Food System

Unfair trade practices and the European delegation law, critical analysis

April 24, 2021

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Unfair trade practices in the agribusiness supply chain plague farmers, ranchers and processors with increasing pressure that has now reached unbearable levels. Thus:

– 17.4.19 EU Directive 2019/633 introduced clear rules aimed at rebalancing by law the imbalances of bargaining power between suppliers and customers, production and distribution,

– 22.4.21 Law 53/2021, the so-called European delegation 2021, introduces the criteria to be followed by the Italian government to transpose the aforementioned directive on unfair commercial practices.

However, the rule is late in coming and detrimental, in many ways, to the Italian agrifood production chain that it instead aspires to protect. Detailed analysis to follow.

Table of Contents

Unfair commercial practices, EU directive 2019/633

EU Directive 2019/633-as noted (1)-established a set of rules to combat Unfair Trading Practices (UTPs) within the food supply chain. Having regard to both the relationships between farmers and ranchers and industry, and those between producers, middlemen, wholesalers and distributors. Dir. 2019/633 therefore states:

– a black list of business practices that are always prohibited (e.g., late payment more than 30-60 days after the delivery of perishable and non-perishable foodstuffs, cancellation of orders without due notice, unilateral modification of essential elements of the contract. Art. 3.1),

– A grey list of prohibited business practices unless they have already been agreed upon in the supply contract (e.g. Return of unsold items without payment, charge of logistics and marketing costs. Art. 3.2),

– the obligation for member states to entrust an authority with the tasks of supervision and sanction, ex officio and at the instance of operators and their associations (Articles 4-6),

– the option for member states to maintain or introduce stricter rules for the protection of the agrifood production chain on national territories (Art. 9). As well as to promote alternative dispute resolution systems (Art. 7).

European Delegation Act, Article 7

The European Delegation Act 2021 delegates the Italian government, among other things, to transpose the Unfair Trading Practices (UTPs) directive. Gravely delayed, as the UTPs directive had to be transposed in the 27 member states by 1.5.21 in order to be effectively implemented by 1.11.21, while in Italy the delegation law alone comes into effect on 8.5.21. (2)

Article 7 of the aforementioned law(Principles and guiding criteria for the implementation of Directive (EU) 2019/633, concerning unfair business-to-business commercial practices in the agricultural and food supply chain) indicates some specific criteria to the government, which are set out below with a breakdown by topic and brief notes.

Scope of application

The scope of this discipline is correctly extended, in Italy, ‘to all supplies of agricultural and agri-food products, regardless of business turnover‘ (L. 53/21, Art. 7.1.u). Also in order to avoid Big Food ‘s bullying of public establishments and distribution (3,4).

In contrast, cooperative contributions are exempt from payment terms and the written form of contracts (L. 53/21, Art. 7.1.e). This undermines the rights of members who contribute to the cooperative, in addition to establishing unfair competition ex lege of the cooperative system.

Instead, the call for ‘good business practices of transparency, good faith, fairness, proportionality and mutual consideration of benefits‘ (L. 53/21, Art. 7.1.e) is false rhetoric. Given that it is precisely the ineffectiveness of so-called ‘supply chain agreements’ that has necessitated the intervention of the European legislator. (5)

Written form of contracts

The written form, prior to delivery of the goods, is prescribed for all ‘contracts for the transfer of agricultural products and foodstuffs, except those concluded with the consumer and transfers with simultaneous delivery and payment of the agreed price‘ (L. 53/21, Art. 7.1.d).

This obligation, it is pointed out, cannot be ‘fulfilled exclusively through equivalent forms according to the provisions
‘eve‘. The government is then required to define ‘in atimely manner the conditions of application‘ (L. 53/21, Art. 7.1.v).

The lack of essential requirements established in the so-called ‘Single CMO’ (Common Market Organization. See footnote 9), in contracts for the sale of products covered therein, constitutes in any case an unfair trade practice (L. 53/21, art. 7.1.q).

Payment terms. Contrast with the UTPs directive

The Italian Parliament-in following up on the shared demands of Federdistribuzione, Confindustria and Coldiretti (5)-tries to over-extend payment terms. However, the law contradicts the specific provisions stipulated in the directive and must therefore be disapplied. Indeed:

– EU Directive 2019/633 stipulates that perishable products must be paid for within 30 days, other commodities within 60 days. From the date of delivery (or from the date ‘on which the amount to be paid is determined, whichever is later‘. Article 3.1(a),

– Law 53/21, in Article 7.1.c , refers instead to the payment terms specified in Article 62 of Law 27/2012. That is, the ‘end of the month’ after the 30-60 days have elapsed since delivery or billing, which in fact is routinely slipped to the beginning of the next month. Between the ‘end of the month’ and the ‘invoice date’ dances, it should be noted, up to 60 days of finance charges to suppliers.

Public supplies, payment terms. Contrast with the UTPs directive

Public food supplies to school and health administrations, in the imagination of the Italian Parliament, would be excluded from the scope of the framework. In these cases therefore ‘the parties may agree, provided expressly, on a time limit for payment not exceeding sixty days‘ (L. 53/21, Art. 7.1.f)

Once again an attempt is made to place a financial burden on suppliers that is not provided for in EU Directive 2019/633, where:

– Perishable foods must always be paid for within 30 days from the date of delivery,

– ‘public authorities (…) should be bound by the same standards when purchasing agricultural and food products‘ (Cons. 11).

Double-drop online auctions, and more

Ettore Prandini, president of Coldiretti, boasts that he has finally achieved a ban on double-digit electronic auctions. (6) A useful clarification, although already most large-scale retail (large-scale distribution) operators had already adopted the Code of Ethics that excludes such practices, on 28.7.17 at MiPAAF. (7) Rather, the problems are different when referring to even multimillion-dollar, privately run online auctions or tenders, which for some candidate suppliers can be worth significant portions of annual revenues.

Who controls the fairness and transparency of the computer platforms by which the auctions are run? Who controls whether suppliers with one certification (e.g., FSSC 22000 v. 5.1) rather than another (e.g., IFS), although both are recognized as consistent with globally shared standards, are excluded from the auctions? (8) What criteria ensure the fair admission of competitors, the effective comparability of the products they offer, and the consistency of the award?

Unfair trade practices and sales below cost

Article 7.1.h of Law 53/2021 – in addition to banning double-drop auctions – counts among unfair business practices ‘the sale of agricultural products and foodstuffs carried out at such a level as to result in excessively onerous contractual conditions, including that of selling at prices manifestly below the cost of production‘. Therefore, the government must define ‘in atimely manner the conditions and scopes of application, as well as the limits of usability of electronic commerce.’

Sales below cost-beyond the generic provision above, which is difficult to interpret beyond extreme cases-are subject to a strict threshold, a vague limit, and a safe-conduct:

– the setting by the buyer of ‘a price 15% below the average production costs resulting from the processing of the Institute of Services for the Agricultural Food Market – ISMEA’ is considered as a ‘control parameter for the existence of the unfair commercial practice‘ (L. 53/21, Art. 7.1.q),

– ‘Below-cost selling of fresh and perishable food products‘ must come ‘permissible only in the case of recording unsold product at risk of perishability or in the case of planned business operations agreed with the supplier in writing, subject, however, to the prohibition of unilaterally imposing on the supplier, directly or indirectly, the loss or cost of selling below cost‘ (L. 53/21, art. 7.1.r),

– are in any case ‘without prejudice to contractual conditions, including those relating to prices, which are defined within the framework of national framework agreements concerning the supply of agricultural and foodproducts concluded by the most representative professional organizations at the national level‘ (L. 53/21, Art. 7.1.s).

Draconian sanctions

Penalties that are ‘effective, proportionate and dissuasive‘ must be introduced ‘within the maximum limit of 10 percent of the turnover achieved in the last fiscal year prior to the assessment‘ (L. 53/21, Art. 7.1.m). The maximum fine on closer inspection is equivalent to that established for violation of the rules on competition-distorting agreements and abuse of dominant position (TFEU, Articles 101,102. Law 287/90, Articles 2,3).

The intent is undoubtedly appreciable, and yet it lacks any reference to the criteria for determining the measure of the penalty, beyond the general principles laid down in Law 689/81 (Article 11). The sanctioning authority therefore has a wide margin of discretion, which should follow special procedures along the lines of the guidelines developed by the Competition Authority.

Designated authority for inspections and penalties

The Central Inspectorate for Quality Protection and Fraud Repression of Agri-Food Products (ICQRF) is designated as the ‘national law enforcement authority responsible for supervising the implementation of the provisions’ under consideration ‘and the application of related sanctions, in compliance with the procedures set forth in Law 24.11.81, no. 689. To this end,
the Inspectorate may make use of the Carabinieri Corps, and in particular the Agri-food Protection Command, as well as the Guardia di Finanza, without prejudice to the provisions regarding the investigative powers of judicial police officers and agents’ (L. 53/21, Art. 7.1.p).

The possibility of involving the Guardia di Finanza-as this writer has always advocated, even since the time of DL 1/2012 (4)-is a great step forward. Subject to doubt as to the appropriateness of hinging the coordination of supervision and interaction with corresponding authorities in other member states to an understaffed body already deputed to other, no less important controls. All the more so under conditions of financial invariance, according to the style clause taken up in the 53/2021 enabling act in the second paragraph of Article 7.

Dario Dongo

Notes

(1) Dario Dongo. Unfair commercial practices, the EU directive 2019/633. GIFT(Great Italian Food Trade), 4.5.19 https://www.greatitalianfoodtrade.it/mercati/pratiche-commerciali-sleali-la-direttiva-ue-2019-633

(2) Law 22.4.21, no. 53. Delegation of powers to the Government for the transposition of European directives and the implementation of other acts of the European Union – European Delegation Act 2019-2020. (21G00063). In OJ 23.4.21 no. 97, https://www.normattiva.it/uri-res/N2Ls?urn:nir:stato:legge:2021;53

(3) Dario Dongo. Unilever, abuse of dominant position. GIFT(Great Italian Food Trade). 10.12.17. https://www.greatitalianfoodtrade.it/consum-attori/unilever-abuso-di-posizione-dominante

(4) Dario Dongo. Coca-Cola – Intermarché, the blackmail. Abuse of dominant position? GIFT (Great Italian Food Trade). 8.1.20, https://www.greatitalianfoodtrade.it/mercati/coca-cola-intermarché-il-ricatto-abuso-di-posizione-dominante

(5) Dario Dongo. Unfair trade practices, double-down supply chain agreement. GIFT(Great Italian Food Trade). 7.3.21, https://www.greatitalianfoodtrade.it/mercati/pratiche-commerciali-sleali-accordo-di-filiera-al-doppio-ribasso

(6) Nicoletta Cottone. Prandini (Coldiretti): “Stop the double-drop capestro auctions that strangle farmers.” Il Sole 24 Ore. 4/22/21, https://www.ilsole24ore.com/art/prandini-coldiretti-stop-aste-capestro-doppio-ribasso-che-strangolano-agricoltori-AEedL2C

(7) Marta Strinati. Stop double-down auctions in agribusiness, Code of Ethics arrives. GIFT(Great Italian Food Trade). 6/28/17, https://www.greatitalianfoodtrade.it/progresso/stop-alle-aste-al-doppio-ribasso-nell-agroalimentare-arriva-il-codice-etico

(8) See GFSI Benchmarking requirements, version 2020. GFSI(Global Food Safety Initiative). 28.2.20. https://mygfsi.com/news-and-resources/?_news_topics=benchmarking

(9) Reg. EU 1308/2013, establishing a common organization of the markets in agricultural products. V. Article 168(Contractual relations), paragraph 4: ‘Any contract or offer of contract referred to in paragraph 1:
(a) Is stipulated before delivery;
(b) is stipulated in writing; and
(c) includes, among other things, the following:
(i) the price payable on delivery, which:
– Is fixed and is stipulated in the contract, or
– is calculated by combining various factors established in the contract, which may include market indicators reflecting changes in market conditions, quantities delivered, and the quality or composition of agricultural products delivered;
(ii) the quantity and quality of the products concerned that can and/or must be delivered and the schedule for such deliveries;
(iii) the duration of the contract, which may be fixed or indefinite, with termination clauses;
(iv) clarifications regarding payment deadlines and procedures;
(v) the arrangements for the collection or delivery of agricultural products and
(vi) the rules applicable in case of force majeure’.