle serve as the legal basis for measures covering UTPs occurring in the food supply chain in relation to the trade of food products which originate with agricultural producers.

3.2Subsidiarity: Necessity of EU action

As has been shown, no common EU framework exists which would provide a minimum European standard of protection by approximating or harmonising Member States’ diverging UTP measures. In the absence of a minimum standard, certain Member States have no rules on UTPs. Others do not address important aspects of effective UTP enforcement. This leads to under-protection of vulnerable operators, in particular agricultural producers, against UTPs in the EU. Moreover, in spite of its positive effects in the area of private governance of UTPs, the voluntary codes including the Supply Chain Initiative (SCI) - to the extent it applies in Member States – is not able to effectively replace public governance measures.

From this follows the need for EU legislation which would target the problem of under-protection against UTPs by providing for a common minimum standard of protection in the EU. After years of discussion, analysis and recommendations, which have improved the situation on the ground only to a certain extent, EU legislation is a means that can ensure brining about such a minimum protection throughout the EU including the enforcement and coordination aspects.

Farther reaching national UTP rules and voluntary codes like the SCI would not be replaced. An EU framework could thus lead to synergies rather than the cancelling out of the advantages of these regimes.

Short of EU measures, Member States lack coordinative mechanisms to bring about such approximation, nor do they have obvious incentives to self-align. Measures at the EU level, complementary to Member States regimes and the SCI, could consist in common UTP rules that would aim at improving the governance of the food supply chain and pursue the objective of ensuring fair living standards of the agricultural community (Article 39 TFEU). A circumspect approach could for instance take the form of partial harmonisation to introduce a minimum protection and take the positive effects of market driven contractual arrangements between parties into account. As UTPs occur along the food supply chain and have repercussions that are likely to be passed through to farmers it makes sense to address them in a comprehensive manner, that is to say to conceive of measures which apply along the chain.

3.3Subsidiarity: Added value of EU action

The European Commission published a report in January 2016 that concluded that given the positive developments regarding UTPs in parts of the food supply chain there was no need to act at the EU level at that stage. 144 However, this assessment was based on the expectation that the observed positive developments would continue, and in its report the Commission identified a number of areas in Member States’ UTP legislation that needed further improvement. Regarding the voluntary Supply Chain Initiative, the report likewise acknowledged the benefits achieved so far, but also suggested a number of measures to improve the initiative further so that no specific harmonised regulatory approach at EU level becomes necessary. In this context, the European Commission committed to re-assess the need for and added value of EU action to address UTPs in the light of subsequent developments – or a lack of further improvements – before the end of its mandate (see Table below). 

As regards Member States’ regimes, the report included suggestions in five key areas to enhance Member States’ regulatory frameworks:

(1) Member States’ regimes should cover the whole food supply chain as well as operators from non-EU countries;

(2) Member States should exchange information and best practices concerning their national legislation and experience of enforcement in a coordinated and systematic way in order to improve the common understanding which specific types of business practice should be considered UTPs;

(3) Member States should review their approach to UTPs – those having chosen a general approach should ensure their laws can be applied in practice, impose manageable evidence requirements, and allocate sufficient resources to enforcement activities to ensure comprehensive and effective case-by-case assessments – those with a UTP-specific approach should consider carefully whether their measures are proportionate, and the range and nature of the practices covered by their legislation;

(4) Member States’ enforcement authorities should coordinate and exchange information and best practice on a regular basis in order to further improve the enforcement of measures to combat UTPs and to better address potential cross-border UTPs. Member States without any recent enforcement cases should review their national situation;

(5) Member States should have sanctions that act as a real deterrent. Penalties should be high enough to outweigh any gain from imposing the UTP (although this can be difficult to quantify) and to influence behaviour at company level. But they should also be proportionate to the gravity of the conduct and its potential harm to the victim(s). A penalty may also be to ‘name and shame’, for example by publishing the name of the company that was found guilty.

Although some progress has been made on these recommendations, there remain significant shortcomings:

As regards the first recommendation, although 20 Member States have introduced UTP legislation, 8 Member States have no UTP legislation. Moreover, certain Member States which have legislation do not cover the whole food supply chain (Hungary, Latvia, Lithuania, Romania and the UK). 145  

As regards the second and fourth recommendation related to exchanges of information and best practices, the recommendations have been partially followed up by meaningful exchanges between Member States in the High Level Forum for a Better Functioning Food Supply Chain in 2016 and 2017, often at a political level. 146 However, the HLF is no substitute for a specialised network consisting uniquely of national authorities that would more effectively facilitate the exchange of technical information and best practices between the enforcement authorises. In the absence of a common framework for enforcement authorities to discuss UTPs, the Commission lacks a proper legal tool to facilitate such coordination between Member States.

As regards the third recommendation on policy reviews, Member States were asked in a recent stakeholder consultation to update information that was collected from them on the basis of a questionnaire sent in 2015 on the existence of UTP legislation, implementation and enforcement and to inform about impact assessments that their authorities may have carried out before deciding on national UTP rules or evaluations. 147 According to the information received, only three Member States had carried out ex ante evaluations and one Member State (UK) an ex-post evaluation thus reviewing its UTP legislation.

As regards the fifth recommendation on sanctions, , Member States that regulate UTPs include in their legislation financial penalties in the form of fines; some also add injunctions and declaratory decisions. 148 As regards fines, the variations in the different Member States are noteworthy both as regards thresholds (minimum and/or maximum) and the possible amount of possible fines. 149 As regards fining practices there is no reliable study but anecdotal evidence suggests that strong variations occur across Member States. 150 There is also no clear evidence on the effectiveness of Member States’ approaches to fines and financial penalties in the food supply chain. 151 The possibility to publish outcomes of investigations may have a significant deterrent effect but only 10 Member States provide for such a possibility. 152 Consequently, the indications are that for the time being the situation in respect of important enforcement parameters continues to be heterogeneous in Member States. 153

As regards the recommendation in the report’s conclusions that Member States without UTP legislation could consider following the example of Belgium and the Netherlands that do not have a regulatory framework but have opted for national voluntary platforms, since 2016 two new national platforms were created, namely in Estonia and Poland (farmers are not part of the Polish platform). Estonia is one of the Member States without UTP legislation, Poland recently introduced UTP legislation. At present, there are still Member States that have neither introduced UTP legislation nor created a national voluntary framework (i.e. Denmark, Sweden, Luxembourg and Malta).

As regards the Supply Chain Initiative, the Commission concluded that in order to increase the initiative’s credibility and effectiveness in tackling UTPs a discussion with the relevant stakeholders on how to improve the SCI under the High Level Forum for a Better Functioning Food Supply Chain should take place. The objective should be to improve awareness of the SCI, especially among SMEs, ensure the impartiality of the SCI’s governance structure, allow alleged victims of UTPs to complain confidentially and grant investigatory and sanctioning powers to independent bodies.

While in the meantime the SCI has introduced an independent chair as well as confidentiality for aggregated complaint procedure, 154 it has failed to grant investigatory and sanctioning powers to independent bodies 155 , which would be of significant importance for effective enforcement. 156 Moreover, it does not seem that the SCI has plans to integrate such powers into its voluntary arrangement as, in its 3rd Annual Report, it refers to civil law and courts in this respect (the disadvantages of which are discussed in section 2.4 and Annex B). Indeed, concerns about the lack of effective enforcement are the reason why EU farmer representative organisations have not joined the SCI. In November 2017, FoodDrinkEurope, a founding member of the SCI, stated in reaction to the public consultation that “it [was] essential for an action at EU level to tackle unfair commercial relations that occur along the entire food chain.” In conclusion, the SCI has been able to only partially followed up on the Commission’s recommendations and the steps that have not been taken are material.

It can therefore be concluded that Member States did not follow up on most of the Commission’s recommendations from January 2016. Similarly, also the SCI has only partially followed up on the recommendations. The absence of a satisfactory follow-up of the Commission’s recommendations means that the situation of under-protection, which has been described in section 2, continues to exist. After having tried, through the recommendations made (including in the 2014 Communication), without full success to achieve the said outcomes so as to effectively address UTPs, it follows that at this stage a legislative proposal at the EU level implies clear added value. Such a proposal would aim to address the shortcomings established in section 2 and also alluded to in this section.

Situation in 2016

Commission recommendation

Expected situation

Situation in 2018

Change compared to 2016

Not all MS regimes covered the whole food supply chain, neither operators from non-EU countries.

MS’ regimes should cover the whole food supply chain as well as operators from non-EU countries.

All MS’ regimes cover the whole food supply chain as well as operators from non-EU countries.

Not all MS regimes cover the whole food supply chain, neither operators from non-EU countries.

The expectation of continued improvement of MS’ UTP regimes did not materialise.

MS did not exchange information and best practices in a coordinated and systematic way.

MS should exchange information and best practices in a coordinated and systematic way.

All MS exchange information and best practices in a coordinated and systematic way.

To some extent, MS exchange information and best practices happens in the High Level Forum on the Better Functioning of the Food Supply Chain.

Situation improved but realisation that means to bring about technical coordination of MS enforcement authorities is lacking.

MS had not reviewed their approach to UTPs.

MS should review their approach to UTPs.

All MS have reviewed their approach to UTPs.

Only four MS have reviewed their approach to UTPs.

The expectation of MS reviewing their approaches to UTPs did not hold.

Most MS lacked sanctions that acted as a real deterrent.

MS should have sanctions that act as a real deterrent.

All MS have sanctions that act as a real deterrent.

Not all MS have sanctions that act as a real deterrent; the situation continues to be heterogeneous.

The expectation of a convergence of effective sanctions did not hold.

Not all MS had UTP legislation in place.

MS should put UTP legislation in place or opt for a national voluntary platform.

MS have UTP legislation or an effective national voluntary platform in place.

Not all MS have UTP legislation in place, or have a national voluntary platform.

The expectation that all MS establish effective UTP regimes did not hold.

Awareness of the SCI was insufficient, the impartiality of its governance structure was not ensured, alleged victims of UTPs could not complain confidentially and no investigatory and sanctioning powers were granted to independent bodies.

The SCI should raise awareness of itself, it should ensure impartiality of its governance structure, it should enable alleged victims of UTPs to complain confidentially, and it should grant investigatory and sanctioning powers to independent bodies.

Awareness of the SCI is sufficiently high, especially among SMEs, the SCI has an impartial governance structure, alleged victims of UTPs can complain confidentially, and the SCI has granted investigatory and sanctioning powers to independent bodies.

Awareness of the SCI improved, the SCI has introduced an independent chair; victims of UTPs can complain confidentially collectively (if not individually); the SCI has failed to grant investigatory and sanctioning powers to independent bodies.

The expectation that the SCI fully follow up on the Commission’s recommendations did not materialise.

Table 2: Changes regarding the governance of UTPs between 2016 and 2018

Last but not least, politically relevant events occurred since January 2016 157 :

-The European Parliament invited the European Commission in a resolution of June 2016 to submit a proposal for an EU-level framework concerning UTPs, welcoming “the steps taken by the Commission to combat UTPs with a view to securing a more balanced market and to overcoming the current fragmented situation resulting from the different national approaches to addressing UTPs in the EU”, but – based on its own analysis and political assessment – pointing out that “these steps are not sufficient to combat UTPs”.

-The European Economic and Social Committee published a report in September 2016 calling upon the Commission and the Member States to take swift action to prevent UTPs by establishing an EU harmonised network of enforcement authorities, so as to create a level playing field within the single market.

-The report of the Agricultural Markets Task Force of November 2016 recommended EU legislation in the areas of UTPs for agricultural products.

-The Council invited the Commission in December 2016 to undertake, in a timely manner, an impact assessment with a view to proposing an EU legislative framework or other non-legislative measures to address UTPs, underlining “the importance of a level-playing field for all actors in the food supply chain across the EU that could be achieved by a common legislative framework on UTPs”.

In the light of the foregoing, the added value of EU action consists in being able to provide for a mandatory minimum protection standard against UTPs throughout the EU including enforcement, a standard which the voluntary initiatives and national measures have not or only to a limited extent been able to bring about. This would address the problem of under-protection against UTPs and have a deterrent effect on their occurrence. The complementary character of EU measures in relation to existing voluntary and Member States rules would respect subsidiarity and may have a reinforcing impact.

96% of the respondents to the 2017 public consultation on the modernisation of the CAP agreed with the proposition that improving farmers’ position in the value chain including addressing UTPs should be an objective of the EU’s Common Agricultural Policy.

4Objectives: What is to be achieved?

Figure 2: schematic overview of the problems and objectives

4.1General objectives

EU UTP rules would – as do UTP rules in Member States and those of voluntary initiatives – aim at deterring and sanctioning unfair behaviour rather than remedying the structural imbalance of bargaining power between operators in the food supply chain. The latter is beyond this initiative’s remit. Having said this, encouraging agricultural producers to self-organise and thus strengthen their bargaining power in relation to downstream operators is part of the CAP and the 2013 reform has introduced enhanced policy measures in that regard. One would hope that farmers make increasing use of these possibilities.

The present initiative aims to reduce the occurrence of unfair trading practices in the food supply chain by introducing a common framework ensuring a (minimum) standard of protection across the EU. This framework would apply alongside existing rules in Member States, including those of voluntary character. Prohibitions would aim to influence behaviour of operators by outlawing unfair practices and providing for effective redress possibilities in case they occur nonetheless (deterrent effect). Operators could expect a common set of minimum rules regardless of the Member State they happen to be based in or trade into. While according to a 2017 study a correlation between the stringency of national UTP regulation and its effectiveness cannot be shown 158 , surveys and the results of the open public consultation suggest that operators expect EU UTP regulation to have positive effects. 159

UTP rules would also reduce the degree of regulatory dissimilarity shaping commercial conditions and thus make a contribution to levelling the competitive playing field. By the same token, EU measures should increase legal security for operators engaging in cross-border trade. They would also contribute to reducing transaction costs, although in the absence of full harmonisation undertakings would still have to take regulatory differences into account.

Introducing minimum and effective enforcement requirements that address the fear factor would contribute to ensuring effective redress possibilities for operators against infringements of UTP rules. The absence of coordination among Member States’ enforcement authorities would be addressed by introducing coordination of enforcement authorities.

4.2Specific objectives

Achieving the specific objectives would contribute to one or several of the general objectives. All specific objectives relate to the general objective of improving the functioning of the food chain, based on the understanding that unfair trading practices are not part of but an impediment to an efficiently functioning food supply chain.

Pursuing the special objectives of reducing the occurrence of UTPs and enabling effective redress would help strengthen the resilience of weaker operators in the chain, in particular of agricultural producers. UTP rules would enable addressing one element which exacerbates price and income variability in agriculture. This would therefore contribute to maintaining a fair standard of living of farmers, a general objective of this initiative and one of the five CAP objectives listed in Article 39 TFEU (ensuring reasonable consumer prices is another of the CAP objectives). Last but not least, achieving a more level playing field would aim to contribute to ensuring similar conditions for trade for operators in the EU.

4.3Consistency with other EU policies

It has been shown before how UTP rules would be a logical part of the overall orientation of the Union’s Common Agricultural Policy which pursues producer welfare and would provide for a common set of minimum rules for operators who produce and trade agricultural products.

UTP rules are compatible with and complementary to the EU’s competition rules. Competition law has a scope which is different from rules on unfair trading practices. 160 Article 102 TFEU (abuse of dominance) is concerned with exclusionary or exploitative practices by dominant companies. Article 101 TFEU targets agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the internal market. UTPs do not normally imply an infringement of competition rules but involve unequal bargaining power and prohibit undertakings from imposing on their trading partners, obtaining or attempting to obtain from them terms and conditions that are unjustified, disproportionate or without consideration. 161 The initiative would take into account the interests of consumers alongside those of producers as provided for in Article 39 TFEU (see section 9).

The focus on effective enforcement is shared with other policy fields. A recent Commission proposal suggests empowering the national competition authorities to improve enforcement, thereby contributing to a better application of the EU competition rules. 162 In its 2016 Communication “Better results through better application”, the Commission also emphasises the importance of effective enforcement systems in Member States. 163

Fairness in market activities in the business-to-business context is the specific objective of Directive 2006/114/EC, which deals with misleading practices and the requirements of comparative advertising. 164 The provisions set forth in the Directive are limited to advertising practices and do not generally address the business-to-business trading practices identified in this impact assessment report.

Regulatory divergence of a kind similar to UTPs has given rise to EU initiatives in the area of business-to-consumers protection. 165 Some Member States have extended such rules to national business-to-business situations. 166 The so-called injunctions directive ensures the defence and enforcement of collective interests of consumers in the internal market. 167 The conceptual approach under the EU’s business-to-consumer rules indeed shares relevant characteristics with Member States’ existing UTP rules governing business-to-business transactions, namely the focus on relatively weaker parties of a commercial transaction. In certain Member States the same enforcement authority is mandated to pursue both types of cases. 168  

The EU is committed to high standards of fundamental rights. A fair and effective system of protection against UTPs will contribute to stakeholders’ ability to conduct a business (see Article 16 Charter of Fundamental Rights of the European Union {CFR}). Union legislation will respect the rights enshrined in the Charter (Articles 51, 52 CFR). Enforcement powers therefore have to be shaped in a manner compatible with the rights of defence (Article 48 CFR), e.g. by providing an effective remedy against the decision of an enforcement authority imposing penalties. In particular for the confidential treatment of complaints a balance must be struck in relation to the rights of defence. 169 Rules on professional secrecy, which is a right protected by the Charter 170 , have been developed in other areas of EU legislation, namely competition law and would apply here as well. 171

5What are the available policy options?

5.1Introduction 

Any regulation of UTPs will cover legal and practical issues that can be addressed very differently and that can have different impacts on the food supply chain and the related policy objectives. This section presents and explains plausible alternatives for how these issues can be addressed in the legislation. The elaboration of the policy options helps to understand the consequences of the choices for the food supply chain and, in particular for the occurrence of UTPs, the levelling of the playing field and the possibility of seeking effective redress.

First, there is the question whether UTPs should be addressed at the EU-level at all and, if so, to what extent (section 5.2). Second, the question arises if a possible regulation of UTPs at EU level should be based on general principles or focus on specific practices (5.3). UTP rules can cover only agricultural products or all food products, that is to say also processed products (5.4). UTP rules can apply in situations of imbalance of bargaining power or they can apply to all operators. They can apply to EU operators only or also to operators from third countries (5.5). Enforcement can be ensured at the national level following a set of given standards (more or less detailed), or it can be centralised at the EU-level (5.6). In the case of enforcement at the national level, national authorities can coordinate or not (5.7). And, finally, different legal instruments can be used to put the measures in place, ranging from "soft law" to a EU Directive or Regulation (5.8).

5.2Degree of harmonisation of substantive UTP rules

5.2.1Baseline

Under the baseline option, common measures would not be introduced at the EU level. Member States would remain free as regards their choices about the scope of UTP rules. The majority of Member States’ regimes, albeit to varying degrees, contain rules that prohibit unfair trading practices. Member States would continue to operate these regimes. Operators in Member States which have no such rules would continue to rely on contract law or, where existing, voluntary codes or platforms.

The suggestions made by the European Commission in its Report of January 2016 and in its Communication of July 2014 would remain valid. The High Level Forum on the Better Functioning of the Food Supply Chain would continue to provide a forum for stakeholders and Member States’ authorities to discuss UTPs in a political framework.

5.2.2Options discarded at an early stage: detailed harmonisation of substantive UTP rules

A complete harmonisation of UTP rules applying in Member States at the EU level would be one possible option how to pursue the policy objective of combating UTPs in the food supply chain. Member States would no longer be able to regulate UTPs differently from the common approach.

Detailed harmonisation of UTP rules in the EU food supply chain does, at this stage, not seem warranted. While it could have the effect of de facto - by way of “occupying the legislative ground” - constituting a backstop to national UTP measures that would possibly be incompatible with the internal market, the degree of convergence of national UTP rules is not such as to invite detailed harmonisation. There is too little overall convergence of rules to justify this. What is more, detailed harmonisation would presuppose that a one-size-fits all logic can be applied but this can, at this stage, not be read out of the answers to the different surveys nor would it appear from Member States’ regimes. Detailed harmonisation based on a low(est) common denominator would encounter resistance from Member States which have more stringent rules in place. Conversely, detailed harmonisation mirroring the more stringent national regimes would elicit resistance from Member States which have less stringent or no rules in place. In both cases, subsidiarity considerations would militate in favour of a less intrusive approach. The option of introducing detailed harmonisation is therefore discarded.

5.2.3Partial harmonisation of substantive UTP rules

A partial harmonisation approach concerning substantive UTP rules could accommodate Member States’ stricter UTP rules while at the same time introducing a common minimum standard of protection in the EU. The systems, including the voluntary governance approaches, would work in a complementary manner.

5.3Scope of UTP prohibition

5.3.1Baseline

Under the baseline option, no common measures would be introduced at the EU level. Member States would remain free as regards their choices about the scope. The SCI would continue as a forum for early and non-litigious dispute resolution.

5.3.2UTPs subject to generally formulated prohibition (based on fairness)

UTP rules could operate via a generally formulated prohibition of unfair conduct in B2B relations in the food supply chain. Such a general prohibition could be paired with indicative examples of UTPs which illustrate practices that typically fall under its remit. A majority of Member States uses such a general prohibition in their national context, often paired with examples of prohibited practices. 172 The SCI’s voluntary Principles of Good Practice also contain a general principle of “fair dealing” that is further specified in specific principles and examples of unfair practices.

A prohibition of UTPs defined by a general reference to fairness would provide a common standard of protection against UTPs in Member States, including in those who have no such protection as of today. Subject to its application on the ground, the approach would outlaw and deter UTPs and thus contribute to reducing the occurrence of UTPs. A common definition of UTPs, filled with life through application in Member States, could contribute significantly to levelling the playing field between operators in the different Member States. The harmonising effect of such a general prohibition could be strong thanks to a common definition at EU level that would cover UTPs in general and not only those specifically enumerated in a list.

By addressing the issue of UTPs at the EU level, the option would be expected to raise awareness and promote fair trading practices in the food supply chain in all Member States.

5.3.3Prohibiting specific UTPs

Under this option, EU rules would prohibit specific, relatively concretely formulated and well-defined practices as unfair. A short list of such practices would constitute a mandatory minimum protection standard against UTPs in the EU, prohibiting and deterring these practices and thus contributing to reducing their occurrence (and linking them to a common framework for redress). 173 A minimum standard would contribute to levelling the playing field between operators in different Member States.

This approach would not have the vocation of capturing all possible UTPs; it would rather address a limited set of manifestly unfair ones without – pursuant to a minimum harmonisation approach - preventing Member States to go further, for instance in their application of generally formulated national prohibitions. The rules would, due to their specificity, aim to be predictable for operators and workable for authorities entrusted with their enforcement. 174

Certain prohibitions could override parties’ possible (contractual) agreement covering a given practice. 175 This would be the case for unfair practices which are unlikely to be redeemed by, for example, circumstances that would suggest that the parties’ foreseeing the practice is fair or creates efficiencies. 176 Also in business-to-consumers area certain commercial practices or clauses are regarded as unfair whatever the circumstances and cannot be set aside by contractual agreement. 177 Such an approach would aim to prevent the de facto imposition of unfair contract terms by a party exercising significant bargaining power. 178 The UK Competition Commission concluded in a comprehensive study of 2008 that there were circumstances where in spite of the allocation of risk being agreed up-front the extent of risk transferred to the supplier was excessive. 179  

Alternatively, certain practices can be justified (i) if included upfront (ex ante) in an agreement between parties and (ii) if they create efficiencies by increasing the total gains from the transaction to be shared by the parties. 180 Such practices would not constitute UTPs and should not be prohibited as they create win-win situations for the parties. 181 If the same practices occurred retrospectively and without upfront agreement they would, however, lack in predictability and therefore be, in general, unjustified and inefficient. 182 Moreover, commercial agreements leaving key elements of a transaction to one party’s later unilateral decision would not necessarily justify otherwise unfair practices, especially when it is possible to define such key elements or the triggering factors for their activation in the agreement. In fact, the party with significant bargaining power could impose and take advantage of this vagueness by unilaterally determining these elements after the transaction has started. In such a case, the stronger party is indeed likely to create inefficiencies by, e.g. capturing the gains of the transaction that were originally allocated to the other partner or by transferring losses. 183 Last but not least, certain contractual provisions or trading conditions agreed ex ante can still be unfair where it is generally accepted that they do not lead to efficiencies for both parties in the transaction. 184

In some Member States, a mere provision in the contract as to the possibility of the practice is sufficient to shield it from considerations concerning unfairness. 185 In other Member States, such practices are prohibited and are not subject to parties contractual freedom. In yet other Member States, the exclusion from UTP rules depends on a sufficient specification of the practice in the contract, so that it is predictable for parties, referring to procedural elements of reasonableness and transparency in relation to the expected sharing in the total gains. 186 For example, reasonable notice must be given in case of unilateral short term changes foreseen in a contract 187 or cost estimates are to be made available if contributions are asked which are not further specified in the initial agreement. 188

The voluntary Supply Chain Initiative’s consensus on fair unfair practices (“Principles of Good Practice”) can serve as a useful point of reference for a short list of specific UTPs. 189 The respective examples referred to therein give an idea of what operators in the chain agree to be types of (fair and) manifestly unfair behaviour. 190 It is underpinned by the rationale of a fair allocation of risk, “agreed by the parties to obtain a win-win situation”. The SCI’s code states that all contracting parties in the supply chain should bear their own appropriate entrepreneurial risks. 191 Unilateral changes to contract terms shall not take place unless this possibility and its circumstances and conditions have been agreed in advance. 192  

Practices listed in the SCI code are matched by the results of the open public consultation. Of the top eight practices identified as UTPs, the majority are also listed in the SCI code of conduct 193 (and can also be subsumed under the more general concepts of the list in the Commission 2016 report 194 ):

a.Unilateral changes of contracts

b.Last minute order cancellations

c.Claims for wasted or unsold products

d.Payments for perishable products later than 30 days (not in SCI 195 )

e.Claims for contribution to marketing campaigns (of retailers)

f.Upfront payments to secure contracts

As already indicated above, the legal landscape is diverse across Member States concerning content and scope of UTP rules. A 2018 study shows, however, that a significant number of Member States covers the practices identified above. 196

5.3.3.1Unilateral and retroactive changes to contracts

A sales contract is a synallagmatic arrangement which by definition can only be changed by mutual agreement. In that sense, unilateral changes are breaches of contract and actionable under contract law.

However, redress for small parties in the food supply chain may in practice be ineffective. Moreover, operators with significant bargaining power may be able to effectively coerce suppliers into signing contracts containing terms that allow for unilateral retroactive changes without further specification. 197 Unreasonably short notice periods and the absence of objectively justified reason for such changes would be parameters to take into account (see SCI on ‘Termination’). For example, the UK Groceries Supply Code of Practice focuses on the transparency of the contract terms that allow such changes. 198

The SCI considers retroactive unilateral changes in the cost or price of products or services to constitute unfair business conduct but specifies that a contract may contain legitimate circumstances and conditions under which subsequent unilateral action may be permitted.

5.3.3.2Last-minute order cancellations‎ concerning perishable products

Last-minute order cancellations‎ of perishable products are a variant of the practice that consists in unilateral and retroactive changes to contracts. Such changes tend to leave suppliers of perishable products without alternative marketing opportunities and are incompatible with the principle that there should not be an excessive transfer of one’s own entrepreneurial risk to one’s (weaker) business partner. Last-minute order cancellations should not become a possibility due to contractual arrangements.

5.3.3.3Claims for wasted or unsold products

Claims for wasted or unsold products from suppliers can constitute an (often retroactive) practice which stands ill against the specific principle of the SCI that “all contracting parties in the supply chain should bear their own appropriate entrepreneurial risks”. Once purchased, the risk of not selling the product or an impairment that renders it unmarketable (and wasted) could be expected to lie with the buyer, maintaining therefore his incentives to efficiently plan and manage his business. Such claims would be unfair.

This would be different if the wastage is caused by the negligence or default of the supplier. Moreover, there can be cases where the conditions for a return of unsold products are predictably laid down in the agreement and in line with a fair mutual allocation of the financial risk. Claims on such a basis would not constitute unfair conduct.

5.3.3.4Payments for perishable products later than 30 days

Payments delays are subject to a horizontal Directive (Late Payment Directive). 199 The Directive stipulates inter alia that businesses have to pay their invoices within 60 days, but can choose a longer payment term as long as it is expressly agreed in the contract and provided that it is not grossly unfair to the creditor. In the directive the concept of "grossly unfair" is applied to contractual terms and practices and is further specified to relate to any "gross deviation from good commercial practice, contrary to good faith and fair dealing" (Article 7).

The Directive has been transposed in Member States. When implementing the directive, a number of Member States have introduced provisions limiting payment terms for perishable foods, in certain cases, to less than 60 days (see Annex D). Currently, 24 Member States 200 stipulate shorter payments periods (than 60 days) for all sectors of the economy or, alternatively, for food products. 201 While 11 of these Member States provide for a 30 days 202 without derogation possibility, 13 Member States provide for 30 days, but allow parties to extend the 30 days by way of agreement. 203

Fresh agricultural products (fruits and vegetables, meat, dairy products) are sold relatively quickly in grocery stores to consumers lest their perishability makes them unmarketable. Literature unanimously point to the fact that delayed payments from farmers’ contractors have a negative impact on investments undertaken at the farm and farm output. 204 In light of this, payment delays for perishable products of longer than 30 days would not seem justified. In the interest of fairness and so as to create a level playing field at EU level concerning fresh agricultural products a maximum payment delay of 30 days could be rendered mandatory. 205 Allowance could be made for specific cases such as value-sharing contracts for which the value to be split between trading parties is realised only at a later stage. 206

5.3.3.5Claims for contributions to promotional or marketing costs of buyer

Under the heading of “entrepreneurial risk allocation” the SCI gives examples of transfers of unjustified or disproportionate risk to a contracting party. Imposing a requirement to fund a contracting party’s proprietary business activities or to fund the cost of a promotion are listed as specific examples. It is explained that different operators face specific risks at each stage of the supply chain linked to the potential rewards for conducting business in that field.

Having said this, parties’ ex ante agreements about the possibility of such contributions can suggest mutual efficiencies (win-win situations) and would not imply an unfair practice. 207 Such contributions would therefore be deemed lawful if exercised in accordance with the defined terms of the up-front agreement, even if they are implemented after the transaction has started. A case in point would for instance be the participation by suppliers in retail promotion covering their branded products in accordance with the expected allocation of risks and rewards. 208 The same rationale would not apply to commercial arrangements which include vague and unpredictable provisions concerning contributions and leave these provisions to be unilaterally and ex post determined by one party. 209  

5.3.3.6Requests for upfront payments to secure or retain contracts without consideration

Where parties’ agreement about upfront payments implies mutual efficiencies (win-win) they would suggest the lawfulness of such contributions. Moreover, parties should have the ability to enter into business relationships and leave them as they see fit, account being taken of reasonable termination modalities. Indications in a commercial agreement to the effect that, for instance, marketable business resources are being made available or that risks for referencing new products are allocated should be taken into account. 210  

However, certain requests for payments without any consideration (sometimes referred to as “hello money”) would not appear to be in line with fair cost and risk allocation as for instance referred to in the SCI code of good practices. 211  

5.3.3.7Criteria concerning the assessment of unfairness of the practices 

A categorisation of the above practices as unfair depends on the circumstances in which they occur (see also discussion in section 6.3.1 on the impact of the options). Unilateral and retroactive changes of contracts, last minute order cancellations of perishable products, claims for wasted products and payments for perishable products later than 30 days would typically be unfair whatever the circumstances. For example, even if a contractual clause specifically enabled such practices this would not redeem them. Certain conditions may however apply, for example in the case of claims for wasted products, the condition that such waste should not be the consequence of negligence attributable to the supplier.

As regards other practices such as claims for contribution to marketing campaigns or promotions and upfront payments to secure contracts, their inclusion in clear terms in a supply agreement between parties can suggest efficiencies and mutual benefits for the parties and corresponding practices and arrangements would, therefore, not be deemed unfair.

5.4Operationally, an EU approach based on the options set out in section 5 should incorporate the said considerations and be shaped accordingly. Coverage of products

5.4.1Baseline

The baseline scenario implies that there are no EU rules addressing UTPs. The question concerning coverage in terms of products does not arise.

5.4.2Agricultural and processed agricultural products covered

UTP rules would focus on agricultural products and processed agricultural products traded along the food supply chain, thus covering all food products traded in the food supply chain. 212 Sales of such products in the chain would be subject to respect of the EU’s UTP rules. This comprehensive scope would be consistent with the SCI’s approach and UTP measures in Member States. 213

5.4.3Agricultural products covered

Alternatively, UTP rules could target agricultural products (Annex I TFEU) traded in the food supply chain. In retailers’ shelves they account for about 60% of food products sold to consumers, a sizeable share. 214 UTP rules applying to agricultural products may in practice have positive spill-over effects where buyers source both agricultural and processed agricultural products from the same supplier. 215

5.5Operators covered by UTP rules

5.5.1Baseline

Under the baseline option, no common measures would be introduced at the EU level. The question concerning the scope of UTPs rules would not arise. Member States would remain free as regards their choices about the scope of UTP rules.

5.5.2UTP rules apply in situations characterised by weak bargaining power

UTP rules could target situations which are characterised by an imbalance of bargaining power or a relationship of economic dependency, these being generally drivers of UTPs. 216 Accordingly, UTP rules would protect operators finding themselves in such a weak position. Certain national UTP rules apply in situation of dependence of an operator on the counter-party to the transaction or in situations where an operator has market power/superior bargaining power. 217 Small agricultural producers including their associations would be covered by the protection. Due to the backward cascading effects UTPs have in the chain (see section 2.5.1.1), the protection could be extended to protect also other such operators in the chain. This would in addition prevent unintended effects such as trade diversion away from farmers due to a buyer’s possible incentive to rather deal with an independent processor than a, say, farmers’ processing cooperative which is protected by UTP rules.

Verification of the existence of the existence of weak bargaining power or an imbalance of bargaining power could be left to the case-by-case assessment of a competent authority. Alternatively, a proxy for such an imbalance could for example be found in the size of the undertakings thereby increasing predictability. The status as an SME including a micro-enterprise in the food supply chain could trigger the protection of the UTP rules and thus defines their scope of application. 218 In some Member States the size of potential operators is considered a proxy of bargaining power. Some Member States have limited the scope of legislation to businesses exceeding a certain size 219 or to relations in which one of the parties is a small or micro-enterprise 220 . UTP rules could for instance be formulated in such a way as to prohibit the use of the UTPs concerned for all operators in the food supply chain which trade food products with SME operators. In other words, under this option only SME operators, i.e. micro, small and medium-sized enterprises with less than 250 staff headcounts and either a turnover below EUR 50 million or a balance sheet total below EUR 43 million, would enjoy protection. Commercial relationships between large operators would not be governed by such an approach. Sales of food products by a SME supplier to a non-SME buyer would be covered.

5.5.3UTP rules apply to all operators

Under this option, UTP rules would protect all operators in the food supply chain regardless of their size. This approach is adopted by the voluntary code agreed by the SCI. UTP rules applying to all operators also reflect the approaches certain Member States follow. 221  

5.5.4UTP rules ‘benefit’ 3rd country suppliers

UTP rules can enable 3rd country suppliers to rely on them when confronted with UTPs by operators situated in the European Union. 222

5.5.5UTP rules ‘benefit’ suppliers situated in the EU

Alternatively, UTP rules would only apply insofar as commercial supply relationships are concerned which cover sellers and buyers which are situated in the EU.

5.6Enforcement

5.6.1Baseline

Under the baseline option, no governance measures would be introduced at the EU level. Member States would remain free concerning the enforcement of UTP rules, if any. The redress options for victims of UTPs would depend on the regimes applicable in Member States. The suggestions made by the European Commission in its Communications in July 2014 and January 2016 would remain valid.

The Supply Chain Initiative has promoted cultural change concerning UTPs in the food supply chain. It can be expected to explore its potential to further adjust in accordance with concerns raised concerning its effectiveness. It is unlikely, however, that it will integrate enforcement modalities normally associated with public enforcement (e.g. own initiative investigations, fines, publication of results). It can, therefore, not be excluded that EU farmers’ organisations will continue to abstain from participating in the Supply Chain Initiative. In any case, the Supply Chain Initiative does not constitute a suitable tool achieving a (partial) harmonisation of Member States’ UTP rules concerning enforcement.

As has been shown, the fragmentation of legal rules implies certain shortcomings concerning the effectiveness of enforcement regimes in addressing the fear factor. The baseline approach would not aim to address this lack of effective redress, nor would a technical coordination mechanism (network) of enforcement authorities be appropriate in the absence of a common framework.

5.6.2Options discarded at an early stage

Centralised enforcement would operate via an enforcement body at EU level, for instance the European Commission. A variation of this would be to foresee the parallel application by competent Member States authorities and the European Commission as is the case for EU competition law.

Centralised enforcement could make sense if there was one set of UTP rules applying throughout the EU. To the extent that differences of substantive rules in Member States remain, centralised enforcement would not seem an appropriate course of action. It is difficult to see how an EU body would enforce diverging national rules or, for that matter, assume an (EU) legal mandate to do so. The option of introducing centralised enforcement is therefore discarded.

5.6.3Minimum enforcement requirements “plus”

Under this option, the following enforcement requirements would apply:

-Designation of a competent authority;

-Ability to carry out own initiative investigations;

-Ability to receive and treat complaints confidentially;

-Ability to receive complaints by associations of operators;

-Ability to impose fines;

-Ability to publish results of an investigation;

-Mutual assistance in transnational cases.

Certain procedural powers for authorities competent to monitor UTP rules, such as investigative powers in relation to undertakings (information requests) 223 , the ability to receive and treat complaints confidentially 224 , to carry out own-initiative investigations 225 and to accept complaints by associations of operators 226 have, in several EU Member States, proven important for the perception of operators that effective enforcement exists and is apt at addressing the root causes that can lead victims of UTPs to not seek redress. The existence of a deterrent, such as the power to impose fines 227 or the publication of investigation results, may encourage behavioural change and pre-litigation solutions between the parties. 228 The ability to share information with other Member States’ authorities concerning transnational cases (mutual assistance) could be a further appropriate element of effective enforcement. 229  

A recent study shows that in as many as 19 Member States administrative authorities other than ordinary courts have powers to enforce rules addressing selected UTPs. 230  In 17 Member States administrative authorities can conduct own initiative investigations concerning UTPs. In 14 Member States administrative authorities can receive confidential complaints. But in less than half of EU Member States (13) has an administrative authority the power to receive to receive confidential complaints and conduct own initiative investigations. 231  

Member States could be required to designate a competent authority for UTP enforcement which is given certain minimum enforcement powers inspired by best practices in Member States’ existing regimes. 232 While courts may act upon UTP violations, their institutional lack of ability to take the fear factor into due account would not make them competent authorities within the said meaning. 233 Minimum requirements for effective enforcement of EU rules in Member States – apt to address the fear factor - could be laid down drawing on the above list while stopping short of a detailed harmonisation of enforcement modalities. 234  

In the open public consultation, 92% of the respondents agreed or partially agreed that there should be minimum standards applying to the enforcement of UTP rules in the EU. 235 Respondents were asked which elements they considered being an important part of an effective public enforcement of UTP rules: 94% referred to transparency of investigations and results; 93% to the possibility of imposing fines in the case of violations of the rules; 92% the possibility to file collective complaints; 89% the ability to receive and to treat confidential complaints; 89% the designation of a competent authority; 73% the ability to conduct own-initiative investigations. 236

Confidentiality of complaints in later stages of proceedings is considered with caution though in certain Member States, due to the effect on due process and practical difficulties. Confidentiality may be difficult to ensure in all those cases in which practices are imposed on a single counter-party or a limited number thereof. Indeed, some national experts reported that in fact confidentiality might be hindered by the need to provide detailed information, whose origin may be traced back to the victim. Own-initiative investigations and the ability to instruct complaints by associative bodies collectively acting in the interest of members who became victims of UTPs can provide conduits that can ensure protecting the anonymity of an individual UTP victim.

5.6.4Minimum enforcement requirements

Under this restricted option, the following enforcement requirements would apply:

-Designation of a competent authority;

-Ability to carry out own initiative investigations;

-Ability to receive and treat complaints confidentially.

This would be in line with the suggestions that have been made by the Commission in its communication of 2014 237 and in its report of 2016 238 .

5.7Coordination of enforcement authorities

5.7.1Baseline

Under the baseline option, no governance measures would be introduced at the EU level. Member States would remain free as regards measures addressing UTPs. The suggestions made by the European Commission in its Communications in July 2014 and January 2016 would remain valid.

The High Level Forum on the Better Functioning of the Food Supply Chain would continue to provide a platform for discussing UTP (governance) developments including the Supply Chain Initiative (its mandate extends through to 2019). This may lead to lessons and best practices being shared. The forum’s platform does, however, not amount to a network of enforcement authorities comparable in its role and coordination function to, for example, the European Competition Network.

5.7.2Coordination

A coordination mechanism between competent authorities 239 would enable the creation of a network of authorities that could usefully accompany the EU rules, their coordinated application and facilitate an exchange of best practices as well as, importantly, collect data through Member State reporting that would, down the road, inform an evaluation (and possible adjustment) of the measures. 240 The European Commission would facilitate the network by hosting regular meetings based on annual application reports submitted to it by the Member States’ competent authorities. A similar mechanism exists in the area of competition law (the European Competition Network) and contributes to coordination among national competition authorities and evidence- and application-based discussions. 241 Such a form of cooperation would be in line with the suggestions that have been made by the Commission in its Communication of 2014. 242

5.8Legal instrument to be used

Specific policies can be implemented through a variety of legislative or non-legislative instruments, ranging from self-regulation to recommendations, or full mandatory binding measures. Legislative measures can take the form of regulations or directives.

5.8.1Recommendation

‘Soft-law’ could be used to encourage Member States towards an at least partial harmonisation of legal regimes, based on a common proposed understanding of what practices are considered unfair and should not be applied.

If Member States followed suit this would contribute to reducing UTPs, establishing effective redress possibilities and levelling the playing field in the EU insofar as UTPs are concerned. A recommendation could take the form of comprehensive guidance that would cover the whole ‘universe’ of UTPs or act as a framework recommendation trying to establish what would be a baseline of rules. Such guidelines could also address desirable enforcement mechanisms and promote exchanges of best practices.

A recommendation would not legally require Member States to take action; its effect would depend on the degree to which Member States decided to follow the recommendation. In the open public consultation for this initiative only 4% of the respondents who believed action should be taken (which was 95% of total) preferred purely non-legislative action. 243 Recommendations could also (again) be made in relation to the voluntary Supply Chain Initiative as was done in the European Commission’s January 2016 report (see discussion in section 3.3).

5.8.2Legally binding instrument

A regulation would be legally binding and directly applicable in all Member States (Article 288 TFEU). As such, it can adopt a minimum harmonisation approach while leaving Member States room to act beyond the minimum harmonisation it lays down.

Alternatively, a directive, legally binding as to the result to be achieved, could be used to stipulate UTP framework rules. A directive leaves the choice of form and methods as regards how to achieve the results to the national authorities (Article 288 TFEU). A directive, too, could leave leeway for Member States to act beyond the minimum results stipulated in it.

6What are the impacts of the policy options?

6.1Introduction

This section focuses on the likely impacts of the possible policy options set out in section 5, namely the scope of UTP rules, the enforcement modalities including coordination, the coverage of products and the scope in terms of operators covered, and the type of legal instrument to be used. Options which have been discarded at an early stage are not further discussed. Most of the expected impacts are economic but possible social and environmental impacts are also referred to.

The section starts with a general discussion of the impact (harm, benefits and costs) on economic operators, consumers including innovation and Member States. The concept of UTPs covers many specific practices which have varying characteristics and impacts on economic operators. Therefore, an assessment of the balance of impacts is appropriate for the practices considered (section 6.3.1). The impact on Member States’ competent authorities in terms of administrative costs is less dependent on the specific UTPs covered by the initiative and is considered separately. The benefits and costs of EU action are set out against the baseline of the continued absence of a minimum standard of protection against UTPs across the common market (both as regards substantive UTP rules and effective enforcement possibilities). Plausible option packages are identified and described in section 6.4, then compared in section 0 and eventually a preferred option – in form of an option package – is presented in section 8.

6.2Impact on operators, consumers and Member States

6.2.1Impact on economic operators

6.2.1.1Benefits

A precise quantified estimate of the benefits that would accrue to operators through EU legislation is not feasible (see section 2.5.1.1). For one, an EU framework approach based on a short list of prohibited UTPs would not tackle the possible damage of all the UTPs that are referred to in the numerous surveys and papers regarding the issue. An approach based on a generally formulated prohibition would not allow a precise quantification of the damage prevented either, not least due to the uncertainty concerning how it would be applied to specific practices. It is equally difficult to quantify the benefits of ensuring more effective enforcement through introducing minimum enforcement requirements.

Having said this, each of the UTPs described in section 5.3.3 is bound to have a negative impact on its victims’ bottom line in terms of the transfer of risk and undue generation of uncertainty, in other words costs that would in competitive markets not be part of their entrepreneurial agency.

Respondents in the numerous surveys cited in this impact assessment almost all converge in their concern about UTPs’ occurrence and harm and in their expectations of positive effects from public (EU) UTP rules and their effective enforcement. For instance, stakeholders in the food supply chain including retailers and processors agreed a code of good practices in 2011 aiming to use private governance measures to improve the governance of UTPs (the SCI formed around it). 244 Respondents to the surveys consider a mixture of voluntary rules and public rules including enforcement the most desirable governance approach to UTPs. The expected benefits include improvements in the allocation of risk, reduced uncertainty for operators and better revenue that operators can capture in the markets if not subject to UTPs. 245  

Survey data on the monetised costs of UTPs (potential benefits of legislation) in the food supply chain does exist, typically expressed as a share of turnover. However, these data cannot form a proper basis for the estimation of the benefits of the legislation. These data are not drawn from representative surveys and, as such, are likely to suffer from self-selection bias and to not be reliable to extend to the underlying population (even if the cost survey data may be closer to the typical damage suffered by individual firms in the specific part of the population that suffers harm from UTPs). As such, it is not possible to extrapolate from survey data to the population for benefits. 246  

While it is not possible to provide a precise estimate of the benefits (avoided UTP costs), it may still be useful to form a broad idea of the possible magnitude of the costs of UTPs. To this purpose some assumptions can be made about the damage and frequency of UTPs. Taking the (representative sample) survey results used by the UK’s Competition Commission for the UK market before effective enforcement was introduced one finds “that one-third to one-half of suppliers experience practices such as payment delays, excessive payments for customer complaints, and retrospective price adjustments”. 247 Assuming similar figures across the EU and that for those companies that experience such practices related UTPs costs are between 1% and 2% of turnover, and knowing that agriculture SME turnover in the EU is about EUR 325 billion and food industry SME turnover in the EU is about EUR 470 billion a range for the magnitude of possible costs of UTPs occurring in the food supply chain can be calculated. The approach would put these costs at EUR 1 billion to EUR 3.3 billion for agricultural SMEs and EUR 1.5 billion to EUR 4.7 billion for food SMEs (or EUR 2.5 billion to EUR 8 billion in total for both agriculture and food processing SMEs). The damage imposed by the six UTPs identified as occurring most frequently, which broadly align with the SCI principles of good practice, would be a further fraction of these figures. Other indirect benefits in the form of increased trust between operators could also materialise, which are, in the main, expected to reduce transaction costs along the food supply chain.

In addition, there is evidence of harm from public investigations and court cases, indicating the existence of significant damages in some cases (to note: this data cannot be generalised to the relevant population). Most of this non-survey evidence comes from Member States where UTP rules exist and are effectively enforced. For example, the UK investigations guarantee anonymity and access to private commercial documents. This allows investigations into damaging practices and the frequency with which they occur to be established. 248 In terms of the magnitude of damages the UK Groceries Code Adjudicator found in the Tesco investigation many examples of large amounts owed to suppliers being paid late. Examples quoted range in payment delays of ‘over five months’ to ‘over twelve months’; with the values paid late of ‘over GBP 100,000’ to ‘nearly GBP 2 million’ per supplier. Other retailers were also found to have engaged in UTPs (ex post): information received by the UK GCA indicated suppliers “were being asked for significant financial contributions to keep their business with [...]. In some cases, this was as much as 25% of the annual turnover of the stock.

In France a leading supermarket chain has twice been found to be practicing banned UTPs. In the first case retroactive demands for payments resulted in the courts establishing that EUR 23.3 million had to be repaid to 28 suppliers (plus a EUR 2 million in fine). In another case, EUR 61.3 million had to be repaid to 46 suppliers (plus a EUR 2 million fine), for requests for payments without receiving a service in return from suppliers. However it is rare that such cases come before courts due to the "fear factor".

As part of the consultation, Member States were asked as to the existence of analysis related to national UTP rules, including evaluations of existing policy. 249 Only the UK provided information concerning such evaluation. Despite the general lack of ex post evaluations, the direction for several countries has been to introduce UTP legislation where it did not yet exist and, in the case of countries where it did exist, for it to be further developed, albeit without convergence of rules across Member States. 250 This has also been the case in the UK, which has, in succession, introduced a voluntary code of conduct, then introduced specific legislation based on the code, then introduced an enforcement authority to improve the effectiveness of legislation and eventually improved the effectiveness of the enforcement authority by for example introducing sanctioning powers. The UK continues to review the legislation (recently discussing the expediency to expand the protection under the code to farmers and small producers, as well as the list of what is considered a UTP). 251 The resulting evidence indicates that the effectiveness of legislation has improved in the UK over the years. In the annual survey conducted by the UK Grocery Code Adjudicator, respondents reported fewer issues with UTPs year-on-year since the survey was first implemented four years ago 252 , and in a government review the UK Grocery Code Adjudicator was deemed to be performing effectively in reducing or eliminating several types of UTPs.

"The majority of respondents to the Review felt that the GCA had been effective or very effective in exercising its investigation and enforcement powers. [...] The majority of respondents also described the GCA as being effective in enforcing the Code. There is evidence of a positive shift in the relationship between large retailers and direct suppliers and an end to some of the unfair trading practices that were prevalent before the Adjudicator was appointed." 253

As regards the divergence of Member State rules, a minimum harmonisation of rules introduced at the EU level would lessen the existing divergence of UTP rules in Member States and thereby approximate - albeit not level - relevant business conditions for operators.

6.2.1.2Harm

Harm from UTPs, which is the reverse side of the "benefits" expected from governance measures, is discussed in section 2.5 from the point of view of victims of UTPs. The expected benefits for victims from UTPs from rules, which allow their deterrence or their redress once they occur, could be considered to constitute harm or costs for those operators which can no longer apply them. But the key consideration here is that that due to societal conventions of fairness the UTP-derived benefits should not accrue in the first place, which makes that the benefits outweigh this specific form of harm.

As regards specifically the impact on farmers becoming victims of UTPs, there is evidence that UTPs have a direct impact on farmers’ costs and/or income.

While uncertainty is inherent in doing business, certain practices unnecessarily increase uncertainty. Ex post (e.g. changes to agreed terms) or ex ante (e.g. incomplete contracts) practices may leave weaker parties unable to determine the likelihood, impact, type, or timing of commercially relevant events. This is particularly damaging in the food supply chain, in particular for agricultural producers, as agricultural production is already subject to significant uncertainty and imponderability (Annex C). For example, the possibility of ex post price reductions, ex post requests for contributions to promotions, or last-minute cancellation of orders can contribute to the generation of uncertainty. Where liquidity is unexpectedly compromised this may lead to otherwise viable businesses being unable to maintain their activity, for example by not being able to meet their credit obligations (a concern in particular for smaller operators who typically have a lower resilience to shocks). 254

Through price transmission and its asymmetric features in the food supply chain, UTPs are one of the elements that may result in an indirect negative impact on farmers, in particular in times of price shocks (excess supply, reduced demand). 255 The negative effects of UTPs, even if they happen downstream of farmers, are liable to be transmitted upwards to them in the form of price pressure. However such indirect effects are likely to be influenced by the structure of the chain upstream compared to the level where a UTP takes place: for instance it may be that the operator immediately located upstream to the operator subject to a UTP has bargaining power relative to that weaker party and would not pass on any effect of the UTP incurred by the smaller party downstream. 256 Operators who are exposed to UTPs perceive these practices to affect their profitability and to deprive them of added value that they would otherwise be able to appropriate. 257 More generally, asymmetric price transmission along the food supply chain means that while firms in an imperfectly competitive industry may be willing to pass on (to some extent) cost shocks through to consumers, they are less willing to reduce retail prices when costs subsequently decline. 258 Asymmetric price transmission therefore represents a sort of market failure that leads to a skewed distribution of welfare and may even induce net welfare losses. While there is no hard evidence for general and systemic squeezing of farmers’ margins, in a comprehensive literature survey it was found that in about half of all cases price transmission was not symmetric. 259

Practices that unfairly transfer entrepreneurial risks can also lead to economic inefficiencies through a misalignment of incentives. This may involve situations over which the operator to whom the risk is transferred has little or no control as they are taken by his business partner unilaterally and without sufficient predictability, or they may be included in the contract but in way that shifts risk in an excessive way (no win-win) due to the counterparty’s exercise of bargaining power. A party which has control over a risk but can transfer it to a weaker counterparty has reduced incentives to manage the risk effectively, while increasing total risk in the transaction and causing economic damage to its counterparty (moral hazard). For example, ex post claims for products wasted at a buyer’s premise can transfer undue risk to the counterparty and make it less likely that effective countermeasures are taken by the buyer to avoid the future repetition of wastage or of erroneous planning. 260  

Agricultural producers have generally been subject to downward pressure concerning their incomes and the share of the added value in the food supply chain that accrues to them has been diminishing. 261 If agricultural producers face significant financial disadvantages from UTPs, if they feel they cannot appropriate a fair share of the value added in the chain, or if they think they are not able to recoup the return they expect from their investments, they not only face lower incomes, but their capacity to invest may also be compromised. UTP rules including enforcement could counteract these effects.

As pointed out in Annex H, potential rules on UTPs are not expected to result in a negative impact on competition; they rather tackle unfair practices that are not covered by competition law and constitute shortcomings often due to conditions of ineffective competition due to imbalances of bargaining power between parties. Unequal bargaining power and resulting imbalances in trading relationships only rarely imply an infringement of competition law. In such situations, a well-targeted regulation of certain trading practices aiming at ensuring fairness between actors in the food supply chain can help to resolve specific issues. 262

Possible negative effects from regulation that would interfere with efficient business practices can be avoided by rules which are mindful of the arguments set out in Annex H and the research paper by the Joint Research Centre 263 (as discussed in section 6.3.1). By doing so, negative side-effects of UTP rules becoming a tool used to change balanced commercial relations would be significantly mitigated.

Last but not least, an approach that focuses on the protection of weaker operators and that would therefore not affect the competitive conditions between large parties could address proportionality concerns. 264

6.2.1.3Costs

The costs that would be incurred by operators depend to some extent on the form the legislation would take. The main costs would be compliance costs. Compliance costs in relation to UTP legislation are, generally, costs that relate to training and compliance in the strict sense of the term. UTP rules would not impose active duties on operators to carry out certain activities; they rather prohibit certain behaviour that is deemed unfair. There may be a risk that broadly or vaguely defined rules would prevent efficiency-enhancing practices (win-win) that parties to a contract may agree on. 265 Care should therefore be taken in this regard when defining UTPs. Section 5.3.3 provides examples of how to define specific and predictable rules.

These costs would be expected to be mainly one-off costs to ensure standard form contracts do not include such clauses (expected to be primarily borne by parties with stronger bargaining power, as these tend to be those that present such contracts to their counterparties), and ongoing costs where contracts are based on individual negotiations (for example training costs to ensure that those negotiating and those drafting such contracts do not include prohibited clauses). These costs can be mitigated by introducing transition periods into legislation and through training and education on new rules by Members States competent authorities and the European Commission, thereby reducing uncertainty for businesses. According to a 2016 study, the aspects which were deemed by survey respondents (and especially by SCI members) to contribute most to the overall effectiveness of the initiative in tackling UTPs were the training of company staff on Principles of Good Practice and the appointment of contact person(s) for internal dispute resolution. 266

The answers to targeted questionnaires sent to undertakings do not allow firm conclusions as to the significance of these costs. Any such cost would be incurred according to the specific UTPs that would be covered. It has to be taken into account that compliance costs in respect of the voluntary code established under the SCI have (already) been incurred by its signatories who have organised training and incurred corresponding costs. 267 A large retailer, for example, has spent EUR 200,000 on one-off training measures of staff in relation to the SCI code of conduct. Judging by the results, there seems to be a general view that compliance costs are not of great significance or a major concern for the vast majority of business stakeholders participating in the surveys. In the survey to undertakings carried out for this initiative, more than half of the buyers who answered (57%) considered these costs as insignificant or only slightly significant. By way of comparison, Australia has introduced legislation on standard form contracts applying to all business sectors (i.e. not only the food supply chain) under certain coverage conditions, where it was estimated that total costs for compliance by operators stood at AUSD 50 million (about EUR 32.7 million). In the UK case, compliance costs for the 10 retailers covered by legislation were estimated at a total of GBP 1.2 million per year (about EUR 1.36 million per year).

Possible unintended consequences might occur if operators with greater bargaining power find alternative ways to shift risk and costs to weaker parties. 268

6.2.2Impact on consumers including impact on innovation

A partial harmonisation of UTP rules at EU level would be expected to have limited effects on consumers. In the open public consultation, operators do in general not claim that the use of practices that are considered UTPs (e.g. by the SCI) lead to advantages for consumers through, for example, lower consumer prices extracted from upstream suppliers through UTPs, although negative effects on consumer prices are sometimes argued to derive from below-cost-sales prohibitions (not covered by this impact assessment). 269 Consumer organisations encourage public UTP rules due to considerations regarding the longer-term negative effect of UTPs on consumers they expect. 270

As regards consumer prices, there are no indications that Member States with stringent UTP regulation have witnessed stronger inflationary effects concerning consumer food prices than those with less stringent rules or no rules. The UK review of the UK adjudicator regime does not discuss this. The correlation - if any (not statistically significant) - would indicate lower food price increases in Member States which have stringent UTP rules, although many factors can contribute to this. 271 In any case, a monitoring framework (see section 9) could control for consumer price changes in relation to the specific UTPs that would be targeted. Inflationary effects on consumer prices have however been argued in case of UTP rules prohibiting below-cost sales.

The literature is not conclusive concerning the impact of unfair trading practices on operators’ ability to innovate (see section 2.5.1.2) – a further important parameter of interest in terms of consumer welfare. Evidence of long-term innovation effects is scarce, the difficulty being compounded by confounding factors that are difficult to isolate. In some cases, listing fees and other types of upfront payments may be beneficial to innovation by compensating e.g. retailers for the risk they take in dedicating shelf-space to innovative products and facilitating those innovations that are seen as potentially successful by their suppliers. In other cases, such practices are increasing the cost of innovation, putting hurdles for small innovators and increasing vulnerability of suppliers to unfair termination or unilateral retroactive changes of the commercial relation. For example, listing fees applied ex post are more likely to result in a net negative impact on innovation (see Annex H). Such type of practice have as a likely effect the setting aside of capital by weaker parties to absorb possible future requests by the stronger party, with a negative impact on the overall efficiency of business decisions. Businesses may be less likely to invest in production capacity and quality, production efficiency or innovation, with possible longer-term damage to consumer welfare (resulting in reduced choice or quality of products and increased prices in the future).

6.2.3Impact on Member States

Member States would have to adapt their national legislation to measures introduced at the EU level. In case of a Directive, Member States are expected to transpose these rules into national law, which leaves them a discretionary margin how to carry out this transposition. But even a Regulation would likely require Member States to adopt national implementing provisions, at least concerning enforcement and cooperation. In the case of a non-binding recommendation, Member States would ultimately decide whether and to which extent to follow suit.

UTPs have been subject to a variety of heterogeneous legislative measures in Member States over the years. Annex F and Annex G provide an overview of Member States’ instruments addressing UTPs, including enforcement aspects. Accordingly, the majority of EU Member States already provide for a governance framework for UTPs. Therefore, the impact of EU UTP rules on Member State legislation will depend on the scope of these existing national rules. In cases where there is no framework at all, the Member State would have to implement the new measures, including designating an enforcement authority. On the other hand, suppliers in Member States that currently do not have a UTP regime in place would benefit most from the introduction of one (see Table below). If a Member State’s existing framework already goes beyond the proposed EU initiative, the Member State would have only to take limited measures in order to adapt the national framework to the EU initiative, while being able to keep more far-reaching rules in place. Looking at the diversity of Member State frameworks, most Member States would have to adapt their existing government framework to a certain degree in order to comply with the EU initiative.

Benefit

Benefitting MS

Potential impact

Introduction of a UTP regime (Annex F, Table n.1)

4 (EE, LU, MT, NL)

Large

More comprehensive UTP approach (Annex F, Table n.1)

4 (BE, DK, FI, SE)

Medium

Extension of UTP regime beyond retailers (Annex F, Table n.3)

5 (LT, CZ, HU, IE, UK)

Medium

Added enforcement of UTP rules (Annex F, Table n.6 & n.7)

8 (EE, LU, MT, NL,
BE, DK, FI, SE)

Medium

Level playing field for competition

28 (all)

Small

Coordination across MS

28 (all)

Medium

Table 3: Overview of the benefits of the proposed UTP measures

Further national costs are those related to the enforcement of legally binding rules (via the application of a general prohibition or in the form of prohibited specific UTPs). For some Member States, EU rules on UTPs would not necessitate significant changes to their UTP regimes as they already apply national rules that generally prohibit UTPs and have entrusted enforcement to competent authorities. These Member States would not incur significant additional enforcement costs. For Member States that do not have UTP rules, EU measures would require adaptation, in particular with a view to enforcement.

The designation of a competent authority in Member States would be a first necessary step under a minimum requirement approach at EU level that relies on public enforcement. 272 Member States that have no competent authority should be given appropriate time to designate one. As there would be no formal requirement other than being vested with the minimum functionally defined enforcement powers, Member States could rely on existing structures and designate, for example, an existing authority (a national competition authority or a consumer protection authority). 273 Member States with experience in UTP enforcement note that significant savings of administrative costs can be achieved by concentration and utilisation of sources that already exist. 274 Minimum guarantees would not enshrine a right for one’s case to be taken up and pursued by a competent authority; Member States’ authorities would be able to prioritise cases according to their own judgment.

In a targeted questionnaire, Member States were asked to provide estimates on the possible set-up and yearly operational costs of national bodies dealing with the implementation and enforcement of UTP related legislation, as well as on possible additional costs linked to an EU action on UTPs, including costs on reporting and coordination. Limited data has been presented as it seems difficult for Member States to provide estimates and isolate the costs for the specific activities related to implementation and enforcing of UTP measures. Most of the difficulties relate to the determination of the costs of drafting and adopting national legislation. From the information provided by Member States that currently have UTP legislation and competent authorities 275 , the set-up costs vary between EUR 32,000 276 and EUR 3 million 277 , the operational yearly costs vary between EUR 10,000 278 and EUR 2.9 million 279 . The differences relate to the size of the country – and therefore the national market – and the level of ambition of Member States’ current UTP legislation.

Example data on actual incurred costs (i.e., not estimated) are available from the UK Grocery Code Adjudicator. Expenditure was GBP 1,785,741 in the 2015/2016 financial year, and GBP 622,024 in the 2016/2017 financial year. Most of the difference is due to a large-scale investigation into one retailer in 2015/2016. In the 2016/2017 financial year most of the costs incurred were staff costs, at 67%. The UK GCA’s costs are funded by a levy on the retailers covered by the scheme. In 2016/2017, the levy was raised to GBP 2 million (from GBP 1.1 million in the previous year), to fund future investigations. Unspent money from the levy is returned to the contributing retailers at the end of each financial year. 280

Taking the above as a reference, and assuming full funding, setting up a fully functioning enforcement authority with one active large-scale investigation per year would imply a cost of up to EUR 2.3 million per year . This figure may vary to an extent according to the size of the Member State (as some correlation between enforcement activity and the dimension of economic activity in the Member State can be expected). For Member States where there already exists specific legislation on UTPs, already covering the UTPs identified in the preferred option, and with an existing public competent authority with effective enforcement powers, additional costs from EU action are expected to be negligible (and benefits to pertain mainly to positive coordination effects with other competent authorities and the levelling of the playing field vis-à-vis competitors in other Member States). Where one or more of those elements are missing, both costs and benefits are expected to be greater (in the extreme, where no legislation – and thus enforcement – exists, full estimated costs could be incurred; and fuller benefits related to the introduction of protection from UTPs with effective enforcement, as well as coordination and level-playing field benefits, would materialise).

Focusing on the information from three Member States with well established, functioning and experienced competent authorities, the additional costs linked to EU action, including the activities related to reporting and EU coordination, would be absorbed by the current structures and, therefore, according to their estimates, not be very significant.  281 Additional costs for Member States may occur from coordination activities with competent authorities in other Member States and from reporting obligations (see section 6.3.5).

6.2.4Social and environmental impacts

In terms of social impact, complementing the SCI with mandatory UTP rules including effective enforcement requirements may lead to an increase in trust between partners and a strengthening of the SCI, encouraging farmers’ associations to sign up to the SCI’s code of conduct and dispute resolution. 282 In general, predictability of business relations could be improved by governing UTPs at the EU level and enhancing enforcement modalities applicable in Member States. Increased trust between operators should have a positive economic impact. 283 An EU approach concerning UTPs would aim at a positive impact in terms of social cohesion by virtue of approximating commercially relevant conditions for operators active in the production and trade of food products in Member States.

One would not expect the positive effects of voluntary (national) platforms governing UTPs to be negatively impacted by EU UTP rules: in many Member States these voluntary initiatives have co-existed with national, publicly enforceable UTP rules. In fact, complementarity may have a positive effect on the voluntary initiatives as public enforcement possibilities could enhance the importance for both parties of voluntary dispute resolution.

Finally, UTP rules are not expected to have a significant direct impact on the environment. 284 Economic operators who are not subject UTPs may however be left with more economic margin to invest in producing in environmentally sustainable and climate-friendly ways and to prevent food waste. 285 Food waste is a common side-effect of particular types of UTPs and addressing the systemic issue within the European grocery supply chain could be an opportunity to address both the commercial losses incurred by suppliers and food waste. 286 Tackling food waste has been identified as a priority in the EU's Circular Economy package.

6.3Impact of the specific option components 

This section considers the effects of the various policy options taking into account the benefits and costs for stakeholders as described in section 5. The policy option relating to the “degree of harmonisation” is not discussed as only “partial harmonisation” was retained in section 5 (“detailed harmonisation” having been discarded).

6.3.1Scope of UTP rules: Specific list of prohibited UTPs or general (‘principles-based’) prohibition

The following table summarises in a simplified form the normally expected net benefits and costs of each of the six UTPs discussed in section 5.3.3. The determinant factor for net gains is the possible efficiencies a practice may bring about when agreed “ex ante” by parties and aiming at a win-win outcome.

Potentially unfair trading practice

Option

Ex ante / ex post

Net effect of regulation

Unilateral and retroactive changes to contracts

No unilateral retroactive changes to contracts

Ex post

+

Last-minute order cancellations‎ concerning perishable products

Last minute to be defined in provision

Ex post

+

Claims for wasted or unsold products

Risk for non-sale must be carried by buyer. Shifting it to seller is prohibited as UTP

Ex post

+

Payment periods longer than 30 days for perishable products

Supplier must be paid within 30 days from date of invoice submitted

Ex ante

+

Contributions to promotional or marketing costs of buyer

Prohibition to ask or implement such contributions under conditions to be specified

Ex ante

- 287

Ex post

+

Requests for upfront payments to secure or retain contracts

No payments unrelated to any consideration other than entering into business relationship

Ex ante

- 288

Ex post

+

Table 4: “+” = positive impact on operators, “-“ = negative impact on operators

The possible negative economic impact of a short list of specific prohibited UTPs for certain operators would seem circumscribed. Concretely formulated prohibitions targeting specific UTPs would aim to limit legal uncertainty for commercial transactions. If the code of conduct established by the SCI was taken as inspiration for such prohibited specific UTPs, the difference for SCI participants with the current situation would mainly lie in rendering the UTPs discussed in this Impact assessment enforceable; public (administrative) enforcement would complement the voluntary dispute resolution mechanism foreseen by the SCI.

Member States already providing for UTP legislation would, depending on the scope of their legislation, have to adapt their legislation to the EU initiative or introduce adjustments. Member States which have no rules would have to make these UTP prohibitions part of their national regimes.

A general prohibition would constitute a suitable way of a common protection against UTPs in the EU and thus reduce the dissimilarity of UTP rules in Member States. A general prohibition leaves flexibility to enforcement authorities and, as such, enables capturing a larger array of unfair practices; practices would not a priori be excluded from the EU provisions’ purview because they do not match a concretely formulated and prohibited UTP.

A general prohibition has necessarily to remain vague and leave its case-by-case application to enforcement authorities. An ensuing lack of predictability of the interpretational outcomes could imply transaction costs for operators. 289 This shortcoming could be mitigated by linking the legislation and potential sanctions to a specific code of conduct that could be established and managed by all the relevant partners in the supply chain (see the Spanish UTP system).

Having said this, EU-wide rules imply aligned application by Member States. This could be ensured through a coordination mechanism and, possibly, through the possibility for the European Commission to provide guidance where appropriate. The question arises to what extent such a generally formulated EU prohibition could remain complementary to existing UTP rules in Member States and ensure complementarity and subsidiarity. 290 It is likely that a generally clause would have a harmonising impact on national UTP rules. A general prohibition could thus come to de facto entail a degree of harmonisation that could give rise to tension in relation to Member States’ existing regimes. A short list of specific prohibited UTPs would avoid this effect.

6.3.2 Coverage of products: agricultural products or agricultural and processed agricultural products

If UTP rules applied only to agricultural products as defined in the TFEU, it would be likely that there would be some positive de facto spill-over operators trade both agricultural and processed agricultural products. 291 However, processed agricultural products would not be covered and unequal treatment of similar situations could arise. This may on the one hand negatively impact producers of non-agricultural food products as they would not be covered by UTP rules; it could, on the other hand, mean a potential disadvantage for producers of agricultural products, should some of the demand for their products shift to processed agricultural products as they would not be subject to UTP rules (e.g. less legal risk for purchasers to be confronted with UTP claims). Covering both agricultural products and processed agricultural products, that is to say food products, would avoid these negative impacts.

6.3.3Scope in terms of operators: (i) all operators in the food supply chain protected or protection restricted to weaker operators; (ii) question of coverage of third-country suppliers

A comprehensive coverage of operators in the food supply chain would be in line with the voluntary SCI approach. But it could cause smaller operators (e.g. SMEs and farmers) compliance costs when compared to UTP rules applying only to operators having significant bargaining power. Having said this, given that smaller operators would normally not be in a position to resort to UTPs any attending compliance costs could be expected to be rather limited.

In relation to the comprehensive coverage, retailers have expressed concerns relating to the protection of large manufacturers under such an approach and the ensuing possible impact on the customary distribution of margins between retailers and these large manufacturers. 292 Retailers state they distinguish between these relationships and the ones they have with farmers and small producers of food products. 293

Under a restricted approach as discussed in section 5.5.2, a retailer’s relationship with a large manufacturer of food products would not be constrained by UTP rules. An approach which provides protection from UTPs for only smaller operators in the food supply chain would also be congruent with the problem driver “imbalance of bargaining power”. A case-by-case approach ascertaining the existence of an imbalance would enable targeting. It would, however, be less predictable for operators than an approach which relates its protective effect to the size of an operator as measured by a proxy, such as for example his SME status.

Under a restricted approach, care should be had that the protection does not come to constitute a competitive disadvantage for small suppliers as their counter-parties would shift – in the interest of their ability to continue to apply UTPs - their trading activities to operators which do not enjoy such protection. The risk of such an unintended consequence may however be partially mitigated by the fact that it is be harder to use UTPs against parties which have a significant size and bargaining power; shifting trade is therefore less likely to constitute a recipe to keep the benefits from applying UTPs. At any rate, monitoring modalities could control for such effects.

As regards 3rd country suppliers and their coverage and ability to complain to competent authorities in Member States, their non-coverage could result in competitive distortions and trade diversion; buyers would have incentives to source from foreign suppliers who would not be protected by UTP rules. 294 Defining the scope of application of national UTP rules disregarding the international dimension of supply chains may lead to leave relevant practices out of reach of enforcement authorities. 295 In addition, discrimination considerations also militate in favour of covering 3rd country suppliers.

6.3.4Enforcement: minimum requirements or minimum requirements "plus"

The option of centralised enforcement was discarded at an early stage (section 5). The key difference between the remaining options, namely ‘minimum requirements’ and ‘minimum requirements plus’, is which enforcement powers are attributed to national authorities, with the latter option covering wider powers. Notably, these would include broader acceptance of complaints, the ability to extend mutual assistance in cross-border cases, and to use fines and the publication of results of cases as behavioural deterrents. A ‘minimum requirements plus’ approach would thus offer more tools aiming at effective enforcement. UTP legislation in several Member States already covers some of these powers. Where such additional enforcement powers exist these have in general not led to a large impact in absolute costs for the operation and set-up of competent authorities. Having said this, the cost of own-initiative investigations can account for a large share of additional total costs (see for example the UK Grocery Code Adjudicator).

6.3.5Coordination: network of dedicated authorities or baseline (High Level Forum)

The High Level Forum option is the baseline option, which is not expected to cause significant additional costs in future. A network of dedicated enforcement authorities would be expected to offer greater technical capability with more effective evidence-based outcomes. The network approach would lead to additional coordination and travel costs for the relevant competent authorities.

The value of coordination would lie in, as mentioned before, working towards the harmonised application of EU UTP rules as well as – and importantly - building a Member States’ network of enforcement authorities that could serve to gather relevant information and disseminate best practices. As such, this can help addressing the problems of a lack of effective redress and the uneven protection against UTPs in the EU. It would furthermore allow building knowledge about UTPs at the EU level that can serve the evaluation of the policy as well as its adjustment, if needed, over time. According to Member States, the costs of annual reporting would go from no additional costs, as they would be integrated in the existing operational costs, to up to EUR 20,000. Member States were asked through a targeted questionnaire to provide estimates for yearly costs of participating in an annual coordination meeting in Brussels. The median value stated, to be incurred by Member State competent authorities, is EUR 950 per year (average EUR 1,327). The financial burden for national administrations as regards these actions related to a coordination mechanism can therefore be considered to be relatively limited. In addition, the costs for the Commission of organising the coordination meeting are estimated at EUR 17,000. ITC costs, mainly related to setting up and running an online coordination platform, are estimated at EUR 50,000.

6.3.6Legal instrument: soft law (recommendations) or legally binding instrument

The question whether soft law measures would suffice in achieving the objectives has to be considered in the context of previous Communications of the European Commission on the topic of UTPs. In 2009, the European Commission considered that action was “needed to eliminate unfair contractual practices between business actors all along the food supply chain”. 296 It encouraged Member States to exchange information and best practices. The Commission set up the High Level Forum on the Better Functioning of the Food Supply Chain in 2010. In 2014, a Communication made certain suggestions addressed to Member States as regards governance of UTPs. It suggested a combination of voluntary and regulatory frameworks and mentioned that particular attention should be given to confidentiality of complaints and national authorities should have the ability to conduct investigations. 297 Cooperation among enforcement authorities was again mentioned as important. The European Commission January 2016 report revisited some of these issues and made recommendations.

While developments of the voluntary initiatives, in particular the SCI and the national platforms, have occurred, the suggestions and efforts aiming at creating some kind of minimum standard among Member States and stepping up enforcement have not led to the desired results (see section 3.3 above). As has been shown, there are Member States which continue to have no rules that would cover UTPs, lack competent enforcement authorities or effective redress modalities.

In the light of the above, the use of a legally binding instrument would achieve added value.

6.4Option packages

Viable policy option packages – assembled from the options set out in section 5 which have been assessed as to their impacts in section 6 - are set out in the table below. They embody different degrees of stringency of the EU approach proposed, from relatively wide regulatory coverage to a lighter and merely recommended framework. Other combinations would have been possible, but some choices have to be made in order to carry out the comparative exercise. In any case, the European Commission can decide on any different “mix and match”.

The four packages have in common that they propose a partial harmonisation of UTP rules at the EU level (in Package 4 via a recommendation). Package 1 pursues a partial harmonisation by regulation and by way of a principle-based prohibition of UTPs. Alternatively, a short list of specifically prohibited UTPs can be drawn up (Packages 2, 3 and 4). The rules can apply to food products (Packages 1, 2 and 3) or to agricultural products (Package 4). The UTP rules can protect all food supply chain operators (Packages 1 and 2) or a select group that would be deemed worthy of protection (Packages 3 and 4). A recommendation would constitute a soft law option for public governance (Package 4) while a regulation (Package 1) or a directive (Packages 2 and 3) would introduce mandatory measures. Packages 1, 2 and 3 would require more elaborate enforcement powers for Member States’ competent authorities than Package 4. Last but not least, Packages 1, 2 and 3 would include coordination between Member States enforcement authorities and the European Commission while Package 4 would provide for a continued high-level discussion of food supply chain issues in the High Level Forum on the Better Functioning of the Food Supply Chain.



Package 1

Package 2

Package 3

Package 4

General coverage & enhanced enforcement and coordination

Targeted coverage all operators & enhanced enforcement and coordination

Targeted coverage - protection of SMEs & enhanced enforcement and coordination

Targeted coverage - protection of SMEs & enforcement and coordination (recommendation)

Scope of UTP rules

Principle-based prohibition of UTPs

Specific UTPs listed as prohibited

Specific UTPs listed as prohibited

Specific UTPs listed as prohibited

Coverage of products

Agricultural and processed agricultural products

Agricultural and processed agricultural products

Agricultural and processed agricultural products

Agricultural products

Coverage of operators

All operators

All operators

Protection of SMEs across the chain

Protection of SMEs across the chain

Enforcement

Minimum requirements "plus"

Minimum requirements "plus"

Minimum requirements "plus"

Minimum requirements

Coordination

Network of competent authorities

Network of competent authorities

Network of competent authorities

Baseline (High Level Forum)

Instrument

Regulation

Directive

Directive

Recommendation

Table 5: option packages

7How do the options compare?

The option packages presented in section 6.4 combine components which have been described in section 5 as potentially effective with a view to achieving the policy objectives. The options have been assessed as to their impacts and their efficiency in section 6. In Annex E, the different options are assessed qualitatively in terms of their effectiveness and efficiency (on a range going from "more effective / "more efficient than the baseline" to "more ineffective / more inefficient than the baseline"). By doing so, a qualitative assessment of the effectiveness and efficiency of each package is carried out. The following table provides an overview of the results.



Package 1

Package 2

Package 3

Package 4

General coverage & enhanced coordination and enforcement

Targeted coverage all operators & enhanced enforcement and coordination

Targeted coverage - protection of SMEs & enhanced enforcement and coordination

Targeted coverage - protection of SMEs & enforcement and coordination (recommendation)

Effectiveness

Efficiency

Effectiveness

Efficiency

Effectiveness

Efficiency

Effectiveness

Efficiency

Degree of harmonisation

+

+

+

+

+

+

+

+

Scope of UTP rules

+

-

+

0

+

0

+

0

Coverage of operators

++

0

++

0

++/+

+

++/+

+

Coverage of products

++

0

++

0

++

0

+

-

Enforcement

++

+

++

+

++

+

+

+

Coordination

+

0

+

0

+

0

0

0

Instrument

+

-

+

0

+

0

0

0

Table 6: Qualitative assessment of the effectiveness and efficiency of the option packages

8Preferred option

The above option package 3 ("Protection of SMEs & enhanced coordination and enforcement") is retained as the preferred one with a view to addressing the problem defined and achieving the objectives pursued. It is more effective in achieving the specific objectives than Package 4, thanks to a broader coverage in terms of operators (in the food supply chain), of products and more extensive enforcement arrangements as well as its mandatory character. It is likely to perform equally well in terms of effectiveness as a more exhaustive approach where all UTPs would potentially be covered through a general UTP prohibition (Package 1) or an option that would cover all operators across the chain regardless of their size (Package 2). Package 1 is characterised by a risk of legal uncertainty for operators in the food supply chain due to its potential tension with Member States’ general clauses. Package 2 entails a risk of not being fully proportionate in relation to the problem defined as well as the objectives pursued and is, therefore, deemed less efficient than Package 3.

Package 3 takes into account concerns that UTP rules would interfere in commercial relationships between operators which are not characterised by an imbalance of bargaining power and where UTPs would therefore be less likely to occur in the first place. It would practically mean that commercial relationships between large operators would not be covered while sales of food products by an SME supplier to a non-SME buyer would be. As regards the scope of the rules and their proportionality, the UTP approach under Package 3 would also take into account mutually beneficial efficiency gains deriving from agreed arrangements between parties (ex ante situations referred to in Annex H 298 ). The corresponding UTP definitions would be subject to the criteria described in section 5.3.3.7 (“Criteria concerning the assessment of unfairness”). The endorsement of a directive as the relevant instrument for UTP measures would be mindful of subsidiarity: a directive enables Member States to choose the means of how to integrate an EU minimum standard of protection into their national regimes.

9Monitoring and evaluation

The Commission would monitor and evaluate the impacts of the proposed policy option on business-to-business unfair trading practices in the food supply chain. The option seeks to achieve the specific objectives described above. The approach is based on synergies with national rules and voluntary initiatives. As has been shown, the EU measures root in identified trading practices for which there is a consensus regarding their unfair nature and require a common set of minimum enforcement modalities, including coordination mechanisms among the national authorities.

The application of the EU rules and their impact should be monitored based on annual reports by Member States to the European Commission. Such reports should primarily detail the activity of enforcement authorities in terms of e.g. the number of complaints received (confidentially or not), the number of investigations launched (own initiative or upon request) and share of cases resulting in findings of an infringement. The annual reports should be discussed by the Commission and the national competent authorities in an ad hoc expert group (see section 5.7.2). The specific mandate for such a cooperation forum remains to be determined but could include making recommendations based on best practices identified in Member States.

The efficiency of a public enforcement regime is not necessarily a function of the number of its enforcement cases; nor can its effectiveness be measured by exclusively counting decisions by competent UTP authorities. 299 Therefore, annual reports should not be limited to pure implementation data but could also cover concrete practices, with a view to facilitate the adoption of best practices.

The monitoring arrangement accompanying the EU framework should in general enable the gathering of “hard data” and information on UTPs. This could cover both the EU regulated UTPs, as well as, to the extent Member States show openness, other UTP rules in national provisions or voluntary guidelines. A further tool to gather information and enable an evaluation to be carried out can be anonymous surveys of undertakings active in the food chain, such as the UK grocery adjudicator or the SCI currently undertake on an annual basis. The European Commission should also directly carry out or commission economic studies aiming at measuring the impact of the different practices concerned by national rules and voluntary initiatives at micro- and macro-economic level.

The Commission will closely follow the interaction and complementary effects of the proposed policy option and the voluntary Supply Chain Initiative.

The impact of the EU’s action in the form of UTP measures as set out in the proposed option in this impact assessment should be assessed 4 years after entry into force of the adopted instrument. This should take the form of a European Commission report to the legislator. A non-exhaustive list of possible monitoring indicators is shown in the table below.

Specific objectives

Source

Indicators

Reduce occurrence of UTPs

-

-

Annual survey to undertakings

Members States annual reports

-

-

-

Declared occurrences of each UTP concerned by undertakings (share of firms declaring and frequency declared, perceived costs of UTPs)

Compliance costs for firms

Potential effects of trade diversion to the detriment of protected parties

Contribute to level playing field

-

-

Members States annual reports and annual meeting of enforcement authorities

Eurostat/national statistics / EU and national market, prices/ costs observatories

-

-

-

-

Alignment of application of UTP rules (e.g. number of changes to national rules with a view to approximate practices)

Number of best practices recommendations adopted

Declared administrative costs for Members States

Relative production and consumer price changes

Enable effective redress

-

-

Members States annual reports

Eurostat / national statistics / EU and national market, prices / costs price observatories

-

-

-

Number of complaints received (anonymously or not)

Number of mediation meetings, if applicable

Number of investigations launched (own initiative or upon request)

Share of cases resulting in findings of an infringement

Table 7: Monitoring and evaluation

List of Annexes

Annex 1    Procedural information

Annex 2    Stakeholder consultation

Annex 3    Who is affected by the initiative and how?

Annex A    Relevant EU documents concerning unfair trading practices

Annex B    The “fear factor” and different enforcement approaches to unfair trading practices

Annex C    Unfair trading practices, agriculture and the agro-food sector: quantitative evidence

Annex D    Table on transposition of Late Payment Directive in Member States in terms of payment terms

Annex E    Comparison of policy options

Annex F    Cafaggi and Iamiceli, Overview on “Specific regulations on Unfair Trading Practices in Member State in the Business-to-Business Retail Supply Chain”, February 2018

Annex G    Cafaggi and Iamiceli, Overview on “Specific regulations on Unfair Trading Practices in Member State in the Business-to-Business Retail Supply Chain”, February 2018, summary tables

Annex H    Chief Economist of DG Competition, European Commission, Economic impact of unfair trading practices regulations in the food supply chain, 22 January 2018

Annexes - Contents

Annex 1: Procedural information    74

1.    Lead DG, Decide Planning/Commission Work Programme references    74

2.    Organisation and timing    74

3.    External expertise and evidence base    75

3.1.    Joint Research Centre academic workshop on UTPs in the food supply chain    75

3.2.    Study on UTPs at Member State level    76

4.    Regulatory Scrutiny Board    77

Annex 2: Stakeholder consultation    82

1.    Stakeholder consultation process    82

2.    Summary of stakeholder consultation results    82

2.1.    Inception impact assessment    82

2.2.    Open public consultation    83

2.3.    Targeted questionnaire to undertakings    86

2.4.    Targeted questionnaire to consumer organisations    86

2.5.    Questionnaire to Member State public authorities    87

2.6.    Joint Research Centre academic workshop on UTPs in the food supply chain    87

2.7.    Ad hoc meetings with food supply chain stakeholders    87

2.8.    Civil Society Dialogue groups    87

Annex 3: Who is affected and how?    88

1.    Practical implications of the initiative    88

2.    Summary of costs and benefits    91

Annex 4: Analytical methods    93

Annex A: Relevant EU documents concerning unfair trading practices    94

Annex B: The “fear factor” and different enforcement approaches to unfair trading practices    95

1.    Fear factor    95

2.    Judicial redress    95

3.    Administrative redress    96

4.    The voluntary Supply Chain Initiative    97

Annex C: UTPs, agriculture and the agri-food sector: quantitative evidence    98

1.    The food supply chain    98

2.    Economics of agriculture    101

3.    Agriculture specifics    102

4.    Structure of the different stages of the food chain    105

5.    Price transmission    109

6.    Rules on UTPs and price evolution    111

7.    Intra-EU Trade    113

8.    Share of cooperative products in retail sales    121

9.    Share of agricultural products (in the meaning of the Treaty) in retail sales    121

Annex D: Table on transposition of Late Payment Directive in Member States in terms of payment terms    124

Annex E: Comparison of policy options    132

1.    Degree of harmonisation of substantive UTP rules    132

2.    Scope of UTP definition    133

3.    Coverage of products    134

4.    Operators covered    134

5.    Enforcement    135

6.    Coordination of enforcement    136

7.    Legal instrument    137

8.    Comparison of option packages    137

Annex F: Study - Overview on “Specific regulations on Unfair Trading Practices in Member State in the Business-to-Business Retail Supply Chain”    140

Annex G: Study annexes - Overview on “Specific regulations on Unfair Trading Practices in Member State in the Business-to-Business Retail Supply Chain”     196

Annex H: Economic impact of unfair trading practices regulations in the food supply chain (DG Competition)    260

Annex 1: Procedural information

9.0Lead DG, Decide Planning/Commission Work Programme references

The European Commission’s Directorate-General for Agriculture and Rural Development (DG AGRI) is the lead Directorate-General in this initiative. The initiative to improve the food supply chain is included in Agenda Planning (Decide) under the reference PLAN/2017/764. In addition, in the European Commission Work Programme for 2018 the European Commission committed itself to “propose measures to improve the functioning of the food supply chain to help farmers to strengthen their position in the marketplace and help protect them from future shocks” 300 .

9.1Organisation and timing

The European Commission decided in June 2016 to perform an impact assessment on aspects of the functioning of the food supply. DG AGRI is responsible for EU policy on agriculture and rural development and deals with all aspects of the common agricultural policy (CAP), including the common organisation of the markets in agricultural products (Regulation (EU) No. 1308/2013). DG AGRI cooperated on the drafting of the IA with the Secretariat-General (SG), DG Internal Market, Industry, Entrepreneurship and SMEs (GROW), DG Trade (TRADE), DG Financial Stability, Financial Services and Capital Markets Union (DG FISMA), DG Competition (COMP), DG Environment (ENV), DG Climate Action (CLIMA), DG Maritime Affairs and Fisheries (MARE), DG Health and Food Safety (SANTE), and DG Justice and Consumers (JUST). This process included six Inter-service Steering Group meetings, which took place between 14 July 2017 and 2 March 2018 (the latter before resubmission to the Regulatory Scrutiny Board).

The following main steps were taken in the lead-up to the submission of the impact assessment to the Regulatory Scrutiny Board:

·a Joint Research Centre workshop with independent academic experts on UTPs in the food supply chain (July 2017);

·an inception impact assessment (July 2017);

·an open public consultation (August to November 2017);

·targeted questionnaires to MSs, undertakings in the food supply chain and to consumer organisations (September to December 2017);

·a series of meetings with stakeholders of all tiers of the food supply chain (year 2017).

The key results from these steps are summarised here and in Annex 2.

9.2External expertise and evidence base

The evidence base of the IA includes information collected through stakeholder consultation, as well as a workshop and independent expert literature reviews, and information from experiences in regulating UTPs in MSs and in third countries.

9.2.0Joint Research Centre academic workshop on UTPs in the food supply chain

Experts at the "Unfair trading practices in the food supply chain" workshop acknowledged the existence of UTPs in the food supply chain, as well as the extensive regulatory and analytical work around them 301 . Such practices are in general considered to be more likely to happen in situations of imbalance of bargaining power. The food supply chain has, broadly, experienced increasing concentration and consolidation. It was however argued by one expert that under certain market conditions, increasing concentration and consolidation may result in more efficient outcomes. The negative consequences may take different forms and may affect different aspects of farm/firm decision-making processes. UTPs may distort the way prices are negotiated and set, and contribute to increased market uncertainty and increased risk that, among others, may lead to market inefficiencies, lower investment, distorted income distribution along the chain, and the exit of some operators (particularly small-scale farmers). The workshop highlighted that UTPs may happen at each stage of the food supply chain and that their effects can be transmitted along the chain towards either downstream or upstream sectors. Further, the transnational nature of supply chain systems implies that the impacts of UTPs can have cross-border effects, including with third countries.

While some practices might be perceived as being unfair they are not necessarily inefficient at the food supply chain level. There is a danger that policies to limit UTPs could eliminate practices that enhance efficiency of transactions as an unintended effect and thereby reduce the total surplus that can be shared between participants to the transaction. In some cases fairness can be a relative concept, but in any case the perception of unfairness can have a significant impact on costs (by impacting trust and increasing transaction costs or affecting socio-economic cohesion) and there are sound economic motives to take redistributive effects and the perception of redistribution on board.

The workshop also highlighted a concern that UTPs are generally imprecisely and ambiguously defined. Rules to regulate UTPs, or at least the most blatant UTPs, already exist at the level of several Member States, but the regulatory landscape in the EU is considerably fragmented. It is also challenging to establish what should be attributed to each specific practice and how to measure the effect due to a lack of information, among others because companies involved in UTPs are not willing to reveal it (in the case of those exposed to UTPs due to the ‘fear factor’). The probability of the so-called 'forum shopping' will also add complexity to this picture. Critiques have well substantiated the many distortions and counterproductive biases that can be introduced when considering regulations leading to a “benign neglect” for efficiency considerations, a significant risk in policy making. A lesson from these limitations could well be that a superior solution requires mixing different tools.

There was a general agreement in the workshop that regulatory authorities and other monitoring devices are needed to enforce rules concerning UTPs, preventing their harmful consequences, following-up complaints etc., and that this requires most of the time such devices to be external to the direct players of the game. The Supply Chain Initiative faces the reluctance of some key stakeholders to participate, particularly because of the lack of adequate mechanisms of enforcement of the rules agreed upon. The coordination between public and private monitoring systems would allow a more efficient enforcement of the rules.

The workshop also recognised several benefits of coordination (harmonisation) of the regulatory framework at supranational (EU) level, because of the transnational nature of many supply chains, encouraging a more complete common market, where competition takes place under the same conditions. The supranational coordination may help prevent a ‘race-to-the-bottom’ in UTP regulation between countries and lead to economies of scale in administration. Finally, an important benefit of coordination relates to transaction cost savings for operators along the supply chain, which would need to spend less on information costs due to differences in the regulatory framework between Member States. However, the workshop identified some costs linked with the coordination or harmonisation of the regulatory framework. Member States may need to adopt a different regulatory framework than desired, which can lead to over-regulation in certain Member States and to costs of switching from the existing system to a new one. The more restrained the harmonisation the less likely an over-regulation effect is to be significant.

The participants also noted the paucity of empirical evidence to date on the occurrence of UTPs in general and in particular within the food supply chain. The limited knowledge accumulated to date on UTPs despite the considerable public interest in the topic suggests the imperative for additional research to be conducted on the topic, even while it is recognised that measuring precisely the economic effect of such practices is complex due to many confounding factors and a lack of data, in part because of the fear factor. The lack of information could be partially solved by increasing transparency within the agro-food supply chain.

9.2.1Study on UTPs at Member State level

The Commission sent a questionnaire to Member States with a threefold objective: in order to update information that was collected from Member States on the basis of a questionnaire sent in 2015 on the existence of UTP legislation, implementation and enforcement; to learn about impact assessments that Member State authorities may have carried out before deciding on national UTP rules or evaluations; and to gather evidence on the administrative costs to public administrations from the introduction of rules on UTPs. The Member States replies covering the first aspect were used as data for the Cafaggi and Iamiceli (2018) study ‘Overview on “Specific regulations on Unfair Trading Practices in Member State in the Business-to-Business Retail Supply Chain”’.

As regards the administrative cost aspect 15 Member States provided information: 8 of them (Hungary, Latvia, Poland, Slovakia, Bulgaria, United Kingdom, Czech Republic, Spain) have legislation on UTPs and a functioning competent authority, either a specific one or one integrated in the competition authority. Overall, Member States have difficulty in estimating costs – the methodologies used are diverse and unclear and sometimes result in widely different results (e.g. the cost for setting up an administrative authority varies from 32 thousand EUR (Slovakia) to 4 million EUR (Sweden), the yearly operational costs can from 10 thousand EUR (Slovakia) up to 27 million EUR (Sweden). Looking at the information from United Kingdom, Spain and Czech Republic, with well established, functioning and experienced specific competent authorities, the additional costs linked to an EU action, including those related to reporting and EU coordination, would be absorbed by the current structures and be therefore, in their opinion, negligible.

9.0Regulatory Scrutiny Board

An upstream meeting with the Regulatory Scrutiny Board took place on 13 November 2017, with DG AGRI and SG present. The aim of the meeting was for DG AGRI to present the initiative and the general approach envisaged for the impact assessment and to obtain feedback as to the main issues the Regulatory Scrutiny Board expected the impact assessment to address.

DG AGRI presented the impact assessment to the Regulatory Scrutiny Board on 21 February 2018. The RSB issued a negative opinion on 23 February 2018. The Board requested further work to be done and asked for the resubmission of the impact assessment report. The Board identified several shortcomings that needed to be addressed in a revised version.

A revised version of the impact assessment report was submitted to the Regulatory Scrutiny Board on 5 March 2018 and the Board's issued a second opinion, received on 12 March 2018, of positive with reservations.

The following table provides an overview of the adjustments made to the text to meet the requirements of the Board’s first opinion:

RSB

Changes: location in revised IA & comments

1.

Report does not explain the reasons for changing the course of action following the 2016 Commission Report. The report does not explain how the initiative complements or corrects the shortcomings of actions taken so far at the EU level.

Sections 3.3 and 3.2 were developed, with a discussion of the January 2016 baseline and developments since then and conclusions are presented in detail. Clarification was made that the recommendations put forward at the time were not fully implemented, which in part justifies the need for EU action.

Report does not state the consensus on the occurrence of unfair trading practices in the food supply chain.

Changes to section 2.3 – the section was shortened and the consensus is now stated clearly upfront (and backed up by documentation).

2.

Use of CAP legal bases is not sufficiently motivated

Section 3.1 (legal basis) has been further developed, including comments on the effects on farmers from UTPs occurring downstream in the chain. Clarification is given on the rationale for the restricted scope of possible options (preferred option – see choice later in document) and the reasoning is adjusted in this sense.

Sections 7 and 8 (and Annex E) discuss option packages and the preferred option. The preferred approach has been changed to tackle UTPs as they occur in relationships characterised by imbalances in the chain (using SMEs as proxy for such imbalances), addressing proportionality issues.

3.

Report does not assess the effectiveness of national legislation on UTPs in the FSC

Section 6.2.1.1 - only limited evidence is available on this issue, but the evidence that does exist is put to better use. Where systems such as the UK Groceries Code Adjudicator (practicable rules plus enforcement) exist the experience is positive and improving over time. The history of the GCA shows the evolution from voluntary code to mandatory rules that include effective enforcement powers.

It does not explain why it is more effective to act at the EU level.

Section 2.7 – the discussion on the SCI (part of baseline), its benefits and shortcomings and relation to EU need to act, has been moved from Annex B of report.

Sections 3.2, 3.3 and 6.1 – a clearer and more detailed presentation is offered of the expected benefits against the baseline of under-protection against UTPs and the divergence of rules in Member States.

It was clarified in various places that EU measures would not replace but rather complement existing rules (addressing subsidiarity issues and seeking synergies).

4.

Options are not detailed enough

Section 6.4 - one option package has been added offering further detail. Some additions in section 5 were also included when discussing the options.

The analysis of impacts does not cover farmers' revenues, innovations in the FSC, competition in various market segments and implications for Member States.

Section 6.2.1.2 on farmers – evidence that UTPs harm farmers has been further highlighted. Surveys and the agreement around the issue in the voluntary SCI demonstrate harm to operators.

Section 6.2.1.4 on innovation - evidence on impact on innovation is somewhat inconclusive. Still, negative impacts are more likely where there is low competition in markets downstream of agricultural production.

Section 6.3.3 on competition –an approach that does not apply to relationships between larger operators is considered. Such an approach would address concerns that margins are skewed due the introduction of EU rules on UTPs when large operators are concerned (i.e., without the significant imbalance of bargaining power that enables UTPs in first place). See also Section 6.2.1.3 at the start, Annex E.2 and E.8.

Section 6.2.3 on Member States is also developed further.

5.

Proportionality of the preferred option, in particular with respect to the need to cover the whole supply chain, independently of the asymmetry of bargaining power is not fully tested

The complementary character of the initiative is mentioned in some passages (minimum harmonisation). It is made clear that it is not the ambition to replace voluntary schemes or national rules, but rather to introduce minimum protection and possibly re-inforce it (e.g. section 1.1).

Sections 7 and 8 – the preferred option is changed from comprehensive coverage in terms of operators to protection of SME operators in the chain (see also 6.2.1.2 at the end). It is explained that the negative effects of UTPs are passed on through the food supply chain to farmers, even if UTPs occur downstream of primary production. As such, it is necessary to cover UTPs in the chain. This element is also part of previous European Commission documents.

Section 3.2 relates EU action to (i) problem definition and objectives, (ii) complementarity, (ii) existing rules, (iii) contractual arrangements between parties. (5.3.3; 6.3.1). Coverage of operators is discussed in section 6.3.3 and informs choices made later on in text (sections 6.4, 7 and 8, and Annex E): coverage of operators and choice of legal instrument (directive instead of regulation).

6.

Quantification of the various costs and benefits associated to the preferred option of this initiative is missing

Section 6.2.1 and Annex 3 – the section and the Annex clarify that the precise quantification of benefits is not feasible (the UK was also not able to quantify benefits in case of the UK Groceries Code Adjudicator). But some calculations are provided which enable a broad idea of the magnitude of benefits. Clearer ranges for costs estimates drawn from MS experiences are introduced.

The following table provides an overview of the adjustments made to the text to meet the requirements of the Board’s second opinion:

RSB

Changes: location in revised IA & comments

1.

The report should justify why the 2016 Commission’s conclusions are no longer valid. The report should explain why the European Parliament, the Council and others have requested further actions. The revised report should present additional evidence to support the need for action at EU level.

In section 3.3 of the IA it is now better explained that, unlike expected, after 2016 there were only limited positive developments regarding UTPs, because both Member States and the Supply Chain Initiative followed up on the Commission’s recommendations only to a limited extent, i.e. material improvements did not materialise. This discrepancy between expectations and the (lack of) actual development has also been illustrated in a new table.

2.

The scope of the impact assessment is now more proportionate, covering only those parts of the food supply chain where asymmetries in bargaining power could result in unfair trading practices. The report should explain how the preferred option would be made operational. This includes how the proxy for SME size will be implemented to better protect weaker operators in the FSC.

The last subparagraph of section 5.5.2 has been reworded and complemented on the concrete implementation of the SME proxy. In section 8, this aspect is also clarified in the last subparagraph describing the preferred option package.

It also includes the concrete definition of unfairness criteria to be used for the six practices which the legislation will cover

A new section 5.3.3.7 has been added for this purpose. In section 8, this aspect is also clarified in the last subparagraph describing the preferred option package.

3.

The report does not provide specific information on the effectiveness of particular national schemes. It is therefore unclear what the initiative will add. Without an analysis of the effectiveness of national schemes, the report may overestimate the benefits of the proposed measures. Enforcement may only change national practice in those Member States where no UTP regulations or voluntary schemes exist

In section 6.2.3 of the impact assessment report the benefits of UTP measures have now been detailed in a table that clearly differentiates the benefits by the practices that are already existing in Member States, thus illustrating which benefit will accrue to how many (and which) Member States. The table also includes a tentative assessment of the potential impact of the listed benefits –the largest benefit will accrue to those Member States where no UTP schemes exist, but, for instance, better coordination across Member States will provide (smaller) benefits to all. The list of benefits itself is based on the study by Cafaggi and Iamiceli that is included in Annex F.

4.

The report should comment on costs of implementation, especially for setting up and operating the network of competent authorities

Sections 6.2.3 and 6.3.5 (and Annex 3) were developed to present further details of the expected costs of implementation to public administrations in respect to their existing legal frameworks on UTPs and to expand on the costs expected to be incurred by the same administrations in respect to participating in the network of competent authorities, as well as on costs of organising the network for the EU. The table on costs in Annex 3 was updated accordingly.

The table on benefits should be adjusted to reflect the estimates and qualitative assessment provided in the main report.

Annex 3's table on benefits was updated to reflect the figures on the magnitude of possible benefits and the qualitative benefits pertaining to increased trust between operators (discussed in section 6 of the report).

Annex 2: Stakeholder consultation

9.1Stakeholder consultation process

The stakeholder consultation process was set out in a consultation strategy 302 and carried out between 17 July and 6 December 2017.

Stakeholders were invited to offer comments and evidence on problem definition, policy objectives, the need for EU action, policy options, on the likely impact of the policy options, and on implementation issues, including monitoring and enforcement. The stakeholder consultation meets the requirements in the better regulation guidelines.

9.2Summary of stakeholder consultation results

9.2.1Inception impact assessment

The inception impact assessment received significant attention, with 66 contributions submitted by various stakeholders 303 . 33% of these were farmers or farming organisations, 17% Member State authorities, 15% non-governmental organisations (NGOs), 11% processors and their organisations, 8% retailers and their organisations, and 17% other respondents (academia, trade unions, traders, and anonymous). It should be noted that the inception impact assessment feedback process is not structured in the sense of a questionnaire. Instead the text of the contributions was sifted for relevant information in a systematic way ex post.

91% of respondents agreed that UTPs exist in the food supply chain (5% did not reply, and 5% did not state a clear position). 76% of respondents stated that UTPs caused a significant problem, and 14% that they did not 304 . 5% of respondents stated that UTPs existed but an overall positive effect on the food supply chain in terms of efficiency.

71% of respondents believed there was a need for the EU to act (from 64% of ‘other’ to 90% of NGOs; farmers 82%, Member States 73%, processors 71%), except for retailers (100% of retailers believed the EU should not act).

Only 5% of respondents commented on the inclusion or exclusion of food products in the scope of the initiative, being broadly in favour of inclusion. 41% commented on the extent to which food supply chain operators should be included, with 82% in favour of covering the full supply chain (the outlier being the processing sector, where only 57% of respondents were in favour of covering the full supply chain).

20% of respondents mentioned the fear factor, generally considering this effect to exist and to be significant. 62% believed the possibility of making anonymous complaints should exist, 38% believed it should not). 92% believed sanctions against those practicing UTPs should exist, 8% believed they should not). 17% of respondents mentioned cooperation between Member State authorities, with most being supportive of cooperation.

9.2.2Open public consultation 305

Overview of respondents

The open public consultation (OPC) results were consistent with those of the IIA. The OPC ran for three months, between 25 August and 17 November, and attracted a total of 1,432 responses(56% by individuals - 803 responses - and 44% by organisations - 628 responses). 71% of individuals stated they were involved in farming (570 responses), and 29% that they were not (233 responses). Organisations’ contributions were mainly by private companies (38% of organisations’ responses), business and professional associations (31%), and NGOs (20%). In terms of sector of activity, the organisation responses were from agricultural producers (53% of organisations’ responses); the agro-food sector (22%); the trade sector (7%); civil society organisations (7%); the retail sector (4%); research organisations (1%); and ‘other’ ( 6%).

The ‘private company’ group can be further broken down by company size, (number of employees). Small and medium enterprises (SMEs) were 81% of private company responses). Large enterprises (those with more than 250 employees) were 19% of all private company contributions.

In terms of Member State of origin the highest participation came from Germany (29% of total), Austria (14%), France and Spain (7%). The lowest from Croatia, Luxembourg, and Cyprus (1 contribution each).

Respondents’ views

a)Problem definition 306

90% of respondents agreed or partially agreed that there were practices in the food supply chain that could be considered to be UTPs. These results were broadly similar for all stakeholder groups, with the exception of the retail sector (12% agreed or partially agreed UTPs existed in the food supply chain, and 88% disagreed or partially disagreed – most of these partially disagreed, at 72%).

The respondents were then asked whether a list of practices could be considered to be UTPs, with respondents agreeing or partially agreeing at between 80% (payment periods longer than 30 days for agro-food products in general) and 93% (unilateral and retroactive changes to contracts) that the practices were UTPs. When asked about how frequently UTPs occurred in the food supply chain 87% stated they occurred regularly or very regularly. All respondents agreed that they occurred regularly or very regularly except for the retail sector, which stated these never or rarely occurred (84). 88% of individuals stated UTPs occurred regularly or very regularly.

The respondents were asked to identify which 3 practices they considered to be UTPs and to have the most serious impact. Of the top 8 practices identified, six were listed as Supply Chain Initiative (SCI) Principles of Good Practice and seven as UTPs in the Agricultural Markets Task Force (AMTF) report (‘payment periods longer than 30 days’ appearing twice, for perishable and agro-food products in general).

Frequency

SCI's Principles of Good Practice

AMTF-listed UTPs

Unilateral and retroactive changes to contracts (concerning volumes, quality standards, prices)

771

*

*

Last minute order cancellations concerning perishable products

316

*

*

Payment periods longer than 30 days for perishable products

275

 

*

Payment periods longer than 30 days for agro-food products in general

273

 

*

Imposing contributions to promotional or marketing costs

248

*

*

Unilateral termination of a commercial relationship without objectively justified reasons

227

*

 

Requests for upfront payments to secure or retain contracts ("hello money")

185

*

*

Imposing claims for wasted or unsold products

182

*

*

Imposing private standards relating to food safety, hygiene, food labelling and/or marketing standards, including strict verification procedures

179

 

 

Imposing an upfront access fee for selling a product ("listing fees")

152

*

 

Programmed overproduction leading to food waste

146

 

 

Withholding by one party of essential information to both parties

114

*

 

Passing onto other parties of confidential information received from partner

98

*

 

Additional payment to have products displayed favourably on shelves ("shelf-space pricing")

90

 

 

Imposing on a contract party the purchase of an unrelated product ("tying")

78

 

 

Inconsistent application of marketing standards leading to food waste

60

 

 

Imposing to suppliers costs related to product shrinkage or theft

40

*

 

Imposing a minimum remaining shelf life of goods at the time of purchase

11

 

 

Other

83

 

 

The questionnaire requested respondents to identify the actors in the food supply chain on which UTPs might have appreciable negative effects. 94% of respondents agreed or partially agreed that such appreciably negative effects occurred for farmers. 83% of respondents for processors; 66% for SMEs; 60% for consumers; 55% for third country operators producing for the EU market; 39% for traders; and 35% for retailers. Respondents were also asked whether they agreed that UTPs could have negative indirect effects on these groups, with broadly similar results.

b)Need to act

When asked whether action should be taken to address UTPs in the food supply chain 95% of respondents agreed or partially agreed. If they thought action should be taken, respondents were then asked to specify who should take such action.

- 87% believed action should be taken by the European Union (in combination with Member States, 58% ; or the EU acting alone, 29%);

- 8% that MSs should act alone; and

- 4% that action should be taken through voluntary initiatives (54% of these were retail organisations).

Of the 87% of respondents that believed that the EU should take action, 51% thought legislation was the appropriate means, 46% a mix of legislation and non-legislation, and 2% preferred non-legislative action.97% of these respondents believed EU action would result in better enforcement of rules; 95% believed EU action would provide more legal certainty for businesses; 94% that it would level the playing field in the internal market; 84% that it would benefit EU cross-border transactions; 84% believed it would reduce food waste; 80% that it would lead to a higher degree of innovation; and 75% that it would widen the choice offered to consumers. 67% preferred both a harmonised definition and a list of specific UTPs; 21% a list of specific UTPs; 11% general principles; and 1% none of these.

Finally respondents were asked for their views on whether the voluntary Supply Chain Initiative was sufficient to address UTPs. 75% disagreed or partially disagreed, and 22% agreed or partially agreed. All organisation types primarily disagreed or partially disagreed, except for retail organisations( 88% agreed or partially agreed Supply Chain Initiative was sufficient. Agro-food and trade organisations had relatively high rates for ‘agreed or partially agree’, even if this was not overall the preferred option (43% and 40%, respectively). 81% of individuals involved in farming and 69% of other individuals disagreed or partially disagreed.

c)Enforcement

92% of respondents agreed or partially agreed that there should be minimum standards applying to the enforcement of UTP rules in the EU. Support for minimum enforcement standards ranged from 20% of retail organisations to 100% for civil society organisations (96% of agriculture organisations; 87% of agro-food organisations agreed or partially agreed).

Respondents were then asked which elements they considered to form an important part of an effective public enforcement of UTP rules. 94% stated transparency of investigations and results; 93% the possibility of fines in the case of violations to the rules; 92% the possibility to file collective complaints; 89% the ability to receive and to treat confidential complaints; 89% the designation of a competent authority; 73% the ability to conduct own initiative investigations; and 36% other aspects. The various organisation types and individual respondents mostly agreed or partially agreed with these elements, with the exception of retail (disagreed or partially disagreed with each of the elements between 72% to 80%).

9.2.3Targeted questionnaire to undertakings

The targeted questionnaire to undertakings was open between 6 November and 10 December and a total of 122 responses were received. 35% of respondents were involved in agriculture, 48% in processing, 10% in retail, 4% in wholesale (remaining answers not classified). In terms of size, 70% of respondents were SMEs. 7% of the respondents classified themselves as buyers, 49% suppliers, 40% as acting as both supplier and buyer. A high share of replies is from Belgium, France, Italy, Spain and the United Kingdom (18 Member States have 3 or less replies).

54% of the enterprises acting as buyers and 89% of suppliers state that late payments occur in business transactions. 14% to 30% of those acting as buyers stated that they have imposed other UTPs in a business transaction. For enterprises acting as suppliers 44% to 82% stated that they have been subject to an UTP as defined above.

30% of the enterprises acting as suppliers have been refused a contract in writing upon request. Suppliers were asked to estimate if they have been a victim to a UTP when buyers were established in other Member State. 24% of the respondents stated that they were "often or in a significant number of cases" in such situations. 19% of suppliers stated that dealing with a foreign buyer had a negative effect on their ability to challenge UTPs.

60% of the suppliers stated that UTP costs are more than 0.5% of the annual turnover of their business operation. Under certain assumptions in terms of weight for each category of answer 307 , the weighted commercial significance of costs related to UTP can be estimated at 1.8% (taking into account the 94 answers of suppliers) to 1.5% (trimming out the extreme answers – no costs, cost over 5%) of their turnover. 44% of buyers considered compliance costs as "high or moderate".

9.2.4Targeted questionnaire to consumer organisations

The consultation of consumer organisations resulted in three contributions. This consultation focused on whether and how UTPs in the food supply chain would affect consumers, according to their representative organisations.

Respondents disagreed that the introduction of legislation on UTPs would raise consumer prices and agreed that it would lead to an increase of trust in the food supply chain and benefit investment. Two agreed that the conditions for those employed in the food supply chain would be improved (one no opinion). All respondents agreed that the introduction of EU rules on UTPs would benefit consumers in the long term. Two agreed and one partially disagreed there would be benefits in the short term.

One respondent agreed that the introduction of UTP rules in their own country had increased consumer choice, increased trust, improved conditions for investment for operators, improved conditions for those employed in the food supply chain, and disagreed that it raised consumer prices (the other two respondents had no opinion). Two respondents disagreed and one partially disagreed that self-regulatory initiatives are sufficient. Two respondents disagreed and one agreed that possible negative effects on consumers from UTP legislation outweigh the potential benefits (at EU level).

9.2.5Questionnaire to Member State public authorities

Member State authorities were consulted via a set of questionnaires that requested contributions on: actual and/or estimated administrative costs of enforcing new UTP legislation under certain conditions; an update of information previously provided (2015) on the status of UTP rules in their national jurisdictions, including enforcement aspects; and to obtain information on impact assessments and other studies that Member States had available in this area. These data were used to inform a study by external experts and directly in the present impact assessment report (see Annex 1). The questionnaire to Member States was officially open between 2 October 2017 and 3 November 2017, but late submissions were accepted for use in the study by the external experts.

9.2.6Joint Research Centre academic workshop on UTPs in the food supply chain

A workshop jointly organised by the Directorate-General for Agriculture and Rural Development and the Joint Research Centre (JRC) was held in Brussels on 17-18 July 2017. The workshop brought together international experts, with a view to discuss the scientific literature on methodology, impacts and regulatory aspects of UTPs. A report compiled by several experts and edited by the JRC is publically available (further details of the outcomes of the workshop in Annex 1) 308 .

9.2.7Ad hoc meetings with food supply chain stakeholders

Several bilateral meetings with stakeholders were organised at their request. Meetings were held with Independent Retail Europe, FoodDrinkEurope, EuroCommerce, European Brands Association (AIM), the Danish Chamber of Commerce, the German Retail Federation, the Liaison Centre for the Meat Processing Industry in the European Union (CLITRAVI), the European Livestock and Meat Trading Union (UECBV), Edeka, REWE, Federation du Commerce et de la Distribution, the European Dairy Association, the International Dairy Federation, the United Kingdom’s National Federation of Meat and Food Traders, Europatat, and Euro Fresh Foods. The bilateral meetings focused on answering stakeholder questions about the impact assessment process and content, for stakeholders to express support for or opposition to the initiative and raise issues of relevance to their sector.

9.2.8Civil Society Dialogue groups

Two presentations with an exchange of views were made at Common Agricultural Policy Civil Dialogue Groups (CDGs), where several stakeholder groups are represented 309 . These took place on 6 November 2017 (Olives CDG) and 22 November 2017 (Horticulture/Fruit and Vegetables CDG).

Annex 3: Who is affected and how?

9.1Practical implications of the initiative

This annex sets out the practical consequences of the options for operators in the food supply chain, public administrations, and consumers. The options were considered under the following headings (see section 5): the scope of unfair trading practices’ (UTPs) rules, the enforcement modalities including coordination, and the legal instrument to be used. Some of the relevant effects would be one-off costs (adjusting to legislative changes), and others ongoing costs (additional annual training costs, additional running costs of competent authorities; see section 6).

9.2Effect on food supply chain operators

A prohibition of a minimum set of clearly damaging UTPs would have a positive economic impact on operators in that it would deter such UTPs being applied in their respect. If such UTPs occurred nonetheless, the respective prohibition would provide operators with a platform on the basis of which to seek redress by way of public (administrative) enforcement. The operators concerned would be able to concentrate on competing on the merits and their economic viability could be expected to be not (or less) affected by UTPs.

The possible negative economic impact of a short list of specific prohibited UTPs for certain operators would be circumscribed. Concretely formulated prohibitions targeting specific UTPs would aim to limit legal uncertainty for commercial transactions. If the principles of good practice established by the SCI was taken as inspiration for such a ‘black list’, the difference for Supply Chain Initiative (SCI) participants with the current situation would mainly reside in rendering the relevant UTPs enforceable; the public enforcement would complement the voluntary dispute resolution mechanism foreseen by the SCI.

UTP rules would result in compliance costs by operators subject to them. According to a 2016 study, the aspects which were deemed by survey respondents (and especially by SCI members) to contribute most to the overall effectiveness of the initiative in tackling UTPs were the training of company staff on the principles of good practice and the appointment of contact person(s) for internal dispute resolution. 310

The answers to targeted questionnaires sent to undertakings do not allow firm conclusions as to the significance of these costs. Any such cost would be incurred according to the specific UTPs that would be covered. It has to be taken into account that compliance costs in respect of the voluntary principles of good practice established under the SCI have already been incurred by its signatories who have organised training. 311 A leading supermarket chain replying to the consultation, for example, has spent EUR 200 thousand on one-off training measures of staff in relation to the SCI principles of good practice. Judging by the results, there seems to be a general view that compliance costs are not of great significance or a major concern for the vast majority of business stakeholders participating in the surveys.

In relation to a comprehensive coverage of operators, retailers have expressed concerns relating to the protection of large manufacturers under such an approach and the ensuing possible impact on the customary distribution of margins between retailers and these large manufacturers. Retailers state they distinguish between these relationships and the ones they have with farmers and small producers of food products.

Under the restricted approach adopted, a retailer’s relationship with a large manufacturer of food products would not be constrained by UTP rules. An approach which provides protection from UTPs for only smaller operators in the food supply chain would also be congruent with the problem driver “imbalance of bargaining power”. A case-by-case approach ascertaining the existence of an imbalance would enable targeting. It would, however, be less predictable for operators than an approach which relates its protective effect to the size of an operator as measured by a proxy, such as for example his SME status.

Effects on small and medium enterprises

A coverage of operators that also created obligations for SMEs could lead these smaller operators to incur in compliance costs. Although they would not normally be in a position to resort to UTPs due to their lack of bargaining power this could exceptionally be different, for instance when they are in a position to sell "must-carry" products. Yet, smaller operators including farmers generally welcome UTP rules at the EU level (98% of micro and small enterprises that responded to the open public consultation believe that action should be taken at EU level to address UTPs, either through legislation only or through a mix of legislation with non-legislative approaches) and have also participated in agreeing the SCI´s principles of good practice which applies regardless of size or bargaining power of operators in the chain. Therefore, it is safe to assume that compliance costs are outweighed by the benefits small and medium enterprise operators would enjoy if afforded minimum protection against UTPs in the EU.

Under a restricted approach where protection is offered to SME operators only, care should be had that the protection does not come to constitute a competitive disadvantage for small suppliers as their counter-parties would shift – in the interest of their ability to continue to apply UTPs - their trading activities to operators which do not enjoy such protection. The risk of such an unintended consequence may however be partially mitigated by the fact that it is be harder to use UTPs against parties which have a significant size and bargaining power; shifting trade is therefore less likely to constitute a recipe to keep the benefits from applying UTPs. At any rate, monitoring modalities could control for such effects.

Effect on public administrations

An EU common minimum standard in the form of a short list of prohibited UTPs would apply in Member States. For some Member States this would not necessitate significant changes to their UTP regimes as they do already apply national rules that outlaw these UTPs, either via the application of a general prohibition or in the form of prohibited specific UTPs. For the majority of Member States who have UTP rules this would therefore not entail significant additional costs.

For Member States who do not have UTP rules, EU measures would require adaptation, in particular with a view to enforcement. The main cost would stem from the need to dedicate resources to enforcement. The designation of a competent authority in Member States would be a first necessary step under a minimum requirement approach at EU level that relies on enforcement by Member States. 312 Member States which have no competent authority should be given appropriate time to designate one and enable it. As there would be no formal requirement other than being vested with the minimum functionally defined enforcement powers, Member States can rely on existing structures and designate, for example, an existing national competition authority or a consumer protection authority. 313 Member States with experience in UTP enforcement note that significant saving of administrative costs can be achieved by concentration and utilisation of sources that already exist (e.g. a competent authority for dealing with unfair trading practices as part of the national competition authority). 314

Certain Member States’ current UTP rules and enforcement arrangements may be such that the introduction of EU framework legislation would not require them to make (significant) changes. For others it would be necessary to make changes, including Member States that would have to designate a competent authority or additionally entrust an existing authority, such as a national competition authority, with an extended mandate covering the enforcement of the UTP rules.

In a targeted questionnaire Member States were asked to provide estimates on the possible set up and yearly operational costs of national bodies dealing with the implementation and enforcement of UTP related legislation and estimates on possible additional costs linked to an EU action on UTPs, including costs on reporting and coordination. Limited data has been presented that would allow an estimate of the likely aggregated costs at EU level.

It is difficult for Member States to provide estimates and isolate the costs for the specific activities related to implementation and enforcing of UTP measures. Most of the difficulties relate to the determination of the costs of drafting and adopting national legislation. From the information provided by Member States which have existing UTP legislation and competent authorities 315 , the set-up costs vary between 32 thousand EUR 316  up to 3 million EUR 317 , the operational yearly costs vary from 10 thousand EUR 318 up to 2.9 million EUR 319 . The differences relate to the size of the country - and therefore the national market - and the level of ambition of their current UTP legislation.

Focusing on the information from three Member States with well established, functioning and experienced competent authorities the additional costs linked to EU action, including the activities related to reporting and EU coordination, would be absorbed by the current structures and, therefore, according to their estimate, be negligible.  320

The UK Grocery Code Adjudicator

Example data on actual costs (not estimated) are available from the UK Grocery Code Adjudicator (GCA). Expenditure was GBP 1,785,741 in the 2015/2016 financial year, and GBP 622,024 in the 2016/2017 financial year. Most of the difference is due to a large-scale investigation into one retailer in 2015/2016. In the 2016/2017 financial year most of the costs incurred were staff costs, at 67%. The UK GCA’s costs are funded by a levy on the retailers covered by the scheme. In 2016/2017 the levy was raised to GBP 2 million (from GBP 1.1 million in the previous year), to fund future investigations. Unspent money from the levy is returned to the contributing retailers at the end of each financial year. 321

Effect on consumers

The introduction of a UTP framework at EU level would have limited effects on consumers. Operators do in general not claim that the use of practices that are considered UTPs (e.g. by the SCI) lead to lower consumer prices. Neither is there evidence that Member States with stringent UTP regulation have witnessed stronger inflationary effects concerning consumer food prices than those with less stringent rules or no rules on UTP: the correlation - if any (not statistically significant) - would rather indicate lower food price increases in Member States who have stringent UTP rules, although many factors can contribute to the formation of price. 322  

On the other hand, arguments suggesting negative effects on consumers due to UTPs in the long run, in particular due to decreasing innovation, quality or choice, have been shown to not be conclusive in terms of empirical evidence (even though consumer associations and the United Kingdom’s Competition Commission argue in that direction). Evidence of long-term innovation effects is scarce, the difficulty being compounded by confounding factors that are difficult to isolate.

9.3Summary of costs and benefits

It was not possible to quantify with precision the overall benefits from legislation on UTPs. While there is evidence of harm and of such harm being significant and frequent (see section 6), the possibility to systematically collect and analyse a representative sample of data allowing for precise estimation of damages is not possible (notably due to the 'fear factor'). This was also an issue in the UK’s Groceries Code Adjudicator impact assessment 323 , where benefits were not stated. The measurement of benefits may however be improved in future through data collection by MS competent authorities coordinated at EU level (through monitoring and enforcement actions), reported in annual surveys, and fed into future policy reviews. Still, a range for the magnitude of possible benefits can be provided.

* It was not possible to quantify the benefits from legislation on UTPs. See section 6. Estimates for direct benefits are based on assumptions (see section 6.2.1.1).

The table below provides an overview of the main implementation costs for the preferred option:

 

Exchange rate: EUR 1.14 / GBP 1.

* Where operators have fully implemented the voluntary SCI principles of good practice, or where national legislation is in line with the preferred option, costs are expected to be negligible; upper bound costs are drawn from UK estimates for one-off costs.

** Based on experience of large UK retailers; higher end costs would apply only where legislation does not already exist or where the voluntary SCI principles have not been implemented, otherwise expected to be smaller or negligible (baseline costs).

*** Costs for MSs that already have legislation in place are expected to be negligible or lower end; higher bound is based on estimates from a MS where no legislation exists; existing experience in the UK found recurrent enforcement costs to be about €708 thousand per year. Other costs for administrations refer to costs of attending an annual coordination meeting.

Annex 4: Analytical methods

The analysis in this impact assessment does not make use of modelling or other analytical techniques. The lack of analytical tools (such as models) in the literature on UTPs is at least in part explained by difficulties in accessing data on such practices, due to concerns of operators with disclosing commercially sensitive information (see the ‘fear factor’).

Annex A: Relevant EU documents concerning unfair trading practices

12 December 2016

Council Conclusions , Strengthening farmers’ position in the food supply chain and tackling unfair trading practices

30 September 2016

Report of the European Economic and Social Committee of 30 ‎September 2016 on unfair business-to-business trading practices in ‎the food supply chain

7 June 2016

European Parliament resolution on unfair trading practices in the food supply chain

29 January 2016

Report from the European Commission to the European Parliament and the Council on unfair business-to-business trading practices in the food supply chain

2 March 2016

Opinion of the Committee on Agriculture and Rural Development on unfair trading practices in the food supply chain

1 June 2015

Commission Decision establishing the High Level Forum for a better functioning food supply chain

15 July 2014

European Commission Communication on tackling unfair trading practices

12 November 2013

Opinion of the European Economic and Social Committee on the ‘Green Paper on unfair trading practices in the business to business food and non-food supply chain in Europe’

31 January 2013

European Commission Green Paper on unfair trading practices in the business-to-business food and non-food supply chain in Europe

19 January 2012

European Parliament Resolution on imbalances in the food supply chain

5 July 2010

European Commission report , Retail market monitoring report, Towards more efficient and fairer retail services in the internal market for 2020

28 October 2009

European Commission Communication on a better functioning food supply chain and Staff Working Document , Competition in the food supply chain

Annex B: The “fear factor” and different enforcement approaches to unfair trading practices

9.1Fear factor

A 2014 report found that, based on these insights, “any procedural rules concerning investigations must provide for rules to protect confidentiality and anonymity. 324 The results of the European Commission’s public consultation in 2013 showed that about 67% of the respondents confirmed that fear of negative consequences in case of a complaint about UTPs is an important consideration. 325 Only about 9% of the respondents disagreed. In a 2011 study, 64% of respondents stated that the reason why they did not take further steps than discussing the issue with their buyers was that they were afraid of “commercial sanctions”. 326 11% stated that they were threatened with retaliation in case of taking action.

Existing judicial and administrative redress possibilities in some Member States lack in effectiveness in tackling the fear factor. The sentiment of a lack of protection due to the absence of an EU approach that would provide for minimum protection is confirmed in recent surveys. The open public consultation of July 2017 showed 95% of respondents to agree that action should be taken to address UTPs in the food supply chain. 87% of respondents believed the European Union should act on UTPs. A 2016 study stated:

“Safeguarding the parties from the exposure to the risk of retaliation, emerged as an essential component of any dispute resolution process. [...] Generally speaking [...] the comparison between the preference for legislation at EU level and at national level shows that the former is clearly preferred by the vast majority of respondents.” 327

In the following, UTP enforcement mechanisms as they exist in Member States are further discussed as to their effectiveness.

9.2Judicial redress

All Member States have provisions of law that govern contracts. Private parties can rely on the relevant rules to seek redress against certain UTPs in national courts that constitute violations of provisions of contract law (e.g. breach of contract). However, complaining about UTPs in national civil courts constitutes a risk for operators due to the fact that there is no possibility in civil law proceedings to not divulge one’s identity. 328  

A further significant limitation of the effectiveness of judicial redress, in particular for SMEs, is the costs of legal proceedings. 329 In the case of administrative enforcement, the administration pays while in the case of judicial enforcement the cost risk is typically borne by the plaintiff. Who bears the cost risk does not only have important distributional consequences, but also has ramifications for the effectiveness of enforcement itself. 330

In conclusion, judicial redress against UTPs can present significant shortcomings and tends to be ineffective where business relationships are characterised by imbalances of bargaining power between parties. This is in particular a relevant factor for SMEs, which are least likely to have at their disposal the necessary means to cover the potentially high costs of legal representation, given the complexity of such processes and the lack of knowledge on how to enforce their rights in view of available remedies. 331  

9.3Administrative redress

Administrative regimes in certain Member States can and do take into account the perceived retaliation risk and the consequent bias against complaints in courts by mechanisms such as own initiative investigations or the ability to treat individual complaints confidentially or to receive complaints by producers associations.

It is not so much any in-built limitations of the administrative redress model that as such would present a challenge in terms of UTP enforcement rather than the heterogeneous enforcement landscape 332 – to the extent that Member States have publicly enforceable UTP rules - that constitutes a challenge.

Competition authorities – to the extent they are charged with the treatment of UTP complaints – can often protect the anonymity of complainants - albeit sometimes this is not possible throughout the full proceedings – for instance by having recourse to own initiative investigations. 333 However, enforcement of competition rules – and the attending procedural powers of national competition authorities - is in general not solution for victims of UTPs. If a UTP causes detriment to an economic operator, but does not have an effect on consumer welfare or on competition as a process, then competition law does normally not provide redress. 334

A European Competition Network (ECN) Report of 2012 observes:

“[I]n their monitoring investigations a large number of national competition authorities (NCAs) have also identified as an issue the existence of certain practices linked to imbalances of bargaining power between market players that are deemed unfair by many stakeholders. [...] However, the NCAs have found that most of these practices do not fall within the scope of competition rules at the EU level or in most of the Member States. Consequently, a few NCAs have proposed alternative solutions to tackle them, such as the application of national laws against unfair trading practices or the adoption of codes of conduct or good practices with effective enforcement mechanisms.” 335

Competition authorities considered that in most cases these practices do not fall under the scope of EU- or national competition rules of Member States. 336 A point in case is competition cases involving an abuse of dominance: unless an undertaking has a dominant position in the relevant market ("substantial market power") its commercial practices are not open to examination under classical competition law. The (ab)use of mere "bargaining power" in a bilateral commercial relationship does not fall within the scope of Article 102 TFEU (see also Article 208 of Regulation 1308/2013). Having said this, some Member States have formally extended the scope of their national competition law by also covering a specific prohibition of UTPs and thereby expanding it into unfair dealing rules (Germany).

9.4The voluntary Supply Chain Initiative

The Supply Chain Initiative (SCI) was developed within the framework of the Commission’s High Level Forum on the Better Functioning of the Food Supply Chain . It includes an agreement among associations of operators of the food supply chain to promote fair business practices in the food supply chain as a basis for commercial dealings. 337 It is described in more detail in sections 2.7 and 3.3 of the impact assessment report.

Annex C: UTPs, agriculture and the agri-food sector: quantitative evidence

9.0The food supply chain 

The food supply chain in the EU comprises all actors and activities from primary agricultural production to food processing, distribution, retailing and consumption. It ensures that food products, including beverages, are delivered to the general public for personal / household consumption via retail sales or food services (catering, etc.). It also includes recycling and disposal stages where appropriate.

Figure 1 - Organisation of the food supply chain

Source: CDC

The number of actors in the food chain varies greatly at each level. In the EU, around 11 million farms, providing work for roughly 22 million people (both full time and part time, for a total of around 9 million full-time equivalent) produce primary products for processing by about 300 thousand enterprises of the food and drink industry. The food processors sell their products through the 2.8 million enterprises within the food distribution (wholesale and retail trade) and food service industry, which deliver food to the EU's 500 million consumers. Overall, the food supply chain employs around 44 million people in the EU.

The total turnover of food retail and food services amounted to close to EUR 1,600 billion in 2015 338 , thus representing around 14% of total consumption in the EU. It grew annually by 2.2% on average from 2009 to 2015. This importance is also reflected at the consumer end: EU households dedicate on average 14% of their expenditure to food and beverages, ranging from less than 10% in the UK to 32% in Romania in 2015. The gross value added generated in the food supply chain has been growing by 2.4% annually since 2008, and amounts to slightly less than 7% of the total value added of the EU economy.

Figure 2 - Value added in the food supply chain (billion euro)

Source: DG Agriculture and Rural development from Eurostat (Economic accounts for agricultural, Structural Business statistics, Annual national accounts)

Value added in the agricultural sector grew at a slower pace since 2008 (+1% annually) than the other segments of the food supply chain (+2.5% annually for processing, +3.2% annually for the food retail and services sector). Following the increasing consumer demand for convenience products and services associated to food and beverages, the processing and the retail stages have added additional features to the basic agricultural product, stimulated by the changes of lifestyle, urbanisation, consumer preferences and general economic environment 339 . They have expanded their share in the total value added in the food chain, while the share of agriculture (around 25% of the total value added created in the food chain) has decreased in trend by around 0.14 percentage points per year over the period (2008-15).

While the added value of fishery and aquaculture sector plays a marginal role within the overall food supply chain, there is an upward trend mainly due to the role of aquaculture.

Figure 3 - Value added trend of the fishing and aquaculture sector

Source: JRC-STECF (Scientific, Technical and Economic Committee for Fisheries); Structural Business statistics, Annual national accounts)

 

Figure 4 - Share of agriculture in value added in the food supply chain (%)

Source: DG Agriculture and Rural development from Eurostat (Economic accounts for agricultural, Structural Business statistics, Annual national accounts)

9.0Economics of agriculture

From an economic perspective the agricultural sector is part of the ‘bio-economy’ and can be described according to its product and production characteristics, demand and supply structures, and public good characteristics 340 . Agricultural products are to a greater or lesser extent perishable (for some products storage possibilities are limited, meaning that the price in the market at the time of completing production, or shortly after, is the only available price), produced during a short period of the year (seasonality), following relatively unpredictable biological processes (rather than, for example, mechanical processes) that are also subject to natural conditions (weather). Agricultural products are also frequently homogeneous in nature (it is difficult to capture value by differentiating production, although some differentiation of products does take place, for example organic production or the use of geographical indications) and there are a high number of producers producing those products (agricultural producers are typically full price takers). Agriculture faces a decreasing return per unit of input after a certain (relatively early) point: the output per unit of input is gradually lower as inputs are increased (Law of Turgot). This has the implication that an agricultural producer is significantly (early on when compared to manufacturing) limited on the amount of income they can make from inputs and land available.

Demand for and supply of agricultural products is highly inelastic (if the quantity supplied or demanded varies by a small amount, the effect on prices is significantly larger). This makes the agricultural sector particularly exposed to demand and supply shocks (relatively to other economic sectors), as a small reduction in demand or a small increase in supply can lead to a significant reduction in prices and, eventually incomes (high income volatility). This is compounded by the fact that there are also production lags in agriculture, whereby production decisions are significantly removed from placing products on the market (production responses to market prices are necessarily relatively slow when compared to other sectors - which contributes to volatility in the face of uncertainty about future prices, for example when too much aggregate output is planned through individual production decisions).

Finally agriculture typically covers a high share of the total land cover of a territory, with a relatively complex set of public goods (and ‘public bads’) associated to its activities, such as areas of biodiversity and landscape value, greenhouse gas emissions (mainly from livestock) and other possibly significant externalities (such as pesticide and fertiliser run off into ground and surface waters); food safety (food security and food quality) and population health; or animal health and welfare.

9.0Agriculture specifics

The EU's farm sector is one of the world's leading food producers and guarantees food security for over 500 million European citizens – at a time of growing resource- and climate-related threats in the EU and around the globe. Farmers manage over 48% of the EU's land (about 75% with forests) and, in addition to agricultural and food production, also provide a wide range of public goods, including environmental services (related to biodiversity, soils, water, air, landscape), essential carbon sinks and renewable resources for industry and the energy sector, as well as social benefits to rural areas, home to 55% of the EU’s citizens.

While the EU fishery and aquaculture sector is relatively small (in 2015, about 140,000 people were employed in the sector (FTE equivalent), representing 0.1% of all jobs in the EU), the sector plays a crucial role for employment and economic activity in several regions – in some European coastal communities as many as half the local jobs are in the fishing sector. Small-scale coastal fishermen represent three quarters of the EU's sector but are responsible for a minor part of EU catches.

The Common Agricultural Policy 341 has been reformed several times over the last 25 years, switching from a price-support system to a more market-oriented policy. Domestic EU prices have generally aligned to international prices for agricultural products and the competitiveness of the EU agri-food industry has dramatically improved. The EU has been a net exporter of food and drink products since 2009 342 , with the value of EU agri-food exports rising to EUR 131 billion in 2016 (compared to EUR 60 billion in 2005). The agri-food sector represented 7.5% of total EU exports in goods in 2016. With a surplus close to EUR 19 billion, the agri-food sector is a major contributor to the overall trade surplus of the European Union in goods (EUR 39.3 billion in 2016) 343 . Export activity is a strong contributor to the creation of jobs 344 , on farms as well as in the agri-food sector.

While the participation of the European agri-food sector in global markets has created important trading opportunities, it has also exposed it to greater market instability. Food production remains an uncertain activity, with agriculture dependent on weather and - in the current increasingly globalised context and more market-driven Common Agricultural Policy- subject to higher price volatility arising from global markets. In addition, while demand of agricultural products is rather inelastic because largely directed towards food, agricultural supply (production) is also inelastic (cannot typically be adjusted rapidly): there are long lags between the production decision and the actual production due to the biological processes involved (up to several years for animal production or permanent crops) and the perishability of agricultural goods does not always allow long storage periods. Farmers, fisherman and food producers in the EU operate under strict food safety, environmental and animal welfare regulations in line with consumer expectations. Consumers express their increasing interest in having access to a variety of healthy and nutritious food as well as to food with specific characteristics, such as organic produce, products with geographical indications, local specialities and innovative types of food.

Average farm income per working unit is significantly below average wages obtained in other economic sectors in the majority of Member States (see Figure 5 ). Direct payments narrow this gap and contribute to achieving one of the Treaty's CAP objectives as defined in the Treaty on the Functioning of the European Union: to ensure a fair standard of living for the agricultural community. Farm households can also gain non-agricultural on-farm and off-farm income, just as any other household (e.g. through tourism services, energy production or part-time work out of the farm in other activities). In the case of fisheries, no income contribution exists: the revenue is fully dependent on market dynamics.

 

Figure 5 - Comparison of farm income and wages

Source: DG AGRI from DG AGRI-FADN and Eurostat

Due to structural change and technological progress in the agricultural sector, agricultural production in the EU takes now place in fewer, larger and more capital-intensive farms than in the past. There is a continued trend of declining jobs in farming. More than one out of four agricultural jobs has ceased existing since 2005 (25.4%) and the number of jobs has been decreasing by 2% yearly between 2005 and 2013. 345  

And yet, the importance of agriculture, as well as the food sector, for society extends beyond primary food production. EU agriculture has been evolving in recent decades into a more consumer driven, knowledge based, innovative and high quality system of food production, delivering a very diverse set of products to global markets. Agriculture has positive ramifications for the rural economy and digitisation has the potential for further increases in productivity for the food and farm sector as it does for the economy as a whole.

At the primary production end of the supply chain, there are increasing input costs due to competition for scarcer natural resources as well as limited possibilities for primary producers to add value to the basic product 346 . Having said this, EU farmers produce a wide range of safe and high value foods, with a high level of quality in terms of food safety, nutritional value, taste, cultural and heritage value, methods of production, etc. (for example, there is an increasing amount of products with geographical indication status and a dynamic organic sector).

Around 66% in value of the food (beverages excluded) retail sales 347 correspond to agricultural products as defined in Annex I of the Treaty (fish products included), the rest being processed agricultural products (PAPs). Most of these 'agricultural products' are not strictly primary stage products and went through some (mostly basic) processing.

9.0Structure of the different stages of the food chain

Agricultural production is in general highly fragmented and largely comprised of small units in physical terms, since only 7% of farms had more than 50 ha of agricultural land in 2013 348 . At the EU level the CR5 (concentration ratio; the market share of the five largest firms) at farm level (1)    was 0.19% in 2010 (ranging from 0.4% in Germany to around 9% in Estonia). The dispersion due to the large share of family-owned farms poses unique challenges, particularly with respect to vertical coordination and quality control over the supply chain. As processors and distributors have become larger, more concentrated and have increased their quality requirements, farmers, without losing their legal personality, have established and maintained networks to improve their bargaining position, through a still large number of producer organisations and/or cooperatives, with different degrees of organisation. The market share of agricultural cooperatives is of about 40% at EU level 349 (with a higher share in some sectors - e.g. dairy above 50%, fruit and vegetables at 54% - than others - e.g. sugar or pig meat below 30%; and/or a higher share in some Member States - e.g., Netherlands and Denmark above 60% - than others - most Eastern Europe Member states at low or very low levels).

In other parts of the chain there are higher concentration levels, in both the food processing and food distribution sectors. 350 The degree of concentration in these sectors has generally increased over the last decades with consolidation in food processing and retailing companies through natural growth and mergers, particularly for retailers in the 1990s. 351  

The top five food processing firms are estimated to represent an overall market share in retail of a moderate 15% in a majority of Member States, but this global ratio increases for determined sectors with more specialised food industries, e.g. for dairy food products, in most Member States, the concentration in the top five dairies (private companies, cooperatives or POs) is above 40% and even close to 70% in a few countries ( Figure 6 ). In the biscuits or the confectionery sectors, the CR5 is above 60% 352 , and around 30% on average in processed meat, seafood or fruit and vegetables products ( Figure 7 ), while in other sectors concentration may be much lower (e.g. baked goods, around 15% on average). Data at EU level suggests however that, beyond high concentration in certain sectors and Member States, the food processing sector still has a large share of SMEs. At EU level, SMEs represent 49% of the turnover and 63% of total employment in the food supply sector.

Figure 6 - Share in % of top five processing companies sales of packaged foods (2016)

Source: DG Agriculture and Rural development from Euromonitor

Figure 7 - EU average MS concentration ratios (CR5) per food sector

Source: DG AGRI from Euromonitor

The food distribution tier is also highly concentrated, mainly in the retail sector. Food products are distributed primarily through supermarkets, hypermarkets and discounters, which account on average for 71% of total packaged food sales in the EU Member States ( Table 1 ).

Table 1 – Share of retail sales of packaged food sold by hypermarkets, supermarkets (>400m²) and discounters

Source: Euromonitor

At EU level, the top five retailers represent (CR5) 20% of the market share on average. This high level of concentration has been a feature of the sector for several years. In 2007 the top five retailers held market shares (CR5) of more than 50% in most Member States 353 , with, in general, higher concentration ratios in the older Member States 354 . More recent data shows that this process is continuing, with further mergers, acquisitions and joint-ventures 355 . In 2016, based on Euromonitor data (not covering on-line and other non-store sales 356 ), the CR5 in the grocery retail sector was above 60% in the half of Member States (above 80% in Sweden and Finland) and below 40% only in Italy, Bulgaria and Greece. Depending on the Members State and product concentration ratios can be higher on the processing side than on the retail side. Other sources (e.g. Planet Retail) show some slight differences but an overall common trend and similar magnitudes. Data at EU level also suggests that the food wholesale and retail industry is characterised by the existence of a very high number of SMEs involved in food trade (over 99% of the enterprises representing 54% of their turn-over 56% of the total employment)

Increasing concentration is also seen through the development of international buying groups (IBG), organised by several retailers to improve their purchasing power. 357 The five major buying groups in the EU have a size larger than any of the single retailers in the EU 358 and 6 out of 10 large retailers in the EU are members of and IBG. IBGs usually operate cross-border. 2 of the 3 main IBGs are established in Switzerland. However, the impact of IBGs on the food supply chain may not be as a significant as the impact of each single retailer, as it is estimated that only 5% of the total volume purchased by individual retailers is purchased through IBGs. IBGs focus on uniform and widespread consumer preferences products such as pasta, processed tomatoes and sauces, canned vegetables, rice, sugar, olive oil, etc.

Figure 8 - Retail concentration ratio (CR5)

Source DG GROW from Euromonitor

9.0Price transmission

In terms of price evolution along the food supply chain, food prices grew faster than prices for other goods since 2007, in particular following food price spikes. 359 Several factors contributed to this: the increasing global demand for food, the slowdown in productivity growth in agriculture, as well as the increasing input cost (such as fertilisers, plant protection products, etc.) and their link with price trends in other commodities (e.g. energy). Despite lower agricultural commodity prices since 2015, food prices trends do not seem to have yet followed a downwards correction compared to the general inflation rate.

Figure 9 - Inflation rate and food price index (index 100 = 2005)

Source Eurostat

Prices in the food supply chain are also characterised by strong volatility (price variation through time at every step of the food chain). Volatility is stronger for primary products 360 , while there tends to be a smoothening effect downstream in the food chain, essentially caused by the fact that (volatile-priced) raw material represents only a limited share of the cost of the final food product. 361 Consumer prices for food products tend to rise or decrease less than the raw material concerned (e.g. higher volatility of wheat prices than bread prices).

Figure 10 - Food supply chain index for EU-28 (2007-2017)

Source: Eurostat, Food price monitoring tool and DG Agriculture and Rural Development based on data provided by the Member States

In addition there is a debate about asymmetric price transmission in the food supply chain, in particular for downward price corrections: a decrease in the price of agricultural products is transmitted more slowly to the subsequent stages of the food supply chain than an increase in the price of raw materials (stickiness of prices). This may be caused by differentiated market powers, but alternative explanations are also provided (i.e. adjustment costs, menu costs, government intervention) 362 and these effects can vary significantly across product type, level of the supply chain, seasonality and Member States. 363 Such asymmetry was found to be more pronounced in food chains of the newer Member States when compared to the Euro area in 2009 364 and in specific sectors and countries. 365

9.0Rules on UTPs and price evolution 366

One concern about regulating UTPs that is often referred to is that they could result in increased prices for consumers, in particular if they result in legislating practices which may result in efficiency gains at the chain level. Other views are that they could lead to efficiency gains and lower consumer prices if such regulation results in the building of trust and decreased transaction costs.

Swinnen and Vandevelde (2017) 367 group Member States based on how they have undertaken action to combat UTPs by considering two criteria (i) the type of legislation used (legal treatment of UTPs) and (ii) the coverage of UTPs in their legislation. Then using these two criteria, they develop a ranking of MS on the base of the stringency of their UTP regulatory framework. A preliminary work by the JRC compared this ranking of Member States with the evolution of (deflated) consumer price for food for 2010-2016 (see .

Figure 11 ).

Figure 11 - Relation between Consumer food price index and stringency of UTP rules

Source: JRC

The comparison shows that the correlation between the stringency of UTP rules (1) and consumer food prices is weak (Member States with the more stringent rules on the left in figure 10). Many factors other than rules on UTPs are at play in the determination of the evolution of food consumer prices. If anything, the poor correlation shows that Member States with more stringent rules seem to enjoyed lower food price increases than Member States with less stringent UTP rules. There are similar results for longer periods (2005-2016; see figure 11).

Figure 12 - Relation between Producer food price index and stringency of UTP rules

Source: JRC

9.0Intra-EU Trade

Intra-EU trade in the food chain can be looked at both from data on firm data (exports and imports declared by firms per sector of activity in the economy), allowing a split per size of firms (Eurostat - International Trade in Goods - Trade by NACE Rev. 2 activity and enterprise size class), or from customs data (Eurostat Comext), tracing the origin of goods.

Most of the total value of intra-EU trade in goods is by large companies, with exports at about 3,073 billion in 2015 368 . A breakdown by enterprise size shows that SMEs represent approximately 39% of total intra-EU-trade. 369 For firms in agriculture, forestry and fishing most EU trade in value is by SMEs (81%), while the value is 0.5% of the total intra-EU trade. The large share of SMEs in agriculture is likely due to the relatively small size of farms when compared to other economic actors (large companies having more than 250 employees). For food product manufacturers most EU trade in value is by large companies, but SMEs have a significant share in value traded intra-EU (43%). Intra-EU food product trade represents approximately 4.5% of total intra-EU trade.

In terms of the number of enterprises involved in intra-EU trade, the majority of these are SMEs, as is to be expected (approximately 88% of firms involved in intra-EU trade are SMEs, 59% are micro enterprises, i.e. have fewer than 10 employees). The share of SMEs is slightly higher for agri-food: approximately 94% of agriculture, forestry and fishing firms involved in intra-EU trade are SMEs (but the vast majority of these are micro enterprises, at 71%) and approximately 91% of food product manufacturers involved in intra-EU trade are SMEs (32% are micro enterprises).

By products (Eurostat Comext), for a selection of products aiming at representing the food sector, the total value of intra-EU trade represented around EUR 250 billion, which is equivalent to around 25% of the total turn-over of the food manufacturing industries (and above 15% of the turnover of food wholesale and retail trade turnover). In order to check whether less processed products would be less traded than processed ones, the share of intra-EU trade in quantity over the total production in the EU for several products was considered. Such a share is at a minimum around 20% for cereals (unprocessed) or apples and pears, and around 30% for most commodities like pigmeat, sheep meat, poultry, wine and even higher for tomatoes (fresh) or beef meat (40%) or olive oil (over 50%).

Table 2 - Value of intra trade / number of firms involved in intra-EU trade per size of enterprise

VALUE

All economic activities

Agriculture, forestry and fishing

Manufacture of food products

Value (thousand euro)

% of total

Value (thousand euro)

% of total

Value (thousand euro)

% of total

Total

2,357,584,071

 

12,707,198

 

105,548,153

 

From 10 to 49 employees

216,827,542

9.2%

3,564,990

28.1%

8,374,110

7.9%

From 50 to 249 employees

394,800,531

16.7%

3,313,138

26.1%

34,910,161

33.1%

250 employees or more

1,445,345,221

61.3%

2,403,862

18.9%

60,483,655

57.3%

SMEs

912,238,850

38.7%

10,303,336

81.1%

45,064,499

42.7%

NUMBER OF ENTERPRISES

All economic activities

Agriculture, forestry and fishing

Manufacture of food products

Number of enterprises

% of total

Number of enterprises

% of total

Number of enterprises

% of total

Total

949,631

 

30,660

 

18,435

 

Fewer than 10 employees

563,833

59.4%

21,654

70.6%

5,941

32.2%

From 10 to 49 employees

202,002

21.3%

5,584

18.2%

6,580

35.7%

From 50 to 249 employees

69,110

7.3%

1,489

4.9%

4,191

22.7%

250 employees or more

114,686

12.1%

1,933

6.3%

1,723

9.3%

SMEs

834,945

87.9%

28,727

93.7%

16,712

90.7%

Notes

** Where data were reported but company size listed as 'unknown' these data were assigned to companies with 250 employees or more.

Table 3 Value of intra EU-28 trade in €

PRODUCT/PERIOD

Jan.-Dec. 2012

Jan.-Dec. 2013

Jan.-Dec. 2014

Jan.-Dec. 2015

average 2012-15

01 Live animals

8 035 032 611

8 574 692 738

8 287 481 756

8 208 733 416

8 415 399 996

02 Meat and edible meat offal

34 751 794 952

35 010 425 513

35 257 075 435

35 286 150 349

35 334 499 761

03 Fish and crustaceans, molluscs and other aquatic invertebrates

13 991 110 482

15 021 990 879

16 262 271 457

17 609 588 241

15 721 240 265

04 Dairy produce; birds’ eggs; natural honey; edible products of animal origin, not elsewhere specified or included

30 154 507 411

33 498 488 464

34 481 985 788

31 948 431 522

31 674 244 075

07 Edible vegetables and certain roots and tubers

16 261 215 099

17 910 805 202

17 157 930 501

18 889 263 192

20 020 570 549

08 Edible vegetables and certain roots and tubers

19 134 162 514

20 610 409 885

20 980 947 628

24 287 118 844

25 239 812 697

10 Cereals

14 391 229 193

14 055 605 383

12 891 025 649

13 154 430 816

12 638 984 177

11 Products of the milling industry; malt; starches; inulin; wheat gluten

3 675 586 812

3 854 359 829

3 867 731 105

3 897 716 357

3 970 085 540

12 Products of the milling industry; malt; starches; inulin; wheat gluten

9 719 964 520

9 435 030 193

8 530 418 394

8 789 223 011

9 355 969 287

15 Animal or vegetable fats and oils and their cleavage products; prepared edible fats; animal or vegetable waxes

16 257 283 119

16 488 253 545

15 414 235 214

15 831 026 509

16 916 470 217

1601 Sausages and similar products, of meat, meat offal or blood; food preparations based on these products

2 099 080 353

2 306 832 799

2 329 081 121

2 409 118 913

2 582 628 501

1602 Other prepared or preserved meat, meat offal or blood

5 124 615 383

5 245 676 709

5 372 690 872

5 668 458 559

5 591 478 380

1604 Prepared or preserved fish; caviar and caviar substitutes prepared from fish eggs

2 621 406 685

2 711 080 752

2 823 571 128

2 959 234 833

2 778 823 350

1605 Crustaceans, molluscs and other aquatic invertebrates, prepared or preserved

856 201 307

869 182 902

952 022 023

1 129 258 120

951 666 088

17 Sugars and sugar confectionery

9 268 823 595

8 931 773 172

8 435 873 007

8 106 652 155

8 611 246 113

19 Preparations of cereals, flour, starch or milk; pastry cooks’ products

18 475 109 746

19 687 440 889

20 506 053 275

22 207 306 291

23 543 300 860

20 Preparations of vegetables, fruit, nuts or other parts of plants

16 340 884 695

16 972 512 716

17 258 372 601

18 086 224 958

19 125 947 273

21 Miscellaneous edible preparations

15 430 098 371

16 027 479 674

17 069 555 161

18 153 092 868

18 985 180 078

TOTAL FOOD

219 119 388 374

228 609 786 711

227 840 457 507

234 922 947 760

227 623 145 088

TOTAL FOOD fish included 3 FISH and ex 16 Prepared fish products

236 894 240 467

247 710 168 376

248 283 253 804

256 980 890 559

247 467 138 302

Source: Comext

Table 4 Share of intra EU trade in total turnover of food industry / food and retail services

2012

2013

2014

2015

average

Turnover or gross premiums written EU 28 - Manufacture of food products (mio €)

916 154.0

938 547.2

944 594.2

956 083.2

938 845

Turnover or gross premiums written EU 28 – Retail and food services (mio €)

1 516 554.8

1 517 537.9

1 574 759.4

1 621 658.9

1 557 628

Share of food intra EU trade on food industries turnover (fish excluded)

23.9%

24.4%

24.1%

24.6%

24.2%

Share of food intra EU trade on food industries turnover (fish included)

25.9%

26.4%

26.3%

26.9%

26.4%

Share of food intra EU trade on retail and food services turnover

14.4%

15.1%

14.5%

14.5%

14.6%

Source: Eurostat

Table 5 Share of Intra EU trade over total production (in %)

1000 t

2012

2013

2014

2015

2016

 average

Cereals (including seeds)

Production

281693

307606

330975

314409

296835

 

 

Intra EU trade CN10

54847

54110

57408

60922

61406

 

 

 

19.5%

17.6%

17.3%

19.4%

20.7%

18.9%

Tomatoes

Production* (for fresh use)

6548

6904

6795

7260

7848

 

 

Intra EU trade CN 0702

2529

2674

2721

2821

2719.663

 

 

 

38.6%

38.7%

40.0%

38.9%

34.7%

38.2%

Apples & pears

Volume* (source: estimate from WAPA)

11983

13256

14936

14659

13952

 

 

Intra EU trade CN 0808

2992

2870

2942

3581

3142

 

 

 

25.0%

21.7%

19.7%

24.4%

22.5%

22.7%

 Wine 

Volume

140314

170411

163413

165310

161505

 

 

Intra EU trade CN 2204

48 541

46 668

50 307

49 504

47 745

 

 

 

34.6%

27.4%

30.8%

29.9%

29.6%

30.5%

Olive oil 

Volume

1463

2483

1434

2324

1743

 

 

Intra EU trade CN1509

918

863

1126

919

991

 

 

 

62.8%

34.8%

78.6%

39.6%

56.9%

54.5%

 Cattle 

Volume

7868

7529

7695

7846

8099

 

Intra EU trade CN0102-0201-0202

3033

2972

3037

3135

3215

 

 

 

38.6%

39.5%

39.5%

40.0%

39.7%

39.4%

 Pig 

Volume

22769

22595

22782

23490

23761

 

Intra EU trade CN0103-0203

6851

7009

7107

7327

6938

 

 

 

30.1%

31.0%

31.2%

31.2%

29.2%

30.5%

Sheep and goats 

Volume

928

901

900

924

931

 

Intra EU trade CN0104-0204

283

287

285

284

292

 

 

 

30.6%

31.9%

31.6%

30.7%

31.4%

31.2%

Poultry 

Volume

12 715

12802.96

13280.64

13799.32

14484.97

 

Intra EU trade CN0105-0207

4 569

4 649

4 940

5 102

5 180

 

 

 

35.9%

36.3%

37.2%

37.0%

35.8%

36.4%

Fish (catches + aquaculture)

Volume

6182

6122

6251

6081

Intra EU trade CN 03 – 1604 - 1605

4468

4646

4872

5184

72,3%

75,9%

78,0%

85,2%

77,8%

9.0Share of cooperative products in retail sales

Companies’ share of retail sales of all packaged dairy products may be estimated from of Euromonitor data (aggregation of butter and margarine, drinking milk products, cheese, yoghurt and sour milk drinks, and other dairy products). The percentage of cooperative groups is calculated in relation to the sales of identified companies (top 25 to 50 companies depending on the Member State) and extrapolated to the total.

Table 6 - Share of cooperative dairy products in retail sales (%)

Source: DG AGRI from Euromonitor

9.0Share of agricultural products (in the meaning of the Treaty) in retail sales

On the basis of the Euromonitor database of retail sales of packaged food products and fresh food products, one can calculate the share of products under Annex I in the Treaty within the tool food sales at the retail stage. As the classification of products in Euromonitor database on packaged food are not coinciding with the legal classification, some assumption should be made. Annex I products are assumed to be covered by the following items in Euromonitor classification in the following calculations: butter, cheese, drinking milk products, yoghurt and sour milk products except fruited and flavoured yoghurts, condensed milk, cream, fresh cheese, oils, processed fruit and vegetables, processed meat, processed seafood, rice, honey, jams and preserves, fruit snacks. Other packaged foods such as baby food, baked goods, breakfast cereals, flavoured and fruited yoghurts and other dairy-base desserts, frozen desserts, ice cream, meat substitutes, ready meals, noodles and pasta, sauces, savoury snacks, chocolate nuts and yeast spreads, snack bars and sweet biscuits are taken into account for products that are non-Annex I of the Treaty products. Concerning fresh foods (unpackaged), all goods covered by Euromonitor (eggs, fish and seafood, fruits, meat, nuts, pulses, starchy roots, sugar and sweeteners, vegetables) are clearly Annex I of the Treaty products and are considered as such. By assumption too, beverages sales as well as goods covered by the database ‘hot drinks’ (including, coffee, tea etc.) in Euromonitor were not considered.

The share of “agricultural” products (in the meaning of being listed in Annex I of the Treaty) within packaged food sold at retail stage ( Table 7 ) is, under these assumptions, estimated to be around 40% at EU level, lower in some MS like Ireland, Austria, Croatia or the UK (32 to 35%), and higher in other up to 45% in Sweden or 47% in Hungary.

Table 7 - Share of ‘agricultural’ products in total retail sales of packaged food (%)

Source DG AGRI from Euromonitor

When adding to the picture the retail sales of fresh / unpackaged goods, the calculation can only be made for the 5 largest Member States (as the information on fresh products is not available in the other MS). The share of ‘agricultural’ products in the total food retail sales (under the assumptions described above) are of around 66.5% (less in the UK, France and Germany between 64 and 65%) while closer to 70% in Italy and even more in Spain (see).

Table 8 Share of ‘agricultural’ products in total retail sales of packaged food (%)

Source DG AGRI from Euromonitor

Annex D: Table on transposition of Late Payment Directive in Member States in terms of payment terms 370

COUNTRY

TRANSPOSITION OF DIRECTIVE 2011/7/EU INTO NATIONAL LEGISLATION

(MAXIMUM DELAY FOR PAYMENT)

COMMENTS

Public Authorities

Business to business (B2B)

B2B for fresh/perishable products

BELGIUM

30 days with an exception of 60 days for public health authorities (Law of 22 November 2013)

This law is only applicable between enterprises and public authorities as a general framework for commercial transactions.

BULGARIA

30 days with a possible extension to 60 days if:

- it is objectively justified in light of the particular nature or feature of the goods/services; and

- it is not grossly unfair to the creditor and contrary to good faith.

60 days with possibility of extension based on same arguments as for public authorities

Where the date or period for payment is not fixed in the contract, the creditor is entitled to interest for late payment, with no obligation to send a reminder to the debtor, upon expiry of 14 calendar days following the date of receipt by the debtor of the invoice or an equivalent request for payment (or after receipt of the goods).

30 days for food retail industry

Bulgarian Food act, State Gazette No 90 of 15 October 1999.

http://www.lexology.com/library/detail.aspx?g=8532815f-db3d-460c-a9a9-6d53d5838106

 

CZECH REPUBLIC

60 days

30 days unless parties agree otherwise

30 days for food retail contracts

Act 395/2009, Article 3 a) on Significant Market Power in Selling of Agricultural and Food Products

Any payment period exceeding 60 days in B2B transactions may be agreed upon only if it is not grossly unfair to the creditor within the meaning of the provisions of the EU Directive 2011/7.

DENMARK

30 days with a possibility for extension if expressly agreed

30 days with a possibility for extension if expressly agreed

GERMANY

30 days

30 days.

Where nothing is fixed in the contract, the payment is due immediately upon receipt of the invoice

For B2B, the law implies that a higher payment term, whilst possible to negotiate, is likely to be considered unreasonable in case of a dispute.

ESTONIA

30 days or 60 in specific circumstances

60 days; longer if expressly agreed and not unfair;

30 days if the payment date starts after receiving the goods or services or after their verification

https://www.bnt.eu/en/news-at-bnt-2/215-news/988-combating-late-payments-and-improving-payment-discipline

IRELAND

30 days with possibility to extend it to 60 days if expressly agreed by the parties

30 days with possibility to extend it to 60 days if expressly agreed by the parties

Statutory Instruments: S.I. No. 580/2012 - European Communities (Late Payment in Commercial Transactions) Regulations 2012

GREECE

60 days

60 days unless otherwise expressly agreed and not unfair

http://www.ey.com/Publication/vwLUAssets/Platis_Anastassiadis_-_Late_Payments_Directive_and_transposition_in_Greek_Law/$FILE/Platis-Anastassiadis-Article-Late-Payments-20131116.pdf

SPAIN

30 days

60 days

30 days for fresh and perishable goods

Ley 7/1996 Official State Journal 17.1.1996

The provision of 30 days limit for payments for fresh food and perishable products already existed in Law 7/1996 on retail trade.

http://www.comercio.mineco.gob.es/es-ES/comercio-interior/Legislacion/Pdf/mindley7_1996commin_eng.pdf

FRANCE

30 days

60 days or 45 days end of month maximum

Article L443-1 of the Commercial Code:

- 30 days after the end of the 10-day period from delivery for purchases of perishable food products and frozen or deep-frozen meat, deep-frozen fish, convenience foods and preserves made from perishable food products, with the exception of purchases of seasonal products made in the context of the “cultivation contracts” referred to in Articles L.326-1 to L.326-3 of the Rural Code;

- 20 days after the day of delivery for purchases of live cattle intended for consumption and fresh meat by-products;

- 30 days after the end of the month of delivery for purchases of alcoholic drinks subject to the consumer tax specified by Article 403 of the General Tax Code….

CROATIA

30 days with possibility of extension to 60 days in specific circumstances

60 days; a longer period may be agreed if expressly agreed, not unfair and no longer than 360 days

http://www.lexology.com/library/detail.aspx?g=02a21e88-e5c2-4ac3-ad73-c827004388cd

ITALY

30 days with exception to 60 days for transparency reasons or public health authorities.

- As a general rule, contractual payment terms must be limited to 60 calendar days, but the parties may expressly agree (in writing) on payment terms longer that 60 calendar days, provided, however, that such extension is not grossly unfair to the creditor;

- If the payment term is not fixed in the contract: 30 calendar days is the rule.

30 days for fresh and perishable goods, Article 62 (3) Law Decree of 24.1.2012

CYPRUS

30 days; 60 for health services

30 days if no date specified under contract;

60 days if agreed in the contract; can be extended if parties agree and not grossly unfair

http://www.lexology.com/library/detail.aspx?g=8468d334-8025-404d-9cae-9d237d67734c

LATVIA

30 (?)

60 (?)

20 days for the supply of fresh veg and fruit, if supplied to the same retailer for 3 months and more. Article 8 (2) of the Unfair Trading Practices Act.

No clear data found

LITHUANIA

30 days or longer if agreed by the national law

60 days or longer if agreed under the national law

Maximum periods shorter than 60 days apply to diverse groups of agricultural products, depending on the payment schedule agreed

Order of the Government of 6 April 2000, Official Gazette 2000, No 30-835 as last amended by Act published in Official Gazette 2013No 70-3527.

https://www.bnt.eu/en/news-at-bnt-2/215-news/899-transposition-of-directive-2011-7-eu-into-lithuanian-law

LUXEMBOURG

30 days payment deadline unless stipulated otherwise by contract. A longer payment period, with a maximum of 60 days, must be duly justified by the specific nature of the contract or by specific elements in the contract.

60 days or longer by explicitly defining longer payment periods in their agreement. Nevertheless, the extension of this deadline must not be grossly unfair to the creditor.

HUNGARY

30 days

30 days if not specified in the contract; 60 days maximum if agreed by the parties

30 days for food retail contracts

Act XCV of 2009 on the prohibition of unfair distributor contract vis a vis suppliers regarding agricultural an food industry products

Act of 1 January 2010

In a B2B contract, a provision stipulating a payment period longer than 60 days is to be deemed as a unilateral and unreasonable derogation to the detriment of the business entity and being in violation of the principles of proceeding in good faith and fairness. Such a contractual provision may be challenged in court by the creditors.

MALTA

30 days or, in specific circumstance fixed in the contract 60 days

30 days, if not fixed in the contract with a maximum of 60 days if provided for in the contract

http://www.justiceservices.gov.mt/DownloadDocument.aspx?app=lom&itemid=8578

THE NETHERLANDS

30 days unless clearly specified and duly justified; however, the maximum is fixed at 60 days

30 days, if there is nothing specified in the contract. Maximum of 60 days unless parties otherwise agree and it is not considered grossly unfair for the creditor

NL Civil Code, Article 6:119, particular paragraph 5.

AUSTRIA

30 days

60 days

Where nothing is fixed in the contract, the payment is due without any undue delay

According to a COM Report on transposition into national legislation of Late Payments Directive, AT ranks among the MS with the shortest average number of days for payment for public contracts (7 days).

POLAND

30 days or 60 for medical entities

30 days, if nothing is stipulated in the contract;

Maximum 60 days if provided for in the contract and not grossly unfair to the other party.

http://www.lexology.com/library/detail.aspx?g=393441db-781f-4d9e-b249-7e120d2a3d37

PORTUGAL

30 days with the possibility to extend it to a maximum of 60 days under specific circumstances or for public health authorities

60 days maximum and parties may agree on longer deadlines for payments unless grossly unfair to the creditor

30 days for food retail contracts.

Decree Law 118/2010 as amended by Decree Law 2/2013

ROMANIA

30 days; 60 days for public health authorities

60 days with the possibility of extension if not grossly unfair to the creditor and if stipulated in the contract.

7 days for fresh food and perishable products

For fresh food and perishable products, the new deadline for payment was established by a law of 2016, which modifies the previous law on trade of agricultural and agri-food products: For fresh food and products: 7 days (by the new law of 2016!):

http://www.dreptonline.ro/legislatie/legea_150_2016_modificare_legea_321_2009_comercializarea_produselor_alimentare.php

SLOVENIA

30 days

60 days maximum if stipulated in the contract with an extension up to 120 days if expressly agreed and not grossly unfair to the creditor.

45 days for perishable food. Article 61 b of the Agriculture Act

SLOVAKIA

60 days with possibility of extension if not grossly unfair for the creditor.

30 days following the date of

delivery of the duly issued invoice, but not more

than 45 days after delivery of the food as provided for in Act No. 362/2012 Coll. on Inappropriate Conditions in

Business Relations which Subject is Food;

FINLAND

30 days unless expressly mentioned in the contract

30 days unless expressly mentioned in the contract

SWEDEN

30 days

30 days following the invoice’s issuing date. This can be prolonged, if parties explicitly give their consent.

UNITED KINGDOM

30 days

60 days if agreed in the contract or longer if agreed and not grossly unfair to the creditor;

30 days, if nothing mentioned in the contract.

https://www.gov.uk/government/consultations/consultation-on-implementing-directive-2011-7-eu-on-combating-late-payment-in-commercial-transactions

Annex E: Comparison of policy options

The aim of this Annex is to explain in greater detail the comparison of the different option packages presented and compared in sections 6.4 and 7 of the impact assessment report. The different components included in the option packages are assessed individually in respect of their effectiveness and efficiency.

Due to the lack of robust empirical and quantitative data (Annex 3 of the impact assessment report) the assessment is carried out in a qualitative manner. Individual option components are assessed and ranked on the basis of expert judgement based on the evidence referred to throughout sections 2 to 6 of the impact assessment report. The degree to which each component considered allows addressing the specific objectives of the initiative (effectiveness) and at which efficiency - as compared to the baseline situation - is assessed on a simple five-stages grid going from a double minus “- -“ (more ineffective / more inefficient than the baseline) via a zero “0” (same as baseline) to a “double plus” + + (more effective / more efficient than the baseline). Two scores separated by the sign / mean that the option ranks in between the two scores concerned.

9.0Degree of harmonisation of substantive UTP rules

The impact of the introduction of an EU partial harmonisation approach is assessed in terms of its effectiveness in relation to the specific objectives described in section 4. Harmonisation at EU level, even if not taking the form of a detailed harmonisation (an option discarded in section 5.2.2.), is effective in contributing to enhancing the level of protection against UTPs in the EU and to a level playing field.

As evoked in the impact assessment report, the compliance costs (usually one-off) and the cost of administration should remain limited even in those few countries which do not yet have UTP rules (savings due to the use of existing structures whose powers could be extended). Savings through a decrease of product mismanagement or transaction costs may exist to a certain extent (see section 6.2.1.1 of the impact assessment report).

Option

Partial harmonisation of substantive UTP rules

Effectiveness

Specific objectives

Reduce UTPs

+/0

Contribute to level playing field

+

Enable effective redress

+

Efficiency

Costs

0/-

Savings

+/0

Overall, the partial harmonisation of substantive UTP rules can be judged to be more effective (+) than the baseline with at least a similar degree of costs / savings as under the baseline, thus being more efficient than the baseline (+).

9.0Scope of UTP definition

Introducing a short list of prohibited unfair trading practices (Option 1) would serve to reduce the occurrence of these UTPs, in particular if paired with effective enforcement. Such measures would be expected to reduce the occurrence of the UTPs concerned and contribute to a level playing field.

Prohibiting specific UTPs would fall short of tackling all UTPs occurring in the food supply chain. Member States would retain discretion to go further than the EU approach subject to general EU law. Some will do so (or will have done so) while others may not. Beyond the common basis, there would therefore continue to be divergence of rules and dissimilar commercial conditions for operators although to a lesser degree when compared to the baseline. Therefore, a general prohibition at EU level based on principles of fairness (Option 2) could probably be more effective in terms of reducing UTPs and the divergence of rules by addressing a wider number of trade practices and contributing to a level playing field.

The relative openness of a general UTP prohibition at the EU level – for instance based on fairness - and the possible spill-over effects it would have on national UTP rules suggest that it may be less efficient as it would raise questions concerning its complementarity with Member States measures. Legal certainty considerations may have an impact on commercial transaction costs under this option.

Option 1

Specific prohibition

Option 2

General prohibition

Effectiveness

Specific objectives

Reduce UTPs

+

++

Contribute to level playing field

+

0

Enable effective redress

n.a.

n.a.

Efficiency

Costs

0

-

Savings

0

0/-

Overall, both options can be considered as more effective than the baseline, the first one both for reducing UTPs and ensuring a level playing field, the second one for covering a wider range of potential UTPs. However, because of the legal questions raised in relation to existing national regimes and also political considerations of feasibility, the option of a general prohibition seems less efficient than the option of a specific prohibition of certain UTPs when compared to the baseline.

As mentioned in sections 5.3.3, 6.1 of the impact assessment report and in Annex H of the impact assessment report (contribution of DG COMP’s chief economist), certain trade practices considered as unfair when applied unilaterally and/or retroactively can create efficiencies when agreed ex ante by the parties. Therefore, a differentiated treatment of these practices (namely upfront payments and contributions to promotion and marketing costs) depending on their ex ante or ex post character would further improve the efficiency of Option 1.

9.0Coverage of products

Coverage of all food products including agricultural and processed agricultural products (Option 1) would seem suited to address the problem of the occurrence of UTPs in the food supply chain. The distinction between agricultural products (which include many processed products like oils, preserved goods, dairy and meat products etc.) and processed agricultural products in the TFEU has legal import but both types of products are traded along the same food supply chain delivering products downstream to the final consumer.

A comprehensive product coverage would therefore better address the existing problem of under-protection against UTPs in certain Member States in respect of the specific UTPs targeted by the initiative. It would be more effective in achieving the specific objectives related to reducing the occurrence of UTPs and to contributing to a level playing field.

While an approach of only covering agricultural products (Option 2) would mean a step towards better governance of the EU food supply chain and partly achieve the objectives, it would only cover a sub-set of the products traded in the food supply chain. What is more, as described in section 6.2.2, limiting the coverage to agricultural products could have unintended consequences such as trade diversion.

Option 1

All food products

Option 2

Agricultural products

Effectiveness

Specific objectives

Reduce UTPs

++

+

Contribute to level playing field

++

+

Enable effective redress

n.a.

n.a.

Efficiency

Costs

0

-

Savings

n.a.

n.a.

Overall, in terms of both effectiveness and efficiency, Option 1 covering all food products performs better than the option limited to agricultural products.

9.0Operators covered

In terms of effectiveness, the reduction of UTP occurrences should be roughly the same for Option 1 (all operators) and Option 2 (SMEs) as in both cases weaker operators, which are the operators more likely to be victims of UTPs, are covered across the chain. Having said this, Option 1 would, by definition, be more comprehensive than a targeted applicability that specifically protects weaker parties (such as SME operators). As regards the contribution to a level playing field, operators throughout the EU would all be covered by the same arrangements; as regards enabling effective redress, the two options should not have different impacts either.

As regards efficiency, universal applicability of UTP rules presents a higher probability that suppliers which are not in a situation of stark bargaining power imbalance could use UTP rules to improve their commercial conditions. This could result in possible efficiency losses in the food chain, and therefore higher overall costs / lower gains for actors in chain including consumers. 371 Protection targeting weaker operators would avoid these risks and therefore score better both in terms of less costs and more gains, although it may carry a risk of inadvertent trade diversion due to the risk of a party’s protection deterring its partners from trading with it. 372

As regards the coverage of 3rd country suppliers, the public interest character of UTP rules – as opposed to a mere inter-party contractual arrangement issue – justifies covering foreign suppliers too and thus addressing the risk of trade diversion as well dissimilar treatment of foreign operators. 373

Option 1

All operators

Option 2

Protection of SMEs across the chain

Effectiveness

Special objectives

Reduce UTPs

++

++

Contribute to level playing field

++

+

Enable effective redress

n.a.

n.a.

Efficiency

Costs

-

0

Savings

+

++

Overall, in terms of effectiveness, Option 1 covering all operators performs slightly better (++) than the Option limiting the coverage to transactions characterised by an imbalance of power or to operators involved in agriculture (between ++ and +), but a selected approach would ensure a higher degree of efficiency.

9.0Enforcement

Option 1, below called “minimum enforcement requirements plus”, consists of best practices in terms of enforcement powers encountered in Member States. It would usefully accompany the UTP rules introduced at the EU level. It scores highly as regards effectiveness in relation to the achievement of the objectives, in particular effective redress. The actual costs of introducing the requirements depend on the Member State concerned.

The restricted list of enforcement requirements (Option 2) also has the vocation to improve effective redress in Member States. Its scope is, however, restricted to a few basic enforcement modalities (competent authority, confidential complaints and own-initiative investigations). It scores lower, therefore, on effectiveness.

Both options would operate on the basis of a decentralised enforcement by Member State authorities. This entails increased costs for national administrations, albeit of the relatively moderate amounts (especially where economies of scope can be realised due to existing structures). In addition, by allowing tackling the fear factor, these options would both generate significant benefits for stakeholders and the food chain.

Option 1

Minimum requirements +

Option 2

Minimum requirements -

Effectiveness

Specific objectives

Reduce UTPs

+

+

Contribute to level playing field

+

+

Enable effective redress

++

+

Efficiency

Costs

-

-/0

Savings

++

+

Overall, in terms of effectiveness, a more complete enforcement regime would enable to achieve larger effectiveness of enforcement; in terms of efficiency, both options are comparable as costs and benefits increase with a more extended version.

9.0Coordination of enforcement

The options are either to introduce a coordination mechanism bringing together Member States’ enforcement authorities or not. Coordination among enforcement authorities would be a measure accompanying the introduction of common UTP rules and minimum enforcement requirements. 374 It would indirectly be conducive to the goals pursued by the initiative, that is to say the reduction and deterrence of UTPs and the levelling of the playing field for operators in Member States. Coordination would have the main vocation of aligning the application of the EU rules. It would also serve as a platform to gather data on UTPs and their enforcement that could provide valuable input for a policy review and possible adjustments (see section 9 of the impact assessment report) as well as to exchange best practices.

In terms of coherence, in several Member States which have national rules on UTPs, national competition authorities or consumer protection authorities have been entrusted with the enforcement of UTP rules in the business-to-business field (see Annex G of the impact assessment report).

Option 1

Network of dedicated authorities

Effectiveness

Specific

Reduce UTPs

+

Contribute to level playing field

+

objectives

Enable effective redress

n.a.

Efficiency

Costs

-

Savings

+

Overall, this Option allows some degree of effectiveness with balanced costs and benefits.

9.0Legal instrument

Options 1 and 2 would be to adopt mandatory regulatory measures in the form of respectively a regulation or a directive. Option 3 would be to recommend measures to Member States. In terms of effectiveness, a mandatory legal tool (regulation or directive) obviously gives higher assurance that the rules will be applied than a mere recommendation. A regulation may be slightly more effective in ensuring a level playing field as it does not depend on Member States’ transposition to the same degree as a directive. As mentioned in the impact assessment report, mutual synergies can be found between regulatory and voluntary approaches and one could reinforce the value and effectiveness of the other. In terms of efficiency, costs would likely be lower under a recommendation approach but “savings” could remain elusive if the Commission’s recommendations are not being followed. A directive would imply lower costs in terms of adapting national rules than a regulation as a regulation would not enable Member States to adapt the rules in accordance with their national specificities.

Option 1

Regulation

Option 2

Directive

Option 3

Recommendations

Effectiveness

Specific objectives

Reduce UTPs

+

+

+/0

Contribute to level playing field

++

+

+/0

Enable effective redress

+

+

+/0

Efficiency

Costs

-

0

+

Savings

0

+

+/0

9.0Comparison of option packages

Four option packages are presented in section 6.4 of the impact assessment report. The four packages all presuppose a partial harmonisation of UTP rules at the EU level. Against this common backdrop, the differentiated packages are drawn up working off the options discussed in sections 5 and 6 of the impact assessment report.

A principle-based UTP prohibition in Package 1 is contrasted with a definition of a list of a limited number of manifest UTPs to be proscribed in the three other packages. The Packages 2, 3 and 4 would introduce a short list of specific UTP rules meant to protect weaker operators (SMEs). Under Packages 1 and 2 the measures apply to all operators (and products) in the food supply chain. Packages 2 and 3 would cover trade in food products. In Package 4 the scope is limited to agricultural products. The instruments are a regulation (Package 1), a directive (Packages 2 and 3) and a recommendation (Package 4).

Package 1

Package 2

Package 3

Package 4

"General coverage & enhanced enforcement and coordination"

"Targeted coverage - all operators & enhanced enforcement and coordination"

"Targeted coverage - protection of SMEs & enhanced enforcement and coordination“

"Targeted coverage - protection of SMEs & enforcement and coordination (recommendation)"

Effective-ness

Efficiency

Effective-ness

Efficiency

Effective-ness

Efficiency

Effective-ness

Efficiency

Degree of harmonisation

+

+

+

+

+

+

+

+

Scope of UTP rules

+

-

+

0

+

0

+

0

Coverage of operators

++

0

++

0

++/+

+

++/+

+

Coverage of products

++

0

++

0

++

0

+

-

Enforcement

++

+

++

+

++

+

+

+

Coordination

+

0

+

0

+

0

0

0

Legal instrument

+

-

+

0

+

0

0

0

By drawing on the previous sections, a comparison of the option packages in terms of effectiveness and efficiency (compared to the baseline of each subcomponent) can be carried out.

Package 1 may bring the highest effectiveness, but there is a trade-off with the higher costs it entails for administrations by foreseeing a wide scope of prohibited trading practices and for stakeholders by possibly entailing an issue regarding the uncertain and divergent interpretations of a general prohibition laid down at the EU level. Package 4 is characterised by the opposite trade-off: a relatively low effectiveness, particularly with regard to enforcement, but also lower costs of implementation. Packages 2 to 3 show intermediate results with a rather high degree of effectiveness for Package 2 thanks to a wider coverage of operators. From the point of view of efficiency, Packages 3 and 4 are better targeted to those operators / transactions likely to involve UTPs as they would be characterised by differences in bargaining power. 

Based on the above (table), Package 3 would appear as the preferred one (“Protection of SMEs & enhanced coordination and enforcement”). It is more effective in achieving the specific objectives of the initiative than Package 4, thanks to a broader coverage in terms of products and more extensive enforcement modalities as well to it legally binding delivery (directive). It is likely to perform slightly less well in terms of effectiveness compared to a wider approach that would cover UTPs by way of a general prohibition (Package 1) or for all operators in the chain (Package 2). However, in terms of efficiency, Package 1 would entail a higher risk of uncertainty and costs for operators in the food chain and Package 2 a higher risk of not being proportionate to the objectives and therefore result in inefficiencies.

It has to be noted that the above comparison and assessment are qualitative. There is no complete body of empirical studies one could draw on. The operation of an EU facilitated coordination mechanism among Member States, anchored in EU rules, could favour the development of such a body of empirical knowledge concerning UTPs and facilitate later improvements of the rules.

Subsidiarity

In terms of subsidiarity, the discarded option of detailed harmonisation (see section 5.2.2 of the impact assessment report) would imply that Member States’ rules are changed, without them being able to address specificities relating to national business customs. At this stage, considerations of subsidiarity would militate against detailed harmonisation.

Similarly, Package 1’s general approach in terms of UTP rules prohibited might eventually have a quite high harmonising impact on Member States. This aspect was taken into account in the assessment of its efficiency. Package 1 is likely to raise more questions in relation to subsidiarity than the other three Packages presented.

Proportionality

The scope of Packages 3 to 4 which is limited to operators who are more likely to be affected by UTPs due to situations of imbalance of bargaining power is more proportionate in relation to the problem identified than the broader Packages 1 and 2. As discussed in particular in sections 5.3 and 6.2 of the impact assessment report, addressing the different practices at issue individually allows taking possible countervailing efficiencies into consideration, which, as has been explained, may exists in situations where parties agree or “authorise” practices upfront and thus create win-win situations. Costs for the whole food chain could increase if such cases were not taken into due account.

Annex F: Study - Overview on “Specific regulations on Unfair Trading Practices in Member State in the Business-to-Business Retail Supply Chain”

(for DG Agri and European Commission - Joint Research Center

Ares(2017)5377697)

by Fabrizio Cafaggi and Paola Iamiceli

February 2018


Table of contents

I)Introduction

II)A supply chain approach to UTPs regulation

III)The current legal framework at national level:

(1) national legislation addressing UTPs in supply chains

(2) modes and extent of prohibition of UTPs

IV)The Enforcement Triangle and its current weaknesses

A. Administrative enforcement

A.1. Investigative powers

A.2. Enforcement stricto sensu

A.3. The correlation between practices and sanctions

A.3. Commitments, Recommendations, and sanctions

3.1) Commitments

3.2) Recommendations

3.3) Sanctions

A.4. Administrative injunctions

A.5. The boundaries between administrative and criminal sanctions and the principle of ne bis in idem

A.6. Reputational sanctions via administrative enforcement

A.7. The practices of administrative enforcement in MSs

A.8. Conciliation and mediation by public bodies

A.9. Monitoring Compliance by administrative bodies

B. Judicial Enforcement

C. Dispute resolution mechanisms

V)Rethinking the policy options for UTPs in agrifood supply chains: an agenda for future research

List of Tables

Table n. 1: MSs by UTPs legislation

Table n. 2: Cross sector or agri-food specific legislation on UTPs

Table n. 3: Cross sector or agri-food specific legislation on UTPs along the chain or applicable toward retailers only

Table n. 4: Degree of detail and specificity of the legislation on UTPs

Table n. 5: UTPs covered by specific national legislation on UTPs

Table n. 6: MSs and main enforcing authorities

Table n. 7: Enforcement, authorities and relative power

Table n. 8 - Confidentiality of complaints lodged with administrative authorities and ex officio investigative powers in UTP examined legislation

Table n. 9: Empowerment of enterprises’ associations in the administrative enforcement of UTP legislation (examples)

Table n. 10 - Examples of correlation between practices and fines

Table n. 11 - Minimum and maximum threshold for the imposition of fines (examined UTP legislation)

Table n. 11-bis: Publication of enforcement decisions by administrative authorities (examples)

Table n. 12: Enforcement practices during 2015-2016

Table n. 13: Empowerment of enterprises’ associations in judicial enforcement of UTP legislation (examples)

Table n. 13-bis: Publication of enforcement decisions by courts (examples)


Fabrizio Cafaggi and Paola Iamiceli

Unfair trade practices in agri-food supply chains: The institutional design of compliance and enforcement. 375  

I)Introduction

The reaction to unfair trade practices (UTPs) in agri-food chains has become a key feature of agricultural policies at State, regional and global level. It is part of a more general phenomenon concerning the governance of global chains 376 . The increased level of global trade in agriculture has called for new approaches tackling unfair practices beyond states’ boundaries. Increasingly bargaining power is unevenly distributed along global chains. There has been a growing concentration at the retailer and processors levels while producers remain relatively small and fragmented 377 .The distribution of value along agri-food supply chains has changed over the last years 378 . Low prices at production level make farmers more vulnerable to UTPs 379 . Costs generated by regulation have been shifted. Regulatory burdens imposed by countries of the product’s final destination are often borne by suppliers and farmers. In such an environment the likelihood of UTPs in global chain increases and the lack of adequate institutional responses does not permit addressing the significant market failures related to UTPs.

UTPs hinder trade in agricultural commodities, negatively affect competition, burden producers with additional risks and costs that may undermine the objectives of the European common agricultural policies (CAP). UTPs can condition access to the chain and determine exit from the chain reducing farmers’ market opportunities to grow or even to survive 380 .

The EU has long engaged into a policy aimed at strengthening farmers’ position in supply chains. Contrasting UTPs is part of this policy. The EU approach has been incremental moving from soft law and private regulation to harder instruments; particularly in the food sector, the desirability of legislation has been considered several times over the past years. In July 2014, the Commission adopted a Communication on tackling unfair trading practices (UTPs) in the business-to-business food supply chain 381 . Meanwhile MSs have adopted different measures often combining legislation and forms of steered private regulation.

Legislation exists at MSs level but regulatory approaches diverge both in terms of instruments and practices 382 . So far, 24 MSs have legislated on UTPs and 12 specifically in food chains 383 . Legislative approaches differ between principle and detailed rules. In some MSs legislation is principle-based with general clauses prohibiting unfair practices, and leaving the enforcers the task to determine specific prohibited practices. In other MSs, legislation is very detailed, deploying black lists to exemplify prohibited practices 384 . Many legislations combine general clauses with lists of practices. In the latter case enforcers have less discretion but the risk of under-deterrence is higher when new unfair practices emerge. Principle-based legislation on the contrary leaves more discretion to enforcers but it can address new forms of UTPs as they arise. Differences concern also the instruments. A few countries have simply extended consumer protection legislation to farmers and producers. The majority has opted for a different route, enacting specific BtoB legislation motivated by the different types of practices and the need for specific supply chain remedies. The private regulation regime introduced with the Principles of good practice also reflects a combination of general principles and a list of unfair practices paired with good practices 385 .

There is no full consensus over the definition of UTPs and how different trade practices are qualified unfair (see below for in-depth analysis). Nor there is agreement over the instruments in addition to competition law, whose effectiveness was questioned by a ECN study in 2012 386 . Not only MSs diverge on the relative weight of competition law versus contract or extra-contractual liability to contrast UTPs but, even for violations addressed with the same instrument ( contract, unfair compaetition) , sanctions and remedies may differ (see below for in-depth analysis). As it will be shown, both the amount of penalties and the scope of injunctions vary within administrative enforcement. These differences and the ensuing fragmentation has stimulated the debate over the desirability of EU intervention in order to have a minimum common playing field to tackle UTPs in the agri-food sector.

The European Commission had first promoted a self-regulatory regime consistent with the inter-professional approach that characterizes European agriculture. A set of principles were developed by various players of agri-food chain in 2011 which was followed by an initiative for implementation and enforcement in 2013. The food supply chain initiative (FSCI or SCI) arose out of a proposal by the Commission’s High Level Forum for a Better Functioning Food Supply Chain 387 . It represents a form of ‘governed self-regulation’ with the European Commission playing a relevant role as a facilitator. One of the problems in FSCI is the absence of farmers’ associations, which decided to pull out right after its creation. The FSCI monitors and enforces the principles of the code of practice 388 . The results of this approach are unclear; whether self-regulation delivers the expected results with a significant reduction of number and intensity of unfair practices is debated 389 . It appears that it can properly work as a complement of legislation both in terms of regulatory and enforcement practice.

In 2016 the Commission wrote a Report on unfair trade practices in the food supply chain 390 . The Report focused on the MSs regulatory frameworks and the impact of the FSCI 391 . It concluded that, “given the positive developments in parts of the food chain and since different approaches could address UTPs effectively, the Commission does not see the added value of a specific harmonised regulatory approach at EU level at this stage. However, the Commission recognises that, since in many Member States legislation was introduced only very recently, results must be closely monitored, and reassessed, if necessary.” 392 .

Soon thereafter the European Parliament issued a resolution encouraging the Commission to act 393 . The European Parliament underlined the fragmentation and divergences across MSs. 394 There was subsequently a report by the Agricultural market task force (AMTF) with recommendations on various issues including unfair trade practices 395 . Very recently (2017), the Commission has published an inception impact assessment for consultation defining different regulatory options 396 . The two main variables in the Inception assessment concern the nature of the instruments and its coverage. As to the instrument, the alternative is: non-binding instruments like guidelines or recommendations (option 2) or framework legislation (option 3 and 4). As to the coverage, the alternative is between (1) an instrument to protect weaker parties or (2) an instrument regulating the relationships within the whole food chain. The results of the consultation suggest that the opportunity for a legislative intervention should be reconsidered.


II)A supply chain approach to UTPs regulation

Unfair trade practices in supply chains are quite common, even more in agrifood. In the field of agriculture, the definition provided by the EU Commission in the 2014 Communication represents a useful starting point. “UTPs can broadly be defined as practices that grossly deviate from good commercial conduct, are contrary to good faith and fair dealing and are unilaterally imposed by one trading partner on another.” 397 UTPs may result in civil, administrative, and at times criminal infringements. As we shall see often the three dimensions co-exist and the three enforcement regimes are in place in relation to the same UTP.

In its 2016 Report the Commission paid special attention to the supply chain dimension: “Looking ahead, given that UTPs can potentially occur at every stage of the chain, Member States that have not yet done so should consider introducing legislation that covers the entire B2B food supply chain. This is important in order to ensure that all smaller market operators have adequate protection from UTPs, as many small market operators do not deal directly with retailers. Member States should also ensure that their legislation covers operators from non-EU countries (for example, primary producers from Africa or Latin America)”.

The Supply chain approach characterizes also private regulation. The Food supply chain initiative defines principles and rules to be applied all along the chain. The regulatory perspective combines general principles related to risk allocation along the chain with specific rules prohibiting contractual clauses that distribute risks (and costs) unfairly 398 . The principle of proportionality indirectly emerges from the description of the unfair practice, where a disproportionate risk is imposed on producers 399 .

Who are the infringers in supply chains? 400 UTPs within a supply chain may be decided by the chain leader and applied all along the chain. Depending on the decision-making power held by each party within the chain, the participants to the chain may either be co-infringers or mere ‘agents’ of the chain leader’s illegal behaviour. These different positions may have an effect on the liability, on the sanctioning, and on civil remedies. When infringers are located in different MSs or some in MSs and some outside EU, the definition of applicable laws to the same infringement committed by multiples infringers can become highly complex.

Taking a supply chain approach to legal regulation has relevant implications. UTPs have both efficiency and distributional effects concerning costs and risks. They redistribute value along the chain, frequently penalizing producers and the upstream part of the chain while benefitting large buyers in the downstream part. Unfair distribution of both risks and costs often occurs through contractual provisions reproduced along the chain that may qualify as UTPs. Contract clauses may permit unilateral changes raising costs and increasing requirements that producers have to meet without a corresponding increase of prices. These contractual clauses may be voided and their effects removed. While it is claimed that UTPs occur throughout the chain, the most relevant ones happen in the upper part of the chain. Different policy options might be taken to correct unfair distribution. A first option regulates UTPs along the chain regardless of the potentially injured party’s economic function; a second option would instead focus on UTPs specifically against producers. Some recent legislations at MS level applies to the entire chain 401 . Others only apply to the relation between retailers and their direct suppliers.

Conceptually different approaches might be used: the most radical provides a legal definition of supply chain and applies to all the relationships within the chain 402 . The less radical approach focuses on bilateral relationships between producers and buyers, but considers the effects of the UTP along the chain 403 . An intermediate approach focuses on bilateral relationships but considers the harmful consequences for the entire chain. The intermediate approach seems to be the most popular in the recent legislations. Within the bilateral approach there are differences between legislations that only apply to producers of agricultural commodities and legislations (like Ireland) that only apply to a specific contractual relationship between retailers or wholesalers and suppliers (see, more extensively, below, § III.1).

According to the supply chain approach, if the large buyer exercises the UTP in agreement with first-tier suppliers, the supply chain approach would require considering the impact of the unfair practice on the second- and third-tier suppliers. For example, retroactive conditions after the contracts are concluded, delay of payments, wrongful contractual terminations may have cascade effects on the upstream part of the chain even if they do not directly apply to them. These effects have to be considered when sanctioning the infringement and provide remedies for those harmed by the UTP.

The supply chain approach has been prominent in some MSs within EU 404 . For example, Spain in 2013 has subscribed to a supply chain approach regulating UTPs along the chain 405 . Moving from this perspective, Spanish legislation takes in due consideration situations in which an SME is in a relationship with a buyer characterized by economic dependence or at least one of the two conditions occur (nature of SME or economic dependence); according to the Spanish legislation economic dependence exists when the supplier sells at least 30% of the overall production to a single buyer 406 . The European Commission encourages MSs that are going to introduce new legislation to adopt a supply chain approach 407 .

The supply chain approach to UTP is not necessarily associated with trans-border infringements. It can apply to both domestic and trans-border chains. Legal aspects concerning transborder infringements require decisions concerning applicable laws and criteria to identify the competent enforcer(s). A supply chain approach in transborder infringements should definitely distinguish between EU infringements and those that affect enterprises and farmers operating beyond the EU territory. Even if there is not dedicated research comparing UTPs within and outside EU it is likely that both the nature and the enforcement may vary depending on whether they are addressed to EU or non EU producers.

III)The current legal framework at national level:

(1) national legislation addressing UTPs in supply chains

Although most MSs have adopted some legislation in the area of unfair trade practices in “business to business” (hereinafter, BtoB) relations, the legal landscape is rather diversified across the EU.

Among those which have introduced new rules:

-some have opted for legislation;

-some have opted for a pure self-regulatory option (e.g. Belgium, Estonia, the Netherlands);

-many have chosen a hybrid approach that combines legislation and self-regulation.

The hybrid approach has taken different forms: in some cases (Spain, Portugal, Slovak Republic), there is a double track including both legislation and codes with the latter playing a complementary role explicitly acknowledged in legislation; in other cases the code definition of UTPs has been incorporated by reference in legislation (Italy); in other cases the hybridity results in private rule making and public enforcement (UK Grocery Code and Adjudicator).

This contribution is focused on legislation, whereas private regulation, including the EU platform established with the Supply Chain Initiative (SCI), will not be specifically addressed though occasionally referred to.

Within the context of legislative instruments, the present analysis will not consider legislation exclusively based on competition law and tailored upon article 102, TFEU, even when the concept of dominant position and the relevant market thresholds have been stretched beyond the EU definition (as it is the case for Finland, e.g.). As acknowledged in previous reports and studies, a legislative approach exclusively based on competition law may fail to capture most relevant UTPs in national and global supply chains 408 . By contrast, the present analysis will consider legislation that, though introduced within a competition law framework, does not require a specific UTPs impact on market competition: this may be the case when national competition law expands beyond the boundaries of article 102, TFEU, sometimes through the concepts of abuse of bargaining superior power or abuse of economic dependence (so, e.g., in Germany).

Other “border-line” approaches are taken by those MSs that have only addressed a very limited menu of unfair practices in the area of pre-contractual information, advertising and unsolicited offers, mostly as a spill-over effect of consumer law in the field of unfair commercial practices, though not necessarily through explicit extension of BtoC legislation to the BtoB domain. This is the case for Belgium, Denmark, Finland and Sweden. Among these, Denmark, Finland and Sweden have extended, at least in part, legislation implementing the consumer directive on UTPs 2005/29/EC to BtoB relationships. In Sweden, such extension has explicitly included Annex I of the Directive, listing the per se prohibited practices. In Belgium, articles VI.104-109 of the Code de droit économique (book VI, title 4, chapter 2) specifically addresses unfair market practices towards persons different from consumers and provides for a general prohibition of business acts infringing honest market practices and harming other businesses; however, the type of practices addressed remains within the limited range above described with regard to pre-contractual information, advertising and unsolicited offers. A fifth MS, namely Austria, has taken a similar approach by extending to BtoB relations the consumer unfair practice legislation, including the list of per se unfair practices 409 . It departs from the approach taken in Denmark, Finland and Sweden for two reasons: (i) because it makes unfair practices occurred in BtoB relations subject to civil remedies (namely injunctions and damages) only to the extent that they materially distort competition; (ii) because Austrian legislation also addresses UTPs in another piece of legislation (so called Local Supply Act), examined below.

Due to its limited scope, MSs legislation exclusively focused on pre-contractual information, advertising and unsolicited offers will not be examined within the variety of legislative instruments specifically addressing unfair trade practices in BtoB relations 410 . Nor will advertising legislation (including implementation of Directive 2006/116/EC) be specifically considered in the present analysis. Indeed, as shown below, policy debate on BtoB UTPs in global supply chains focuses on practices different from those addressed by this type of legislation.

Last but not least, in order to maintain a sufficient degree of specificity and comparability, the present analysis will not specifically examine the role played in MSs by general contract law and general tort law, though acknowledging that this role may be very relevant, especially when no specific legislative instrument is adopted.

Within the boundaries just defined, the performed analysis leads to observe that:

-4 MSs (Estonia, Luxembourg, Malta, the Netherlands) do not have any specific legislative instrument to address UTPs in BtoB relations;

-4 MSs (Belgium, Denmark, Finland, Sweden, as just described) address a very limited range of practices mainly focused on pre-contractual information, advertising and offer design;

-20 MSs have some type of legislation specifically addressing unfair trade practices in BtoB relations.

Table n. 1: MSs by UTPs legislation

No legislation on UTPs

Limited scope legislation

(mainly consumer-type UTP approach)

Specific legislation on UTPs

Estonia

Luxembourg

Malta

(The) Netherlands

Belgium

Denmark

Finland

Sweden

Austria

Bulgaria

Croatia

Cyprus

Czech Republic

France

Germany

Greece

Hungary

Ireland

Italy

Latvia

Lithuania

Poland

Portugal

Romania

Slovakia

Slovenia

Spain

United Kingdom

For the reasons above explained, the analysis below will focus on the legislation in the 20 MSs mentioned in the third indent. A list of the examined legislation is provided in the Annex.

Different approaches may be distinguished. In some cases, e.g. Cyprus and Germany, UTPs have been addressed by stretching the scope of competition law beyond the boundaries of article 102, TFEU, and applying the concept of abuse to economic dependence or superior bargaining power. This approach has been taken by other MSs, such as Bulgaria, where a more focused and sector-specific legislation has also been adopted, namely in the food sector. In other cases, now representing the vast majority of MSs having legislative instruments on UTPs, dedicated legislation has been adopted outside of the scope of national competition law. This legislation more and more tends to focus on contractual relations between suppliers and processors or retailers, covering the several stages of such relations: from pre-contractual, to contract negotiation and drafting, execution and termination, therefore going well beyond the scope of legislation tailored upon the consumer protection approach taken in some other MSs (so in Belgium, Denmark, Finland, Sweden; see above, in this §). 411

Among the mentioned 20 MSs, 12 have adopted legislative instruments specifically applicable to the food supply chain, whereas in 8 MSs the UTP legislation is applicable to all sectors, though sometimes including specific provisions on practices in food and groceries trade (e.g. in France, Latvia and Portugal; in Latvia and in Portugal a specific list of prohibited UTPs has been provided for the food sector).


Table n. 2: Cross sector or agri-food sector specific legislation on UTPs

Cross-sector legislation on UTPs

Specific legislation on UTPs in the agri-food sector

Austria

Cyprus

France

Germany

Greece

Latvia

Lithuania

Portugal

Bulgaria

Croatia

Czech Republic

Hungary

Ireland

Italy

Poland

Romania

Slovakia

Slovenia

Spain

United Kingdom 412

Other variables concern the addressed segment of supply chains. In 5 MSs (Czech Republic, Hungary, Ireland, Lithuania, United Kingdom), examined legislation is only applicable towards retailers; this is mostly the case for MSs adopting specific legislation in the food sector, though in some case (Lithuania) retailers’ practices are addressed regardless the economic sector.

Table n. 3: Cross sector or agri-food specific legislation on UTPs along the chain or applicable toward retailers only

Cross-sector legislation on UTPs

Specific legislation on UTPs in the agri-food sector

Legislation applicable along the whole chain

Austria

Cyprus

France

Germany

Greece

Latvia

Portugal

Bulgaria

Croatia

Italy

Poland

Romania

Slovakia

Slovenia

Spain

Legislation applicable towards retailers only

Lithuania

Czech Republic

Hungary

Ireland

United Kingdom

In all the other cases legislation is applicable at all stages along the chain. It is remarkable that, even within this set of legislative instruments, variations emerge depending on supply chain structure. E.g., the Croatian Act on the prohibition of unfair trading practices in the BtoB food supply chain provides for both general and specific lists of prohibited UTPs based on the type of relation (between the supplier and the buyer or processor, and between the supplier and the re-seller). Comparatively, the French Commercial Code includes both general scope provisions (e.g. art. 442-6) and specific provisions on distribution contractual relations (e.g. art. 441-7).

The supply chain structure comes into consideration also when transactions are dealt with within cooperative companies, therefore allowing for different setting of contract terms, more stable relations and different modes of monitoring over trade compliance. As a consequence, some legislation excludes these transactions from the scope of application of laws on unfair trade practices; this is, e.g., the case for Poland and Spain.

A third type of variable concern the size of business. Indeed, the size of potential infringers is sometimes considered as a proxy of bargaining power, as well as the size of potential injured is considered as a further proxy for an unbalanced relation. As a consequence, some MSs have limited the scope of legislation:

(I)to businesses exceeding a certain size or

(II)to relations in which only one party is a small or micro enterprise.

The approach under (i), restricting the scope of application of UTP legislation to “large enterprises” only, is, e.g., taken in:

-Croatia, whose legislation applies to resellers whose turnover in Croatia exceeds approximately 132.500 eur, and to processors whose turnover in Croatia exceeds approximately 66.250 eur;

-Lithuania, whose legislation applies to retailers having significant market power, defined as retailers with at least 20 stores and a surface of at least 400 sqm in Lithuania and with an aggregate income in the last financial year that is not less than 116 million eur;

-Poland, whose legislation applies when the business’ trade value in the past two years or within the UTP practices exceeds approximately 11.900 eur and when infringer’s (group’s) turnover exceeds approximately 23.867.100 eur;

-the United Kingdom, whose “Groceries (Supply Chain Practices) Market Investigation Order 2009” applies to any retailer with a turnover exceeding £1 billion with respect to the retail supply of groceries in the United Kingdom, and which is designated in writing as a Designated Retailer.

The approach under (ii), taking into account the position of SMEs as potentially injured party, is taken (again) in Lithuanian legislation, that does not apply to relations between retailers having significant market power and suppliers whose aggregate income during the last financial year exceeds EUR 40 million: larger suppliers, as potential victims, are then excluded from the scope of application of the law. A comparable approach is only partially taken in Spanish legislation on the functioning of the food supply chain, when regulating formal and content requirements of supply contracts: indeed, these apply only to transactions whose value exceed (or will presumably exceed) 2.500 eur and one of the proxies for unbalanced relations occur; among these proxies the size of the harmed business as a SME is also considered. Rather similarly, in article 20, German Act against Restraints of Competition, abuse of relative market power is prohibited only when it involves SMEs as “dependent” enterprises. In the Portuguese DL no. 166/2013, whose scope of application is general, specific provisions have been provided for the protection of small and microenterprises; moreover, fines are adapted to infringers’ size.

As the German and the Lithuanian examples show, the reference to the size of involved enterprises may be combined with a reference to a situation of superior bargaining power of the potential injurer or the one of economic dependence of the potential injured. Other pieces of legislation specifically focus on abuse of superior bargaining power or abuse of economic dependence, so indirectly excluding from their scope of application more paritarian or balanced relations. This is the case for one of the pieces of legislation in Bulgaria, for Croatia, Cyprus, Czech Republic, Greece, Poland, Slovenia.

The scope of application of the examined legislation is only sometimes tailored upon the national v. transnational dimension of the supply chain. Recent legislative interventions (e.g. in the UK and Ireland) have expressly expanded the scope of application of legislation on unfair trade practices in favour of suppliers located out of the national territory. By contrast, the Portuguese DL n. 166/2013 on individual restrictive commercial practices used to be applicable only to companies established in national territory. Here, a recent reform by Decree Law n. 220/2015 has repealed a former provision excluding from the scope of application of DL n. 166/2013 the purchase and sale of goods and the provision of services originating or terminating in country outside the Union or the European Economic Area. Therefore, now, similarly to the Irish law, the Portuguese law would apply, for example, to UTPs occurred within the relation between a Portuguese retailer and a Brazilian supplier. Comparatively, in Poland, the law on fraudulent use of contractual advantage in trade and agricultural products and groceries only applies to UTPs whose effects occur in Poland; therefore, one could argue that it could apply, e.g., to UTPs enacted by a foreign retailer against a Polish supplier. A similar approach is taken in Czech Republic. In practice, this situation could entail some need for cooperation among administrative authorities in different UE countries, whenever, e.g., an injunction should be enforced against a foreign supplier, if ever admissible. In the Italian legislation, the scope of application is linked with the place of delivery of goods: indeed, the norms apply to the extent that such place is in Italy (see art. 1, Min. decree no. 199/2012): here the provision focuses on the place of delivery rather than on the place in which the UTP effects are generated.

More generally, it should be noted that the “source” of UTPs, especially when based on the use of contract terms or business protocols, may be traced back in a different MS from the one where the harmed business(es) is/are located and the effects of UTPs are produced, either because the supplier trades with a foreign client or because, although the contract is stipulated with a local buyer, the latter is “controlled” by a foreign company imposing the contested practice along the chain. Defining the scope of application of national legislative instruments disregarding the international dimension of supply chains may lead to leave relevant practices out of the reach of the adopted instruments.

III. The current legal framework at national level:

(2) modes and extent of prohibition of UTPs

National legal frameworks are also rather diversified in respect of the modes and extent of prohibition of UTPs. As specified above, the present analysis is limited to the legislation identified in the 20 MSs having legislative instruments specifically addressing UTPs in supply chains, without being limited to pre-contractual aggressive and misleading practices or misleading advertising (see table n. 1).

UTPs are often prohibited through the use of general clauses and general principles. Examples include:

-prohibition of unequal treatment of entrepreneurs unless objectively justified (Austria);

-prohibition of every act/omission by an undertaking with a stronger bargaining position when in conflict with fair business practice damaging or impairing the interest of a weaker party (Bulgaria);

-prohibition of abuse/exploitation of superior/significant bargaining power (Croatia, Czech Republic, Italy, Slovenia);

-prohibition of abuse of relative market power, consisting in unfair treatment or objectively unjustified discrimination in case of economic dependence of SMEs (Germany);

-prohibition of abuse of economic dependence (Cyprus, Greece);

-liability for imposing significant unbalance between parties’ rights and obligations (France, Italy);

-prohibition of imposing unfair contractual advantage contrary to the principles of morality and threatening the essential interest of the other party (Poland);

-prohibition of unfair conduct (Hungary, Italy) or conducts in contrast with fair practice (Latvia), of actions contrary to fair business practices (Lithuania), of unfair contractual conditions and unfair trade practices (Slovak Republic);

-duty to conduct trading relationships in good faith and in a fair, open and transparent manner and to respect the terms and conditions of the agreed contracts (Ireland);

-duty to comply with principles of transparency, fairness, proportionality, reciprocity in contractual obligations (Italy);

-duty to comply with the Principles of Good Practice in Vertical relationships in the Food Supply Chain, developed by the European Commission in the B2B Platform of the High Level Forum for a Better Functioning Food Supply Chain (Italy);

-duty to comply with principles of balance and fair reciprocity between parties, freedom to enter into agreements, goodwill, mutual interest, equitable sharing of risks and responsibilities, cooperation, transparency and respect for free market competition (Spain);

-duty to comply with the principle of fair dealing (United Kingdom).

As shown above, the use of principles and the one of general clauses are rather diversified across MSs not only because different ones are referred to in different systems but also because they are differently defined in each legislation. E.g. the concept of superior bargaining power may be defined having regard to the volume of sales (so in the Slovenian law), the characteristics of the structure of the relevant market and the particular legal relationship between the enterprises, taking into consideration the level of dependence between them, the nature of their business and the difference in the scale thereof, the probability of finding of an alternative trade partner, including the existence of alternative supply sources, distribution channels and/or customers (as in the Bulgarian law) or having exclusive regard to cases in which economic dependence involve SMEs (as in Germany).

Only in a few cases (Portugal, Romania) prohibitions are listed with regard to specific conducts without relying on general clauses and general principles. Also rare is the use of general clauses not coupled with list of prohibited conducts (e.g. in the German Act against Restraints of Competition). Indeed, in the large majority of systems, general principles and general clauses are always complemented by either examples or more structured lists of prohibited practices falling under the umbrella of the general prohibition. In some cases, it is specified that the list is not complete and any other conduct infringing the general prohibition must be sanctioned (e.g. Italy) or that the list provides only examples of prohibited conducts (e.g. Poland); in other cases, it is more doubtful whether unlisted conducts may be sanctioned under the general prohibition, especially when the general prohibition is very open and the list of prohibited conducts rather detailed (this is the case for Hungary, e.g.). This extension may be particularly critical in systems in which enforcement is mainly criminal (Ireland, Romania) and the principle of legality may reduce extensive interpretation of law identifying crimes.

The use of list does not totally eliminate the need for discretionary powers when interpreting and apply the rules. Indeed, even when prohibited conducts are listed, the use of open terms (such as proportional, reasonable, justified, significant unbalance, etc.) is very common, though diversified across countries (see tables 2.1 and 2.2 in the Annex).

Table n. 4: Degree of detail and specificity of the legislation on UTPs

Only general clauses and general principles

Only lists of prohibited practices

General principles, general clauses, examples or lists of prohibited practices

Germany

Portugal

Romania

Austria

Bulgaria

Croatia

Cyprus

Czech Republic

France

Greece

Hungary

Ireland

Italy

Latvia

Lithuania

Poland

Slovakia

Slovenia

Spain

United Kingdom

When it comes the specific UTPs covered by examined legislation (dedicated UTP legislation in the 20 above mentioned MSs), fragmentation is even wider.

The table below addresses the following practices:

1)Payment periods longer than 30 days    

2)Unilateral and retroactive changes to contracts (concerning volumes, quality standards, prices)

3)Contributions to promotional or marketing costs    

4)Claims for wasted or unsold products    

5)Last-minute order cancellations concerning perishable products, or unfair contract termination in general    

6)Requests for upfront payments to secure or retain contracts

It is mainly based upon the list of practices proposed in the Report of the Agricultural Markets Task Force 413 , partially complemented by the shorter list of UTPs identified by the EC Report in 2016 as “core types of UTPs broadly covered by all regulatory frameworks” 414 . It also draws on the SCI code and the annexed list of practices therein included, whose development has contributed to the definition of relevant practices.

More specifically, in the present analysis the concept of “last-minute order cancellations concerning perishable products”, used by the AMTF, has been here expanded towards a more general concept of “unfair termination of a contractual relationship” along the lines of the shorter EC list. Compared with the latter, the AMTF list is more selective and less dependent on open terms and concepts. So, e.g., the AMTF reference to prohibition of contributions to promotional or marketing costs could be linked with the more general prohibition of asking “the other party for advantages or benefits of any kind without performing a service related to the advantage or benefit asked”, identified in the 2016 EC Report; and the AMTF reference to prohibition of unilateral and retroactive changes to contracts, claims for wasted or unsold products, requests for upfront payments to secure or retain contracts could be read within the more general prohibition of “duly or unfairly shifting its own costs or entrepreneurial risks to the other party”, identified in the 2016 EC Report. The reference to unilateral and retroactive changes to contracts is common to both lists, although the Commission Report explicitly considers the possibility that changes may be admitted through contract clauses (this possibility will be separately examined below). Payment delays are only addressed in the AMTF list.

Table n. 5: UTPs covered by specific national legislation on UTPs

Selected practices

MSs, whose UTP legislation covers the selected practices

Payment periods longer than 30 days

Bulgaria, Croatia, Czech Republic, France, Hungary, Ireland, Italy, Latvia, Poland, Romania, Slovakia, Slovenia, Spain, UK

In other MSs provisions on late payment are addressed in the legislation implementing the Late Payment Directive

Unilateral and retroactive changes to contracts (concerning volumes, quality standards, prices)

Bulgaria, Croatia, Hungary, Ireland, Italy, Latvia, Lithuania, Portugal, Spain, UK

Contributions to promotional or marketing costs

Bulgaria, Czech Republic, France, Hungary, Ireland, Italy, Latvia, Lithuania, Portugal, Romania, Slovenia, Spain, UK

Claims for wasted or unsold products

Bulgaria, Croatia, Czech Republic, Hungary, Ireland, Latvia, Lithuania, Portugal, Slovenia, Spain, UK

Last-minute order cancellations concerning perishable products, or unfair contract termination in general

Bulgaria, Czech Republic, Croatia, Cyprus, France, Greece, Ireland, Italy, Poland, Romania, UK

Requests for upfront payments to secure or retain contracts

Croatia, Czech Republic, France, Hungary, Ireland, Italy, Latvia, Lithuania, Poland, Portugal, Spain, United Kingdom

Particularly in this case, figures must be considered as showing general trends rather than conclusive evidence. Indeed, some of the listed practices (e.g. payment periods longer than 30 days) may be prohibited in other pieces of legislation than those here examined (e.g. legislation implementing the Late Payment Directive), or some of the specific conducts here considered (e.g. imposition of contribution to promotional marketing costs) may be ignored as such by the lists at stake though being addressed through more general prohibitions (e.g. concerning imposition of costs not related with provided services) or through the use of general clauses (e.g. abuse of superior bargaining power), as seen above. Under this perspective some more detailed information is provided in table n. 2.3 in the Annex.

Moving from this clarification and within these limitations, one could observe that even a relatively commonly addressed practice (e.g. unfair contract termination) is not specifically referred to in almost half of MSs specifically regulating UTPs in BtoB relations and other mentioned UTPs (e.g. unilateral and retroactive changes to contracts, contributions to promotional and marketing costs and requests for upfront payments to secure or retain contracts) are addressed in less than two thirds of these MSs. No specific prohibition is common to all legal systems, even though, once again, the presence of general prohibitions based on fairness may permit coverage of these UTPs.

Even when the same type of practice is covered in several MSs, the mode of regulation varies. E.g. in Slovenia, payment periods are targeted when longer than 45 days (rather than 30).

Another major distinction regards the possibility that some UTPs are exempted if business conduct is expressly regulated through contract clauses that parties have agreed upon. Two types of provisions should be distinguished in this case:

-mere exemption, as shown in the following example: “The contract for purchase of food for resale cannot: (…) 4. be amended unilaterally, unless this is explicitly provided for in the contract” (art. 19.1, Bulgarian Foodstuff Act; similar provisions are adopted in Latvian and Lithuanian legislation, although both include examples of the second type here below);

-exemption subject to compliance with contract regulation, as shown in the following example: “This Regulation prohibits a retailer or wholesaler from varying, terminating or renewing a contract with a supplier unless the contract expressly provides for such variation, termination or renewal or agreed circumstances when such variation, termination or renewal can occur. Thus, unilateral retrospective variations are not permitted. In addition, the agreed contract must specify the period of written notice that must be given prior to any such variation, termination or renewal. The period of such notice will be reasonable and have regards to all the circumstances of the contract, including:

othe duration of the contract;

othe frequency with which orders are placed by the retailer or wholesaler for the grocery goods concerned;

othe characteristics of the grocery goods concerned including the durability, seasonality and external factors affecting their production; and

othe value of any order relative to the annual turnover of the supplier in question”

(Regulation 5, Irish Consumer Protection Act 2007 (Grocery Goods Undertakings) Regulations 2016 (S.I. No. 35 Of 2016)). Similar provisions are adopted in the United Kingdom, Spain and, together with examples of the first type of provisions above, in Latvian and Lithuanian legislation.

Table 2.2. in the Annex shows more examples of both types of exemption.

Whereas the former type of exemption may create room for abuse when drafting contract clauses, the latter type limits this risk by adopting contractual procedures or specifying requirements for contractual exemption.


IV) The Enforcement Triangle and its current weaknesses

The enforcement of UTPs is decentralized. It is based on a triangle including administrative, judicial, and private dispute resolution. MSs are responsible to detect and sanction both domestic and transborder infringements. Not only substantive rules describing unfair trade practices but also enforcement mechanisms have been introduced by the MSs legislations to address an enforcement gap. The new legislation adds and does not replace general rules in civil codes or statutory instruments.

The enforcement mechanisms comprise adjudication by courts directed at compensation for damages, restitution of unduly paid sums, invalidity of clauses in contracts. Some MSs include also a criminal facet and consider UTPs as a civil, administrative, and criminal infringements. Increasingly judicial enforcement has been complemented by administrative enforcement with sanctioning powers, including fines and, to a limited extent, injunctions. Administrative enforcers include competition authorities, ministries of agriculture, agencies 415 . Often multiple administrative bodies in charge with enforcement powers are in place. Competition authorities are responsible both for unfair practices that constitute anticompetitive infringements and for non-competition aspects of UTPs when, for example, the infringer that engages in unfair practices is not in a dominant position. In addition, some MSs have identified other administrative authorities complementing the former that either focus on the protection of SMEs in agriculture or deliver recommendations and opinions using cooperative rather than hierarchical enforcement. The introduction of administrative enforcement is mostly linked to the adoption of dedicated legislation on UTPs in supply chains. Indeed, in all MSs adopting such legislation, some type of administrative enforcement has been provided. Whereas in several cases existing authorities have been empowered (mainly Competition or Consumer and Competition Authorities), in other cases newly dedicated administrative authorities have been established.

Table n. 6: MSs and main enforcing authorities

MS

Main enforcing authority as regards UTP legislation

Austria

Court

(administrative authorities, e.g. Federal Competition Authority, have standing to start judicial proceedings)

Bulgaria

Commission of Protection of Competition (CPC)

Croatia

Competition Authority

Cyprus

Commission for the Protection of Competition

Czech Republic

Office for the Protection of Competition

France

Direction générale de la concurrence, de la consommation et de la répression des fraudes (DGCCRF, within the Min. Econ.)

Germany

Competition Authority

(although injunctions are imposed by courts; CA may file a request)

Greece

Court

Hungary

National Food Chain Safety Office

Ireland

Competition and Consumer Protection Commission

Italy

Competition Authority

Latvia

Competition Council

Lithuania

Competition Council

Poland

Office of Competition and Consumer Protection

Portugal

ASAE (Autoridade Administrativa Nacional Especializada)

Romania

Consumer Protection Authority and Ministry of Finance

(depending on UTP)

Slovakia

Ministry of Agriculture And Rural Development

Slovenia

Slovenian Competition Protection Agency

Spain

Administration of Aut. Comm. or General State Administration

(depending on territorial dimension of UTPs:)

United Kingdom

Grocery Code Adjudicator

MS having limited scope legislation

(mainly focused on consumer-type misleading and aggressive practices)

Belgium

Commercial Court

Denmark

Court

Finland

Market Court

Sweden

Market Court

Other features of administrative enforcement concern the possibility to investigate and sanction multiple infringements with multiple injured parties. Administrative enforcement can either focus on single infringers and injured or on multiple ones. In the latter case, the effects on markets are wider and deeper. Administrative unlike judicial enforcement accounts for repeat infringements. Sanctioning power can be adjusted accordingly when the infringer has previously engaged in the same or similar unlawful conduct.

Administrative bodies may (1) either only have investigative powers and refer to courts for enforcement or (2) hold both investigative and sanctioning powers. When they can only investigate, they may bring actions before the court without prejudice of individual rights to effective judicial protection by the UTPs injured 416 . In the latter case, these powers have to be exercised by separate units or legal entities in order to comply with due process and good administration requirements.

Complementarity of enforcement mechanisms include also private regimes that can either be voluntary or mandatory, characterized by the extensive use of market and reputational sanctions The pillar of private bodies applying codes of conduct represents the third side of the triangle. This is supported at EU level by the Food Supply chain initiative (FSCI) 417 . Enforcement of codes of practices may follow a different path. Compliance with codes of practice can be ensured by private bodies like the FSCI platforms, by public enforcers, including administrative bodies (UK grocery adjudicator) and courts, and by hybrid bodies composed by members of public administration and representatives of the various interests involved like the Code oversight committee in Spain.

What is the relative weight of each enforcement mechanisms? Why and how do they complement each other? No legislation imposes alternative routes. Injured parties can access the three enforcement mechanisms. The enforcement triangle, including judicial, administrative and private resolution mechanisms represents a relative common feature in MSs. What sensibly differs is the combination and modes of interaction. Almost no national legislation coordinates judicial and administrative enforcement. Similarly, no effective coordination exists between the enforcers of the supply chain initiatives (SCI national platforms) and the judicial and administrative enforcers.

The relative weight of each enforcement mechanism has changed over time. Administrative enforcement has gained more relevance over adjudication. The rise of administrative enforcement can partly be explained by the (lack) of producers’ incentives and more generally of ‘victims’ to use the judicial system. In long term relationships characterized by economic dependence between the parties, litigation is generally the end and farmers might not afford such a risk. Administrative enforcement with ex officio power shields farmers away from the danger of retaliation and better preserve the continuation of the business relationship with large buyers.

. The complementarity concerns both procedures and sanctions/remedies.

Complementarity implies differences on approaches and on instruments. The resolution of private disputes is usually characterized by a strong(er) collaborative approach between enforcers and parties. Sanctions are limited whereas remedies are primarily reputational although some private adjudicator can also issue injunctions and fines. Administrative enforcement features both collaborative and hierarchical enforcement depending on the approach. Primary instruments to prevent and deter are fines and injunctions. Adjudication before courts follows the adversarial model and focuses on injunctions restitution, and compensation.

               The enforcement triangle

Administrative

Judicial

(civil and criminal)                                Private (FSCI)

 

The three pillars constitute the enforcement triangle that should address the enforcement gap in UTPs. Their coordination at MSs level is currently very limited; lack of coordination together with some design fallacies undermine the effectiveness of decentralized enforcement calling for a better integrated approach both at MS and EU level. An integrated approach requires coordination between enforcement mechanisms to ensure that each performs its functions without duplications and overlaps. But the most important feature is coordination among MSs both among administrative enforcers and between them and courts, criminal and civil. It is necessary to define a sequence, to regulate the legal force of administrative decisions in judicial proceedings, the possibility to use evidence, and the solution of potential conflicts between final decisions in each enforcement mechanism.

The operation of the enforcement triangle becomes even more problematic when multiple injurers and multiple injured belonging to different MSs or to States outside EU are involved. Administrative and judicial enforcement have different rules concerning extraterritoriality. Hence their complementarity when injured and infringers are located in different states may have different features from those related to UTPs whose geographic scope rests within a single MS.

In case of trans-border infringements one of the open questions is the extent of national enforcers’ power to investigate and sanctions infringements that start from a foreign MS and have effects on their own or start from their own MS and have effects in other MSs

Administrative enforcers can fine traders for UTPs whose effects are outside their MS. Some MSs specifically provide for this power even in relation to outside EU producers (UK, Ireland). Other MSs establish a principle of reciprocity (Austria). Accordingly, protection of non-national producers is warranted as long as the same protection would be granted to national producers before the foreign administrative authority. Other MSs explicitly circumscribe the scope of protection to their national businesses injured by UTPs (Poland). At the moment, administrative authorities normally do not pursue infringements that start in a different jurisdiction. Hence, e.g., under the current legislation the Italian administrative enforcer can enforce infringements committed by Italian retailers against foreign producers but do not generally enforce infringements committed by foreign retailers against Italian producers. It is generally believed that infringements should be enforced where the infringers are legally established or where the decision to infringe has been made. Additionally even if they order a fine they lack executory power if the infringer does not pay.

Judicial enforcement against UTPs becomes problematic when there are multiple infringers and multiple injured located in different MSs 418 . Whether a single law could be applicable to the same infringement or different laws should be applied depending on where the infringers are located is an open question. Even more problematic is the case when injured are partly located in EU MSs and partly outside of EU. Access to enforcement systems by non-EU producers follow different patterns in judicial and administrative enforcement. Some new legislation as that of UK has broadened the scope of enforcement beyond EU borders making it accessible also for non EU producers.

IV) A. Administrative enforcement

As shown in the table above (table n. 6), the most recent MSs legislation has introduced forms of administrative enforcement in addition to judicial enforcement and to private dispute resolution mechanisms. It is an attempt to address the enforcement gap related to the very limited use of courts and the low effectiveness of private dispute resolution mechanisms. It is partly driven by the so called ‘fear factor’ that prevents farmers from using courts fearing commercial retaliation with termination of the commercial relationship and forced exit from the chain.

When established, administrative authorities generally have both investigatory and sanctioning powers. However, in some cases the power to impose injunctions and/or sanctions is conferred to the court whilst the administrative authority only holds investigative power (Ireland) and the power to start the judicial procedure (e.g. France for practices under L-442-6, code de commerce).


Table n. 7: Enforcement, authorities and relative power

Type of enforcement

MS

Main enforcing authority

Injunctive power

Power to impose fines

Enforcement via courts

Austria

Court

Court

(Competition Authority, among other interested parties, may seek injunction)

Greece

Court

N/A

N/A

Enforcement via Competition Authorities

Bulgaria

Commission of Protection of Competition (CPC)

Commission of Protection of Competition (CPC)

Commission of Protection of Competition (CPC)

Croatia

Competition Authority

N/A

(CA may assess and accept voluntary commitments)

Competition Authority

Czech Republic

Office for the Protection of Competition

Office for the Protection of Competition

(CA may assess and accept voluntary commitments)

Office for the Protection of Competition

Italy

Competition Authority

Competition Authority

Competition Authority

Latvia

Competition Council

Competition Council

Lithuania

Competition Council

Competition Council

Competition Council

Poland

Office of Competition and Consumer Protection

Office of Competition and Consumer Protection

(may assess and accept voluntary commitments)

Office of Competition and Consumer Protection

Slovenia

Slovenian Competition Protection Agency

Slovenian Competition Protection Agency

Enforcement via Consumer Protection Authority

Romania

Consumer Protection Authority

Consumer Protection Authority

Enforcement via dedicated enforcing authorities

Hungary

National Food Chain Safety Office

National Food Chain Safety Office

(at least for prohibition to use unfair terms)

National Food Chain Safety Office

Portugal

ASAE (Autoridade Administrativa Nacional Especializada)

ASAE (Autoridade Administrativa Nacional Especializada)

United Kingdom

Grocery Code Adjudicator

Grocery Code Adjudicator

(may issue recommendations)

Grocery Code Adjudicator

Enforcement via State or local administration

Slovakia

Ministry of Agriculture and Rural Development

Ministry of Agriculture And Rural Development

Spain

Administration of Autonomous Communities or General State Administration

Administration of Autonomous Communities or General State Administration

Combined enforcement between Courts and Competition Authorities

Cyprus

Commission for The Protection of Competition

Court

Commission for the Protection of Competition

France

DGCCRF

(Min. Econ)

Court

(art. 442-6, code de comm.)

(Min. Ec. and CA, among other interested parties, may seek injunction)

Competition Authority

(art. 470-2, code de comm.)

Germany

Competition Authority

Court

(CA may seek injunction)

Competition Authority

Ireland

Competition and Consumer Protection Commission

Court

A.1. Investigative powers

Administrative enforcers are required to apply rules either based on legislation or on private regulation. Often, as it is the case in the UK, the enforcer solves disputes related to the application of a code of conduct.

Limited resources and the necessity to identify priorities in tackling UTPs require strategic decision making on the administrative enforcer. The investigation strategy is generally determined by the enforcer which defines priorities and scope of investigations. In some legislation priorities are statutorily defined, in others they are determined on a case by case. Only a few countries like the UK have defined in the legislation criteria and priority setting to be followed, including the impact of the practice and the effects of its removal. Administrative enforcers publish an annual report where they specify their strategic priorities for the future and the past achievements 419 .

Enforcers use primarily inspections but can also promote self-reporting by retailers in order to reduce asymmetry of information and save costs. Especially those enforcers which engage into a continuous dialogue with the infringers rely more on self-reporting and surveys than on individual inspections. Collaborative models first address the potential infringer and ask them to investigate and report 420 . If the investigation is inadequate or the reported infringement does not stop, the enforcer can switch to inspections and other more intrusive monitoring instruments moving from a cooperative to a command and control enforcement approach.

During investigations enforcers have to respect procedural rules based on national administrative laws and the right to good administration, a general principle recognised both at EU and MS level. Procedural guarantees for the potential infringer increase at the enforcement level if the administrative body decides that there are sufficient grounds to proceed.

Most often enforcers can act ex officio or on the basis of parties’ complaints 421 . More specifically, in almost all MSs UTPs legislation empowers administrative authorities to act ex officio 422 . In most MSs (see the table below) complaints can be anonymous in order to protect the complainants from retaliation. Although confidentiality shall be balanced with the effectiveness of investigation and the right of defence of potential infringers 423 . Many administrative enforcers allow anonymous complaints but preserve the discretionary power to start investigations.

Table n. 8: Confidentiality of complaints lodged with administrative authorities and ex officio investigative powers in UTP examined legislation

MS

Confidential complaints

Ex officio investigative powers

Austria

X

No, but law provides standing of administrative authority and business organisations

Bulgaria

X

X

Croatia

N/A

X

Cyprus

N/A

X

Czech R.

X

X

France

X

X

Germany

X

X

Greece

N/A

N/A

Hungary

X

X

Ireland

X

X

Italy

X

X

Latvia

X

X

Lithuania

X

X

Poland

X

X

Portugal

No

X

Romania

No

N/A

Slovakia

No

X

Slovenia

X

X

Spain

X

X

United Kingdom

X

X

The possibility to lodge a complaint does not necessarily imply the status of party within the administrative proceeding concerning the potential infringement. When no specific provisions exist national administrative laws determine who can lodge a complaint and who can be a party to the proceeding. Among the parties which can lodge complaints before administrative authorities some MSs include also producers’ organizations and farmers’ associations, as shown in the table below. Moreover, in some MSs the producers’ organizations lodging the complaints can also participate in the proceedings (e.g. Hungary, Italy) 424 . Their role may be extremely useful to present the views of those harmed by the practices which generally do not have the right to participate. Examples include those presented in the table below.

Table n. 9: Empowerment of enterprises’ associations in the administrative enforcement of UTP legislation (examples)

MSs

Power of trade or professional associations to lodge complaints for the enforcement of UTP legislation before administrative authorities

(examples)

Cyprus

power to lodge complaints with the Competition Commission

Czech R.

power to lodge complaints with the Competition Commission

Germany

power to lodge complaints with the Federal Cartel Office

Hungary

power to be party to administrative proceedings for enforcement of UTP legislation, representing collective interests

Italy

power to seek injunctions before the CA in representation of collective interests; power to lodge complaints and to intervene in investigation procedures

In some models, the enforcer engages suppliers and meet regularly with them or their representatives to learn about UTPs 425 .

A.2. Enforcement stricto sensu

Administrative enforcement includes a number of approaches from soft to hard. As we suggested in relation to investigation, also enforcement stricto sensu can include both a collaborative and hierarchical approach. The former tries to establish a cooperative relationship between enforcers and infringers before and after the infringement when the consequences have to be removed. The latter does not engage the infringer before and, within the due process guarantees, proceeds with sanctions and injunctions after the infringement has materialized. The collaborative approach addresses both causes and consequences of the infringement. The hierarchical approach focuses on the consequences but does not address the causes.

Some MSs have legislatively defined general principles that should guide administrative authorities exercising sanctioning powers including deterrence or dissuasiveness and proportionality (e.g. the UK). In other MSs the specific criteria have been determined by the competent authority in guidelines or similar soft law instruments (e.g. Ireland).

MSs practices show that collaborative approaches may deliver better than conventional sanctioning regimes. Often the different tools are combined and scaled. In some cases, the enforcer can first issue recommendations and advices and, if they are not followed, can exercise sanctioning powers. In other cases, the enforcer can only sanction. However even in the latter case, informally cooperative enforcement takes place at the stage of investigation. On the infringer side, there is also an alternative between commitments and sanctioning, an alternative which is normally limited to not serious infringements. The infringer is given the possibility to propose commitments and the enforcer has discretionary power to (1) accept the proposal without declaring the infringement or (2) reject the proposal and move to the sanctioning stage once the infringement has been ascertained.

We distinguish between enforcement stricto sensu and forms of public dispute resolutions mechanisms that include negotiations. Within enforcement we encompass conventional command and control and forms of cooperative enforcement where there is joint problem solving between enforcer and infringer but the latter preserves the power to accept or reject proposals made by the infringer. We do not include conciliation procedures promoted by administrative bodies.

Administrative enforcement may vary according to practices and to the seriousness of the infringement. Some MSs distinguish between major and minor infringement and adapt the sanctioning policy accordingly 426 . Other MSs do not expressly make the distinction in legislation but adopt it in practice by scaling the type and the amount of sanctions (in case of fines) according to the gravity of the violation (see table below n. 11).

Some MSs distinguish the seriousness of infringements by ‘ranking’ practices and the sanctioning system reflects the differences. Infringement of certain practices entail harder sanctioning than infringement of other unfair practices (see below § A.3.3 and table n. 11).

When UTP legislation has been specifically adopted, there is usually at least one administrative enforcer at MS level. Even when the enforcer is the competition authority it should be clarified that its power to act is not based on competition law but on specific legislation to contrast UTPs. Hence Competition authorities can pursue different routes against the same UTP with different units or a general unit can investigate both the competition and the non-competition facets of the infringement. When no specific legislation on UTPs exists Competition Authorities can only verify and sanction anticompetitive aspects while the other aspects are left to adjudication before courts. Sometimes an additional enforcer is identified to focus on specific questions, related for example to SMES’ protection.

The administrative enforcer follows an administrative procedure where they perform both investigation and adjudication. The two phases are procedurally distinguished in order to guarantee due process rights. It must be avoided that the same entity investigates and decides over its own investigation. This separation can be (1) structural, when two different bodies are in charge of investigation and adjudication or (2) functional, where within the same entity two separate units are in charge. Procedural guarantees include right to be informed, to be heard, right of defence, right to appeal. The procedure ends with an administrative decision that can be appealed before a court.

A.3. The correlation between practices and sanctions

Sometimes, legislations provide different types of enforcement depending on the type of practices. E.g. in France, restrictive practices addressed by art. 442-6, code de comm., are subject to judicial injunctions and ammendes civile, whereas other practices, e.g. in the area of payment delays or negotiation of distribution contracts (art. 441-7, 441-8, code de comm.), are subject to administrative fines by administrative authorities.

Moreover, not all the practices are equally serious violations. Some MS like Spain explicitly determines the seriousness of the violation in relation to the specific practice. E.g., under Spanish law, violation of the written form of a contract constitutes a minor infringement, whereas delay of payment constitutes a serious infringement. The legislative technique usually deployed is the distinction between major and minor or serious and non-serious infringements. When the legislator does not explicitly make these differences, the enforcer exercising discretion can use the general principle like proportionality and deterrence to distinguish among practices and define some kind of hierarchy.

Table n. 10: Examples of correlation between practices and fines

Countries

Practices/fines

Croatia

Depending on the gravity and the significance of the infringement the UTPs Act recognises fines for most serious infringements, serious infringements, for minor and other infringements.

Most serious infringements:

-up to 662.556,81 eur equivalent (legal persons)

-331.278,41 eur equivalent (physical persons)

Lower caps for serious and minor infringements

France

Administrative fines (infringements of art. L441-7,8, retail contracts)

Ammende civile (infringements of art. L 442-6, restrictive practices)

Italy

Different fines depending on UTP (contracts v. practices v. payment delay/practices)

Infringements concerning the use of written form for agrifood contracts and the contents requirements of such contracts: 1.000 – 40.000

UTPs during execution and in case of unfair termination: 2.000 - 50.000 eur

Violation of payment terms: 500 – 500.000 eur

Spain

Distinction between minor and serious offenses is based on type of UTPs.

3000 eur (minor offenses)    

1.000.000 eur (very serious offenses)

100.000 eur (serious offenses)

Examples of minor food procurement contracting infringements: failure to draw up a written food procurement contract as specified in the specific legislation; introducing changes in the terms of the contract that were explicitly agreed by the parties; f) requiring additional payments over the price agreed in the contract, except in the cases provided for in this law.

Example of serious infringements: failure to comply with payment periods in commercial transactions involving food or food products.

Repeat infringements. Two or more minor offences within two years as from the date of issue of the final administrative decision of the first one: a serious offence. Two or more serious offences within two years as from the date of issue of the final administrative decision of the first one: a very serious offence.

A.3. Commitments, Recommendations, and sanctions

Following a consolidated trend in administrative enforcement, some new legislations provide the infringer with the possibility to voluntarily cease the infringement and make whole of the infringement’s consequences. The possibility to undertake commitments is generally associated to the (low) gravity of the violation and it is an alternative to sanctions. In some MSs the infringers can submit a proposal to be accepted or rejected by the enforcer (Croatia, Hungary). When the infringement is serious, commitments may not be allowed and the enforcer issues both a fine and an injunction. In other MSs the enforcer issues recommendations which are not legally binding. Following the recommendation the infringer submits an action plan whose implementation is monitored by the enforcer 427 . If the action plan is not complied with the enforcer can move to conventional enforcement practice and order a sanction.

3.1) Commitments

Commitments represent a cooperative approach to enforcement. They can result in an undertaking to cease and desist from the violation and to remove the consequences of the infringement. Commitments may be offered by the infringer and evaluated by the enforcer that can accept or reject them if they seem inadequate 428 . Commitments can be part of an agreement between the authority and the infringer that is legally binding and judicially enforceable. However, the incentives to comply are related to the possibility of scaling up to sanctions by the administrative authority. Indeed, commitments are often backed by conditional fines or astreintes (for example provided by Polish legislation).

One of the open questions concerns the effects of commitments on the injured party. Especially when commitments become binding can the ‘victim’ of the infringement bring a civil action for failure to comply with the commitments or does the implementation of the commitment remain an issue between the administrative enforcer and the infringer? The answer to this question depends on whether national legal systems qualify the binding agreement with the commitment as an enforceable agreement or even a contract and whether the third party beneficiary doctrine applies. If the agreement can be considered as a third party beneficiary contract, the victim should be able to sue for the breach of the commitment before a civil court. On the one hand this effect can provide additional incentives to the infringer and increase monitoring by the parties who suffer harm in case of non-compliance. On the other hand, the infringer may consider this too high a burden and decide not to propose the commitment in the first place. If the agreement is not a third party beneficiary contract enforcement is left exclusively to the administrative enforcer.

Clearly, even if the commitments produce no direct effects on the victim, failure to comply may be taken into account by the civil court when compensation and or restitution is sought by the injured party.

3.2) Recommendations

In this model (UK) the enforcer makes (not legally binding) recommendations at the end of the investigation. Compliance with recommendations is driven by persuasion rather than by legal authority. The Grocery Code Adjudicator (GCA) after investigation can decide to issue a report and make recommendations or use its sanctioning power 429 . It generally follows a scaling strategy and issues recommendations asking the infringer to report on the progress.

A similar model is used in France, where a Commission for unfair trade practices (Commission pour pratiques deloyales) issues non-legally binding opinions (avis), that are generally followed by the courts. The difference with commitments is that the recommendations are usually issued by the ‘enforcer’ whereas commitments are usually submitted by the infringer and accepted or rejected by the Administrative body. Not only Recommendations concern the substantive part e.g. what constitutes a UTP but can also deal with the remedial side. The French Commission for unfair trade practices has for example explicitly stated that it is possible to combine injunctive relief and invalidity 430 . The Cour de Cassation in France makes references to the opinion of the Commission when deciding about remedies related to UTPs.

3.3) Sanctions

The new legislation regulating UTPs introduces administrative sanctions. All include financial penalties in the form of fines. Some add also injunctions and declaratory decisions. Damages and restitution are instead usually left to judicial enforcement.

3.3.1 Within fines, variations in legislations are remarkable. Most MSs have determined both a minimum and a maximum. Some only a maximum. At times the maximum can be alternatively the lower sum between a threshold and the amount of revenues 431 .

When infringers do not comply with the administrative orders to cease the UTP, they can be charged with additional fines for non-compliance. The amount of these fines varies quite significantly. In some cases, it is a daily sum for each day of non-compliance, in other cases it is a lump sum.


Table n. 11: Minimum and maximum threshold for the imposition of fines (examined UTP legislation)

MS

Pecuniary sanctions

Minimum/maximum/no thresholds

Min p.s.

Max p.s.

% turnover

Austria

Infringements of §§1-4, Local Supply Act are addressed only resorting to civil remedies (injunctions, damages)

Bulgaria

X

Minimum/maximum thresholds

5000 eur

25.000 eur

(in case turnover is 0)

Up to 10%

(t.o. of the product concerned)

Croatia

X

Only maximum threshold

Most serious infringements:

up to 662556,81 eur (legal persons)

331278,41 eur (physical persons)

Lower caps for serious and minor infringements

Cyprus

X

Only maximum threshold

Up to 10%

Czech Republic

X

Only maximum thresholds

39.141.000 eur

Up to 10%

France

X

Administrative fines (infringements of art. L441-7,8)

Ammende civile (infringements of art. L 442-6)

Only maximum thresholds

Admin. fines:

75.000 eur (individuals)

375.000 (entities)

Civil sanctions (ammèndes civiles):

5 million eur

Germany

X

Only maximum thresholds

1mln eur

Up to 10%

Greece

N/A

Only maximum thresholds

50.000 eur

N/A

Hungary

X

Minimum/maximum thresholds

318 eur

1.591.000 eur

Up to 10%

Ireland

X

(criminal)

Minimum/maximum thresholds

3000 eur

100.000 eur

Italy

X

Minimum/maximum thresholds

2000 eur

(500 for payment delay)

50.000 eur

(500.000 for payment delay)

Latvia

X

Minimum/maximum thresholds

70 eur

Up to 0,2% of net t.o.

Lithuania

X

Only maximum threshold

120.000 eur

Poland

X

(to the entity and to managers)

Up to 3%

Portugal

X

Minimum/maximum thresholds

- € 250 for natural person

- € 500 for micro enterprises

-€ 750 for small enterprises

-€ 1000 for medium enterprises

- € 2.500 for large enterprises

- € 20.000 for natural person

- € 50.000 for micro enterprises

-€ 150.000 for small enterprises

-€ 450.000 for medium enterprises

- € 2,5 mln for large enterprises

Romania

X

(criminal sanctions imposed by Consumer Protection Authority)

Minimum/maximum thresholds

10.756,15 eur

21.512,31 eur

Slovakia

X

Minimum/maximum thresholds

1000 eur

300.000 eur

Slovenia

X

Minimum/maximum thresholds

6.000 eur

18.000 eur

Spain

X

Minimum/maximum threshold

3000 eur

(minor offenses)

1.000.000 eur (very serious offenses)

100.000 eur (serious offenses)

United Kingdom

X

Only maximum threshold

1% of t.o. in UK

As the table suggests the variations within fining rules are remarkable. Not only there is a difference between MSs that only define maximum and those that also define a minimum but also the amount varies from 18.000 (Slovenia) to 2.500.000.00 euro (Portugal). When the maximum is high variations occur within the national system and often the sanctioning criteria are not very detailed. These variations both within and between MS depend on the gravity of the infringements and on the characteristics of the infringer. Different approaches concern the link between sanctioning and the status of the infringer. In most MSs no direct and specific relevance seems to be attributed to the victim’s status (e.g. it does not matter, when establishing the amount, if the victim is a medium, small or a micro enterprise). In some MSs for the same UTP the amount of a fine can be higher for a large than a medium or a small enterprise 432 . Clearly the status is relevant when the legislation only applies to protect micro enterprises or it excludes cooperatives The amount of the fine can vary according to the number and size of the producers affected when the consequences of the UTP on the market are taken into account 433 .

In some MSs fines are related to the infringer’s turnover, normally as a reference for the maximum amount of fines (BG, CY, CZ, DE, HU, LV, PL, UK). In other MSs, fines are related to the benefits accrued for engaging into the UTPs (e.g. in Italy 434 ). Some MSs (Croatia, France, Portugal) distinguish between natural and legal persons and define the maximum amount accordingly (higher for legal than for natural persons) 435 . More rarely, it is explicitly linked to the magnitude of consequences and the impact on the fairness along the chain or the market. References are made to the effects of the practice on the market in relation to fairness and competitiveness which allow to capture the economic impact of the UTPs. In some cases, sanctioning is correlated to the gravity of the infringement based on the distinction between minor and major or serious offences 436 . In some countries, the amount is not only determined by reference to the seriousness of the infringement but also to the conduct of the infringer after the infringement and its availability to voluntary stop the unlawful conduct and remove the consequences 437 . The nature of the sanctions and the amount in case of fines vary depending on whether the infringer is a repeat infringer (e.g. Greece, Spain).

There is not a reliable study concerning fining practices but the anecdotal evidence suggests that strong variations occur across MSs. These variations are also correlated with different interpretations of the principle of proportionality that informs the exercise of sanctioning power by administrative authorities. These principles and its different applications across MSs also relate to the relation between penalties and corrective remedies when provided 438 .

Sanctions’ effectiveness may be complemented by publication of the administrative decision 439 . When legislation explicitly provides so, a balance between the punitive/deterrent function of publication and procedural guarantees for the sanctioned party is ensured, e.g. by giving evidence on judicial review and revocation 440 .

On the effectiveness of fines and financial penalties in the agri-food there is no clear evidence. The complementarity approach suggests that they might be necessary but are not sufficient to deter and to compensate. The reputational sanctions might have as significant a deterrent effect, especially when issued against retailers affected by consumers’ behaviour. This happens when they are public and reach a wide number of consumers.

A.4. Administrative injunctions

Together with fines administrative enforcers can also issue injunctions prohibiting the unfair practice and ordering the removal of the consequences. Injunctive powers are often explicitly conferred to administrative authorities (e.g. Bulgaria, Czech Republic, Italy, Lithuania), sometimes only to courts (Cyprus), though on the basis of requests filed by administrative authorities or other eligible entities (Austria, France, Germany). Depending on national procedural laws, courts may order injunctive relief on the basis of general administrative rules.

Injunctions may be prohibitory and or affirmative, with orders to modify the current practices. Unfair practices are about transferring costs and risks along the chain. While unlawful cost transfer may be tackled by monetary transfers, unfair distribution of risks may require more structural intervention in the organization of the supply chain. This is the case for perishable goods where the issue related to disposal includes significant organizational changes both in the suppliers’ side and in the retailers’ side. This is an issue that touches on the broader question related to waste disposal 441 . Cost and risk transfers can both be addressed by injunction but with different content. Prohibition of clauses transferring costs have to be combined with astreintes and restitution if the injunction is not complied with. Risk transfer may force organizational changes in the chain. The injunction not only should prohibit the transfer but also force organizational changes that can prevent such transfer in the future.

The practice of enforcement suggests that both at the investigation level and the sanctioning stage the scope remains relatively limited and a thorough analysis of the effects along the chain by the enforcer is missing. Indeed, administrative authorities still focus on the impact of UTPs on single producers without engaging into an analysis of the effects along the chain.


A.5. The boundaries between administrative and criminal sanctions and the principle of ne bis in idem

For the most part, the MSs legislation has introduced administrative sanctions and conferred enforcement power to existing or, in some cases, new authorities. This leaves open the issue of the possible criminal nature of the administrative sanctions and the ensuing question about ne bis in idem, e.g. whether criminal sanctions can be combined with administrative sanctions. A prominent exception is Ireland, where the UTPs are considered criminal offences and the sanctions are criminal. In the Irish case the Competition and Consumer Authority can issue a decision with findings concerning the UTP but it has to refer the case to the criminal court that can order the criminal sanction 442 . The qualification of UTP as a criminal offence is featured in other MSs (e.g. Romania and Austria).

In other MSs, serious infringements may also constitute criminal offences. Depending on the gravity of the practice it can be qualified as criminal or administrative. MSs seem in this case to encompass various sanctions including administrative fines and convictions (e.g. Ireland). When the same offence can have both an administrative and a criminal facet the administrative enforcer has to take into account the administrative sanction. In the case of a fine the enforcer should discount the amount paid under the criminal proceeding from the total if that is higher. Otherwise no administrative fine could be ordered. Whether ancillary administrative sanctions can be ordered in addition to criminal ones varies.

A.6. Reputational sanctions via administrative enforcement

It is generally believed that reputational sanctions associated with market consequences like black list are generally the domain of private regulation and enforcement by private actors. However administrative enforcers are considering the possibility of using reputational sanction in addition to the more conventional array. In particular, the reputational sanction may consist in the publication of the administrative decision.

A similar effect is attained through the publication of decisions by enforcing authorities, as addressed in the table below.


Table n. 11-bis: Publication of enforcement decisions administrative authorities

Summary information (examples, not necessary exhaustive)

MS

Publication of Administrative Authority’s decisions on UTP enforcement

Highlight in Administrative Authority Annual Report or webpage

Bulgaria

X

Croatia

X

(de facto – no legislative reference available)

Cyprus

X

Czech R.

X

(de facto – no legislative reference available)

France

X

Italy

X

Lithuania

X

Poland

X

Spain

X

United Kingdom

X

A.7. The practices of administrative enforcement in MSs

The practice of administrative enforcement depends upon national administrative substantive and procedural laws which significantly differ 443 . As it was shown in the previous tables, significant variations across MSs within administrative enforcement not only concern the ‘if’ (e.g. the number of investigations) but also the outcome of the enforcement action (type and intensity of sanctions). These divergences are partly determined by the legislative frameworks and partly related to the approach taken by individual enforcers. Divergences in practices may occur even when legislation is similar.

The European Commission reported a significant variation across MS about the practices evaluated through the number of investigations. It stated: “The actual number of investigations into alleged unfair trading practices differs significantly across Member States. Around a third of Member States with public enforcement had no cases in the last few years (AT, BG, FI, HR, LV, RO, SI); another third just investigated a few cases (CY, DE, IE, LT, UK); and the remaining third dealt with dozens or even more (CZ, ES, FR, HU, IT, PT, SK). To some extent, this could be attributed to the different salience of the problem in the different Member States.” 444  

More recent data suggest that no relevant changes have occurred since the EC Report was written (see table below). Indeed, most of the MSs where the case rate is still low, if ever available, have adopted legislation very recently (e.g. Ireland, Croatia) or are still relying on limited scope existing legislation (e.g. Austria, Finland) and some of them are considering the adoption of new more focused legislation (e.g. Finland).

Table n. 12: Enforcement practices during 2015-2016

MS

Number of complaints (2015 -2016)

Number of complaints resulting in further action after complaints

Investigation conducted by enforcement bodies (2015-2016)

Results of investigation / proceedings

Austria

6

6

6

Fines

Bulgaria

8

8

8

- 5 pending investigations
- 2 infringement decisions (fines applied)

Croatia

N/A

N/A

N/A

N/A

Cyprus

0

0

0

N/A

Czech Rupublic

22

18

31

- 2 closed proceedings (no infringement found)
- 2 closed proceedings (commitment accepted)

- 0 fines

France

595 (2015), 494 (2016)

2015: 36 national, 25 regional; 2016: 32 national, 20 regional; 2016

8 civil proceedings in 2015,

6 in 2016;

158 criminal sanctions applied in 2015;

134 criminal sanctions applied in 2016;

Germany

10

Few cases

1

Annulled by the Higher Regional Court of Düsseldorf

Greece

N/A

N/A

N/A

N/A

Hungary

41

41

152

-29 fined undertakings
- 11 investigations ended (commitments accepted)

- 67 ended (no infringement found)

Ireland

0

0

0

N/A

Latvia

2

2

2

Pending

Lithuania

0

0

1

Injunction and fine

Poland

0

0

0

N/A

Portugal

80 (2015), 46 (2016)

26 (2015) 20 (2016)

2 (2015)

2 (2016)

42 impositions of sanctions
- 33 without any sanctions

Romania

0

0

0

N/A

Slovakia

9

9

39

-12 (infringement found; 4 fines applied)
- 18 (no infringement found)

- 9 pending

Slovenia

N/A

N/A

0

N/A

Spain

98

98

1784

- 43 sanctions proceedings based on confidential complaints
- by December 2016, 347 sanctions proceedings based on ex officio investigations

95 fines applied

Sweden

0

0

0

N/A

UK

- 0 request for arbitration

0

1

Pending


A.8. Conciliation and mediation by public bodies

In addition to conventional administrative enforcement in its different facets, public bodies engage also in various forms of amicable dispute resolution. Private ADR have long been used. Publicly managed dispute resolution systems are entering the scene and are likely to develop further. They represent a different facet of the cooperative approach. The promotion of amicable resolution between enterprises promoted by the administrative enforcers is more effective since it operates in the shade of conventional enforcement- parties are asked to reach amicable solutions. If they do not achieve that result the enforcer can shift into the more conventional array of instruments.

This is a grey area for at least two important reasons. (1) Institutionally, there are many instances where bodies in charge may have a hybrid identity and the enforcement body be composed by both public and private actors. (2) Functionally, because the evolution of administrative enforcement into forms of cooperative enforcement between enforcers and infringers makes the boundaries between enforcement and ADR blurrier. However, as the Bulgarian example shows that there is room for public bodies engaging into mediation and conciliation. The Bulgarian legislation has opted for a relatively formal approach where the Reconciliation Commission sitting at the Ministry of Agriculture can conclude its proceedings with a written binding agreement between the two or more litigants 445 . In other cases, in which the Code is enforced through legislation (as is the case in the UK), retailers are under a duty to negotiate in order to solve the dispute “amicably”. If this attempt fails, an arbitration procedure is started 446 .

A.9. Monitoring Compliance by administrative bodies

Monitoring compliance is part of the enforcement function in both administrative and private dispute resolution mechanisms. It is not generally part of judicial enforcement where it is for the potentially injured parties to raise the issue of non-compliance. Within administrative enforcement compliance monitoring includes pre and post infringement conducts.

Pre-infringement monitoring compliance.

Enforcers can ask potential infringers to adopt a compliance governance that enables them to detect and remove UTPs. The compliance can either refer exclusively to the large buyer (chain leader) or can include the various segments of the chain. 447 .

Post- infringement monitoring compliance. Using scorecards

Enforcers have to monitor compliance after the infringement. Post-infringement monitoring encompasses not only monitoring compliance with commitments, recommendations, and sanctions but also the infringer’s efforts to remove the primary causes of the infringement. Not only enforcers have to ensure that sanctions are complied with and that the infringement is terminated but they also have to make sure that the causes of the infringement, like the transactional model along the chain, are removed and transactional practices are modified. Monitoring the behaviour of the infringers over time is relevant to verify compliance with the specific order (e.g. injunction) and to evaluate improvements over time fairer distribution of risks along the chain. The majority of enforcers do not have a stable monitoring system of the infringers’ conduct. The Grocery Code adjudicator (GCA) in the UK adopts the continuous improvement approach and monitors the conduct of the infringers over time 448 .

Especially important when collaborative modes are adopted is the continuous improvement approach. Often changes requested by the enforcer after the infringement call for a re-adaptation of the chain. The sanctions and the remedies focus on the practices but the causes of the practice may lie in the organizational structure of the chain. To monitor the changes preventing UTPs in the future requires specific instruments like scorecards. Scorecards with indicators measure improvements over time when the removal of infringement’s causes requires structural changes hard to implement instantly. Scorecards look at the behaviour and its impact on the entire chain. Monitoring compliance should look at improvements made by the chain leader in organizing exchanges along the chain by involving first, second, and third tier suppliers together with multiple intermediaries.

For example, UTPs related to the payment system along the chain requires time. The payment system in long term relationship may require deep reorganization. For example, often payments include some degree of input financing, some contribution to new technologies, premiums for sustainability achievements. These may be factored into the price or may be paid separately, they may be paid before or after performance. In the former case they provide resources and represent and investment. In the latter case they simply reward the performance and its quality. Modes and time of payment have deep influence on the investment strategies of farmers with repercussions along the entire chain.

Measuring compliance in the medium term presupposes a set of targets and indicators that buyers and chain leaders have to put in place with the collaboration of all the actors along the chain.

What are the elements that should be measured? What are tools to measure improvements? These are among the issues that would deserve more in-depth analysis beyond the boundaries of the present Study.

   IV.B) Judicial Enforcement

Judicial enforcement complements administrative enforcement. It covers remedial areas that are not affected by administrative proceedings and it provides the potential injured party with a much more active role than they can play in administrative proceedings where the relationship is between enforcer and infringer(s).

Judicial enforcement may include criminal and civil UTPs. It may concern one or multiple infringers and one or multiple affected producers. When multiple infringers cooperate in deciding and operationalizing the UTP, joint and several liability can be applied 449 . Many specific legislations define UTPs as civil or administrative infringement. Some MSs (notably Ireland and, partly, Romania and Austria) however emphasize the criminal aspects of UTPs and design them as criminal offences. In other legal systems, the possibility to issue criminal sanctions in addition to administrative sanctions and civil remedies reflects the different facets of UTPs. For example, Italy regulates UTPs and makes criminal offences alternative to administrative infringements. The nature of the infringement results into an enforcement mechanism. If the infringement can be characterized at the same time as administrative, criminal, and civil then multiple enforcers can act. The multiplicity of enforcement systems reflects the relevance of complementarity among various pillars of the enforcement triangle.

The new legislations mainly refer to UTPs’ administrative enforcement. Those UTPs that are not specifically included in that legislation can still be tackled via general judicial enforcement when they represent a breach of contract or an act of unfair competition. That is to say, the new MSs legislation has not replaced the general clauses that were used before to address UTPs 450 . Hence, judicial enforcement applies to the new legislation for aspects concerning restitution and compensation not covered by administrative enforcement, and as a general form of enforcement for the UTPs not included in the new legislation.

In fact, judicial enforcement plays an important role in MSs that have not adopted a dedicated legislation on UTPs, mostly representing the only means of protection for UTP’s injured parties. In these cases, courts apply general contract or tort law and, when relevant, competition law. The lack of a dedicated enforcing authority and the costs and length of judicial proceedings may represent one of the drawbacks of not adopting dedicated legislation on UTPs. This conclusion may also apply to those MSs that have only adopted a limited set of provisions mainly dealing with pre-contractual misleading and aggressive commercial practices relying only on judicial enforcement. Indeed, this is the case in Belgium, Denmark, Finland, Sweden, whose legislative approach, mainly drawn on consumer law, has been described above (see § III). In these four MSs, the prohibition of unfair commercial practices is enforced by courts. In some cases, specialized courts (such as Commercial or Market Courts) have jurisdiction (so in Belgium, Finland and Sweden). Otherwise general courts are competent. Courts have the power to impose injunctions (often reinforced through conditional penalties – astreintes) and fines. In some legislation the right to damages and restitution is specifically recognized (Denmark).

Access to judicial enforcement is primarily granted to those injured by UTPs. They can act individually or jointly when the same UTPs has affected multiple producers or even multiple enterprises along the chain. Producers’ organizations may play different roles. (1) They may be granted an autonomous right to access court. In some MSs the law defines specifically the associations and public bodies entitled to bring a civil action before the Court 451 . Lacking specific legislation general provisions of civil procedure apply to regulate standing and the possibility for producers organizations to seek remedies. In this case they protect the collective interests of producers or more broadly of parties along the chain. (2) Alternatively, they may be granted a right to represent producers in the proceedings, filing a claim in their own interest. (3) Finally there are MSs which do not allow producers associations to be a party in the judicial proceeding. When they are not granted a right to be a party to the proceeding they may be enabled to intervene in the proceeding. Third party intervention does not warrant a right to seek an independent remedy but simply a right to take part in the judicial proceedings and to present evidence on the existence of the practice and its harmful consequences.

Table n. 13: Empowerment of enterprises’ associations in judicial enforcement of UTP legislation (examples)

MSs

Power of enterprises’ associations in the enforcement of UTP legislation before courts

(examples)

Austria

power to file suits for cease and desist orders before Court

France

power to start civil proceedings before the Court

Judicial enforcement is also open to administrative authorities and branches of executives 452 . In some MSs like France the Ministry of Economy is granted the possibility to seek remedy that would not be available to the injured parties. This the case for amende civile and for ‘repetition de l’indu’ 453 . Other MSs like Austria grant several bodies the possibility to seek judicial remedies 454 .

Judicial enforcement includes primarily compensation and restitution. To a limited extent, especially when unfair competition is applicable, judicial injunctions can also be issued. Judicial injunctions are granted in those systems that have extended the consumer regulation implementing dir. 2005/29 455 . Other MSs explicitly grant the judge the power to issue an injunction and other corrective measures (e.g. Cyprus, France, Germany) 456 . In some limited cases judicial remedies include also civil penalties (amendes civiles) 457 . Moreover, in France the code de commerce imposes a renegotiation clause whose absence can be punished with an administrative penalty 458 . Publication of the judgment is allowed in some MSs. The party who suffered harm and or producers’ associations can ask to publish the judgment at the expenses of the infringer 459 .

Table n. 13-bis: Publication of enforcement decisions by courts

Summary information (examples, not necessary exhaustive)

MS

Publication of Court’s decisions on UTP enforcement

Austria

X

France

X

Germany

X

(for injunctions)

Hungary

X

Judicial enforcement varies across MSs but is generally used less than administrative enforcement. In addition to the low level of litigation there are noticeable variations concerning the legal basis to bring civil actions. In some MS the source is contract law, in other tort or extracontractual liability, in other unfair competition, and restitution. Different causes of action may bring about differences about the availability of injunctive relief and the level of compensation for harm. The new legislations seem to converge towards a ‘contractualization’ of UTPs but differences remain within and between legal systems about injunctions and civil penalties.

Judicial enforcement includes litigation with multiple infringers. Multiplicity of infringers can materialize at least in two different ways: one where the infringers all part of a supply chain (vertical multiplicity), the other where they are competitors but all engage in the same conduct against the same producers (horizontal multiplicity like in a cartel). When the UTPs are committed by multiple infringers they can be severally and jointly liable for damages and be the joint addressees of an injunction ordering to stop the practices and remove the harmful consequences. For example, in a supply chain the UTP may be the result of complicit behaviour of the retailer and the traders against the producers. Are the effects of the remedy relevant to all the infringers? Is there a difference generated by different bargaining power?

As to the injunction, the bargaining power distribution and the fault of each party plays no decisive role to define the effects. All the infringers have to comply with the injunctions. Some differences may occur if the injunction has not only a prohibitory (negative) but also an affirmative facet. For example, if the injunction includes an order to modify the procurement policy within the chain, then targets may be differentiated according to their decision-making power along the supply chain.

A more complicated case concerns damages when multiple infringers are involved. Several models can be deployed. It is often the case that damages can be awarded where the infringer is at fault or there has been an intention to cause harm. Joint and several liability can be granted if all the parties are at fault or some have committed an intentional tort and others a negligent tort. When the chain leader can be strictly liable for a UTP there can be joint and several liability of first and second tier suppliers based on fault, combining strict liability and negligence. But what if the supply chain is highly hierarchical and the chain leader has imposed the UTP on the suppliers which as a result have imposed it on the producers? Damages could be paid only by the chain leader if the practice towards producers has been imposed by the chain leader onto the processors which were ‘forced’ to apply the practice. The other participants to the chain have to show that they were forced to adopt the practice under the threat of contractual termination or similar threats. Only coercion might enable liability’s exemption. Otherwise joint and several liability applies. When multiple infringers are at fault, differences in bargaining position may result in different degrees of culpability which in turn may determine an uneven allocation of the burden to compensating damages.

A significant difficulty explaining the low level of judicial enforcement is proving the amount of damages at least for some UTPs. While clearly UTPs shift costs along the chain it might not be easy to determine the amount of unlawful cost shifting for practices. Easier is the case to determine compensation for late payment, retroactive conditions, unilateral modifications of contracts, unlawful termination of the business relationship.

The difficulties increase even further if the consequences of UTPs have to be evaluated not at the level of the specific bilateral relationship but at the chain level (multiple injured parties) where the interdependent effects of UTPs may have very wide reach and the distribution of costs may include several stages of the chain.

Lack of a clear legislative framework until the specific legislations were enacted, the lack of incentives to use the co