The discipline of unfair trade practices in the agrifood supply chain-introduced by EU dir. 2019/633-has also found application in Italy, as noted above, with Legislative Decree. 198/21, effective 12/15/21 (1,2).
The legislative decree repeals the fateful Article 62 of Law 27/12, which the Competition and Market Authority (AGCM, Antitrust), moreover, has hardly enforced over 10 years. (3)
Raw material and energy costs have meanwhile skyrocketed, and there are still questions about how the ban on below-cost sales can be enforced. Next, the ABCs of the new regulations.
1) UNFAIR TRADE PRACTICES IN THE AGRIBUSINESS SUPPLY CHAIN. LEGISLATIVE DECREE. 198/21
EU dir. 633/2019 introduced a minimum level of protection for agrifood suppliers (farmers, livestock breeders, enterprises and processors) in contracts for the transfer of their foodstuffs. With the aim of bringing balance back to contractual relations where buyers (industry and large-scale retail) tend to exercise dominant power.
Legislative Decree. 198/21 implemented this directive, known as UTPs(Unfair Trading Practices), defining which unfair trading practices are always prohibited and which are presumed prohibited unless they have been ‘agreed’ in writing, in clear terms. In addition, Italian regulations have introduced a ban on below cost sales in B2B relationships.
1.1) Scope of application
Agricultural and food supplies subject to the new rules cover B2B(business-to-business) relationships only, excluding:
– contributions by farmers and fishermen to cooperatives of which they are members, or to producer organizations (POs),
– assignments with simultaneous delivery and payment of the agreed price,
– Sales to consumers (B2C, Business to Consumer).
1.2) Buyer and supplier
The buyer, it should be noted, is any natural or legal person who purchases agricultural and food products ‘regardless of the place of establishment.’ Unfair trade practices and below-cost sales are therefore prohibited even for foreign operators (e.g., Amazon).
Instead, the supplier is any agricultural producer or natural or legal person who sells agricultural and food products, including groups of farmers and enterprises ‘such as producer organizations, cooperative societies, supplier organizations and associations of such organizations.’ (4)
2) CONTRACTS FOR THE TRANSFER OF AGRICULTURAL AND FOOD PRODUCTS
2.1) General Principles
Contracts of assignment and supply must come ‘informed by principles of transparency, fairness, proportionality and mutual consideration of performance, with reference to the goods supplied, to be adhered to before, during and after the establishment of the business relationship‘ (Legislative Decree 198/21, Art. 3.1).
2.2) Written form
The written form of contracts is mandatory. If the essential elements of the contract (see next paragraph) have already been agreed upon between buyer and supplier in a framework agreement, the written form requirement can be fulfilled by the following equivalent forms:
– Transportation or delivery documents,
– Bills,
– purchase orders (d.lgs. 198/21, art. 3.3).
2.3) Essential elements of the contract
The assignment (or supply) contract must be made in writing before delivery of the products and state:
– duration,
– Quantity and characteristics of the product sold,
– price (fixed or determinable based on criteria established in the contract),
– delivery and payment methods (d.lgs. 198/21, art. 3.2. See also EU reg. 1308/13 as amended, art. 168).
2.4) Duration
The duration of transfer contracts may not be less than 12 months, except in the case of sales to public establishments (referred to in Law 287/91, Article 5).
Exceptions are subject to justified exceptions, ‘including on account of the seasonality of the products‘, which must be provided for in a written agreement between supplier and buyer, or in a framework agreement (see next para. Legislative Decree 198/21, Art. 3.4).
2.5) Para-union framework agreements.
Contract terms and conditions-including prices, in compliance with the general principles and essential elements, as well as with the prohibitions set forth in paragraphs 3, 4 and 5 below-may be defined within the framework of para-union framework agreements, concerning the supply of agricultural and food products.
These agreements are concluded ‘with the assistance of the respective professional organizations that are most representative at the national level represented in at least five chambers of commerce, industry, handicrafts and agriculture, or in the CNEL, including through their territorial and professional branches.’
Framework agreements concluded with purchasing centers must report in any case, as an annex, ‘the names of the members who have given the mandate‘ (d. lgs. 198/21, art. 3, paragraphs 5 and 6).
3) BLACK LIST. UNFAIR TRADE PRACTICES ALWAYS PROHIBITED
3.1) Payment terms, order cancellation of perishable products
The black list of unfair trade practices that are always prohibited is quite extensive:
– payment terms. 30 days from the end of the agreed delivery period for perishable agricultural and food products, 60 days for non-perishable products. The only exemptions allowed are for the distribution of fruit and vegetables and milk to schools and public bodies providing health care, as well as transfer contracts between suppliers of grapes or must for wine production and their direct purchasers (Legislative Decree 198/2021, Art. 4.3.d),
– Cancellation of orders for perishable goods, by the buyer, with less than 30 days’ notice. However, within 90 days of the entry into force of the aforementioned decree, special cases as well as areas in which the parties to an assignment contract may establish notice periods of less than 30 days will be identified and regulated by regulation of Mipaaf (Art. 4.1.c),
3.2) Unilateral changes, transfer of risks on the supplier
Also always prohibited are the following unfair trade practices:
– Unilateral modification (by the buyer, or supplier) of the terms of a contract of supply of agricultural and food products relating to frequency, method, place, time or volume of supply or delivery of products, quality standards, payment terms or prices ‘or relating to the provision of services ancillary to the supply of products‘ (Article 4.1.d),
– ‘Inclusion by the purchaser of contractual clauses obligating the supplier to bear the costs of deterioration or loss of agricultural and food products occurring on the purchaser’s premises or otherwise after such products have been delivered, provided that such deterioration or loss was not caused by the supplier’s negligence or fault‘ (Art. 4.1.f),
– acquisition and disclosure (not also use), by the buyer, of supplier’s trade secrets (Art. 4.1.h).
3.3) Sales below cost
Below-cost sales of agricultural and food products at prices below the cost of production-in B2B relationships only, excluding supplies to cooperatives and producer organizations (POs)-are strictly prohibited. Outside of only the assumptions of:
– unsold perishable fresh and perishable agricultural and food products,
– Scheduled business transactions agreed upon in writing.
‘Inany case, it is forbidden to impose contractual conditions on the supplier such that the economic consequences arising directly or indirectly from the spoilage or loss of agricultural and food products sold below cost that cannot be attributed to the supplier’s negligence’ (Legislative Decree 198/2021, Article 7.2).
3.4) Underpricing, price substitution
In case of violation, the price is replaced as of right (pursuant to Article 1339 of the Civil Code) with the price resulting from the supplier’s purchase invoices. Or, ‘in case matching with purchase invoices is not possible,’ you have regard:
– at the ‘price calculated on the basis of average production costs recorded by the Institute of Agricultural Food Market Services, ISMEA, or, in the absence of the latter,
– at the average price charged for similar products in the reference market‘ (Legislative Decree 198/2021, Art. 7.3).
3.5) Undercost, critical application issues
It is doubted whether it is feasible to replace the below-cost price with the average cost of production given by ISMEA (e.g., “The price of a product is not the same as the average cost of production. 0.46/l for milk, as of February 2021). Precisely because it is being recalled:
– First, at the price resulting from the invoices. With the obvious purpose of favoring cooperatives and POs (who can purchase agri-food commodities below cost) over other suppliers,
– to the market ‘average price’ whenever ISMEA fails to compile the price index of current inputs, regionally, on a monthly basis. Uncertainty dominates.
4) GREY LIST. PRACTICES ALLOWED ONLY IF ‘EXPRESSLY AGREED UPON‘
Practices that are ‘presumed’ to be prohibited-but are in fact permitted, provided they are expressly agreed upon in the transfer contract or in subsequent agreements-are those that shift business risks, costs and business investments faced by the buyer onto the supplier:
– unsold return withoutpaymentof ‘any payment for such unsold products or their disposal‘,
– listing fee (‘thedemand on the supplier, by the buyer, of a payment as a condition for storing, displaying, listing its products, or putting them on the market‘),
– promotions. Requiring the supplier to bear (all or part of) the cost of product discounts is permissible provided that the buyer, before initiating a promotion, agrees to its terms (period, quantity, discounts),
– advertising (‘the request to the supplier, by the buyer, to bear the cost of advertising, carried out by the buyer, of agricultural and food products‘),
– marketing (‘the request to the supplier, by the buyer, to bear the cost of marketing agricultural and food products carried out by the buyer‘),
– dedicated personnel (‘thebuyer’s request to the supplier to bear the cost of the personnel responsible for organizing the space for the sale of the supplier’s products‘. See d.lgs. 198/21, Article 4.4).
5) OTHER PROHIBITED UNFAIR TRADE PRACTICES
5.1) Unfair conditions
Other business practices considered unfair and therefore prohibited include:
– Tenders and double-drop electronic auctions,
– Excessively onerous contract terms for the seller, including undercutting,
– Objectively different conditions for equivalent performance,
– Exclusion of the application of interest for late payment and reimbursement of debt recovery costs (Legislative Decree 198/21, Article 5).
5.2) Condition-capture
In general terms, ‘the adoption of any further unfair business conduct that is found to be such even taking into account the totality of business relations that characterize the conditions of supply‘ is prohibited. Therefore, an illustrative, but not exhaustive, list of the prohibited conditions-caption is provided:
– ‘the making the conclusion, execution of contracts and the continuity and regularity of the same business relations conditional on the performance of services by the contractors which, by their nature and according to commercial usage, have no connection with the object of each other’,
– ‘the attainment of undue unilateral benefits, not justified by the nature or content of business relations.’
– ‘the imposition of ancillary services and benefits in relation to the main object of the supply, even if they are provided by third parties, without any objective, direct and logical connection with the supply of the product covered by the contract‘ (Legislative Decree 198/21, Article 5).
5.3) Buyer Protection
Some expressly prohibited unfair trade practices concern conditions imposed on the buyer by the supplier:
– short deadlines. Contractual imposition of products with ‘expiration dates too short compared to the remaining life of the product itself‘,
– assortment. Contractual constraints to maintain ‘a particular assortment, defined as the set of goods that are offered for sale by a trader to meet the needs of its customers‘, (5)
– new products (‘imposition on the buyer, by the supplier, of the inclusion of new products in the assortment‘),
– merchandising (‘imposition on the buyer, by the supplier, of privileged positions of certain products on the shelf or in the store‘. Legislative Decree. 198/21, Article 5).
6) ‘GOOD BUSINESS PRACTICES‘
The concept of ‘good business practices‘ is referred to, in compliance with the above standards, to:
– Supply chain agreements and contracts with a duration of at least three years, or
– contracts in accordance with the contractual conditions defined in framework agreements, including ‘para-union’ agreements (see above, paragraph 2.5. Legislative Decree 198/21, Article 6).
6.1) Evaluation of good practices
The assessment of compliance with the principles of good faith, fairness and transparency must consider:
– Compliance of execution with what was agreed upon,
– Correctness and transparency of information provided in pre-contract,
– assumption of their entrepreneurial risks, by all parties in the supply chain (Legislative Decree 198/21, Article 6).
6.2) Advertisement
The words ‘product complying with good business practices in the agricultural and food chain‘ may be used in the advertising of agricultural and food products purchased under the above contracts. The ICQRF should verify ‘the veracity of this wording and, in case of negative findings,’ inhibit its further use (Legislative Decree 198/21, Article 6).
The idea seems to be to promote good business practices and share their application with both downstream economic actors in the supply chain and consumers. But this news is unlikely to influence their choices without demonstrating its concrete impact on the socio-environmental sustainability of the supply chain (according to the Fair Trade approach). (6)
7) SANCTIONS.
The administrative penalties introduced by Legislative Decree 198/2021 are effectively dissuasive. In fact draconian, vis-à-vis the buyer. Depending on the case, from a minimum ranging between 1,000 and 30,000 euros up to 5 percent (even 10 percent, in the case of a repeat offender) of the turnover achieved in the previous year (Legislative Decree 198/21, Article 10).
The reservation of criminal law enforcement could hypothetically apply in cases of extortion or private bribery (of large-scale retail buyers, for example). A style clause but completely unnecessary, since the offenses that could possibly occur are completely devoid of specific case law and do not involve, among other things, the administrative liability of the entity (ex Legislative Decree 231/01).
8) COMPETENT AUTHORITIES
8.1) ICQRF
ICQRF (Central Inspectorate for Quality Protection and Fraud Repression of Agri-food Products) is ‘the national law enforcement authority in charge of
to the activity of detecting violations‘ of the regulations under consideration of Legislative Decree 198/2021. With the following tasks:
– Initiating and conducting investigations, on its own initiative as well as following a complaint. By collecting information from suppliers and buyers, as well as unannounced inspections,
– Check for the existence of clauses or contractual relationships that differ from the above criteria and prohibitions, in relation to transfers and supplies of agricultural and food commodities,
– ascertain violations and require their perpetrators to put an end to the prohibited business practices, except to the extent that doing so may reveal the identity of the complainant or otherwise harm the complainant’s interests,
– apply the corresponding administrative sanctions, in accordance with the procedures set forth in Law 689/1981 (Art. 8).
8.2) Antitrust, CC, GdF
The Antitrust Authority (Autorità Garante per la Concorrenza e il Mercato, AGCM), which had been designated in previous drafts of the decree as the authority responsible for supervising and sanctioning sales below cost, was eventually deprived of it.
Thus, the Fraud Repression Inspectorate-with its small staff and countless general responsibilities (7)-has exclusive jurisdiction over this matter as well. Except to be able to make use of ‘the Carabinieri Command for the Protection of Agribusiness and the Guardia di Finanza‘.
9) PROCEDURES.
9.1) Complaint
Complaints can be submitted to the ICQRF-even against entities not established in Italy-by:
– individual operators established in Italy,
– producer organizations, other supplier organizations, associations of such organizations and purchasing parties,
– other nonprofit associations, provided they have a ‘qualified interest‘. (8)
Confidentiality. ‘If the complainant so requests, the ICQRF shall take measures to protect the identity of the complainant or the alleged aggrieved party, as well as other information whose disclosure would be detrimental to the interests of the complainant.’
9.2) Examination of the complaint, investigation, possible outcomes
Within 30 days of receiving the complaint, ICQRF must inform the complainant how it intends to proceed:
– if ICQRF finds that ‘thereare no reasonable and sufficient grounds for action, it shall inform the complainant of the grounds and its decision within 180 days of receipt of the complaint.’
– ‘if, on the other hand, it finds that there are sufficient radii to follow up on the complaint, it shall initiate and conclude an investigation against the complainant within 180 days of receipt, proceeding to make the complaint pursuant to Art. 14 of l. 1981, no. 689.‘ (Legislative Decree 198/21, Art. 9).
9.3) Reporting and Fate of Penalty Proceeds.
The ICQRF must submit to the European Commission by March 15 each year a report on unfair trade practices in business-to-business relations in the agricultural and food supply chain. This report contains ‘all relevant data regarding law enforcement and enforcement activities‘ of this decree, during the previous year, in accordance with the requirements of EU Directive 2019/633.
The proceeds ‘obtained from the payment of administrative fines shall be paid into the State budget for reallocation to the relevant expenditure chapters‘ of the ICQRF at MiPAAF. ‘By decree of the State Accountant General, the necessary budgetary changes are made‘ (Legislative Decree 198/2021, Art. 10.13).
10) Interim conclusions. #CleanSpades
The legislation under consideration overcomes, in several respects, the critical issues highlighted in its preparatory work as early as the enabling act. (9) However, the attribution of exclusive competencies to entities that depend on MiPAAF – ISMEA for monthly processing of production costs, ICQRF for controls and sanctions – appears problematic in two respects:
– governance. The Ministry of Agriculture and its subordinate agencies are still subject to the dangerous interference of Coldiretti’s magic circle. Through systems of ‘revolving doors,’ conflicts of interest, and corruption, as seen in the #Clean Spades investigation (10-12),
– resources. the department is in a situation of severe under-organization that inevitably undermines the effectiveness of its supervisory activities. In this area, as in that of consumer information on food products, (13) the most likely scenario appears to be that of Giuseppe Tomasi di Lampedusa’s The Leopard. ‘Everything changes because nothing changes‘.
We look forward to it!
Dario Dongo, with the collaboration of Giorgio Perrone
Notes
(1) Dario Dongo. Unfair trade practices, the EU directive 2019/633. GIFT(Great Italian Food Trade). 4.5.19, https://www.greatitalianfoodtrade.it/mercati/pratiche-commerciali-sleali-la- directive-eu-2019-633
(2) Dario Dongo. Unfair trade practices, the woes of Leg. 198/2021. GIFT(Great Italian Food Trade). https://www.greatitalianfoodtrade.it/ markets/great-alien-trade-practices-guai-del-d-lgs-198-2021
(3) Dario Dongo. Sardinian shepherds and unfair trade practices, derisory Antitrust sanctions on F.lli Pinna and 5 other dairies. GIFT(Great Italian Food Trade). 31.7.21, https://www.greatitalianfoodtrade.it/mercati/ shepherds-sardinians-and-commercial-practices-irritories-of-antitrust-a-f-f-lli-pinna-and-others-5-cheesemakers
(4) Legislative Decree. 198/21. Implementation of Directive (EU) 2019/633 on unfair business-to-business commercial practices in the agricultural and food supply chain as well as Article 7 of Law April 22, 2021, no. 53, on the marketing of agricultural and food products. https://bit.ly/3LUfx0t
(5) Dario Dongo. Coca-Cola – Intermarché, the blackmail. Abuse of dominant position? 8.1.20,
https://www.greatitalianfoodtrade.it/mercati/coca-cola-intermarché-il-ricatto-abuso-di-posizione-dominante
(6) Dario Dongo. Public blockchain and agribusiness supply chain, sustainability for producers and consumers. GIFT(Great Italian Food Trade). 28.2.21, https://www.greatitalianfoodtrade.it/progresso/blockchain-pubblica-e-filiera-agroalimentare-sostenibilità-per-chi-produce-e-chi-consuma
(7) Dario Dongo. Unfair trade practices, new draft decree. GIFT (Great Italian Food Trade). 7.11.21, https://www.greatitalianfoodtrade.it/mercati/pratiche-commerciali-sleali-nuovo-schema-di-decreto
(8) Complaint forms are available on the MiPAAF website, on the page ‘How to report unfair practices to the ICQRF ‘. https://www.politicheagricole.it/flex/cm/pages/ServeBLOB.php/L/IT/IDPagina/15285
(9) Dario Dongo. Unfair trade practices and the European delegation law, critical analysis. GIFT(Great Italian Food Trade). 4/24/21, https://www.greatitalianfoodtrade.it/mercati/pratiche-commerciali-sleali-e-legge-di-delegazione-europea-analisi-critica
(10) Dario Dongo. Public administration, allegiance to the state or Coldiretti #VanghePulite. GIFT(Great Italian Food Trade). 6/27/21, https://www.greatitalianfoodtrade.it/idee/pubblica-amministrazione-fedeltà-allo-stato-o-a-coldiretti-vanghepulite
(11) Dario Dongo. Genetic improvement, MiPAAF gives 12 million to Coldiretti. #CleanSpades. GIFT (Great Italian Food Trade). 8/26/21, https://www.greatitalianfoodtrade.it/idee/miglioramento-genetico-il-mipaaf-regala-12-milioni-a-coldiretti-vanghepulite
(12) Dario Dongo. AGEA – Coldiretti, European Commission rejects conflict of interest. GIFT (Great Italian Food Trade). 3/24/21, https://www.greatitalianfoodtrade.it/progresso/agea-coldiretti-la-commissione-europea-boccia-il-conflitto-d-interessi
(13) One example out of all, regarding the inadequacy of food label controls in Italy, was seen in the case of stuffed pasta. Where 80 percent of the labels examined, even with industry-leading brands and large-scale retail, were found to be outlawed. See the previous article ‘Fresh stuffed pasta, the taste of misleading labels. 38 products compared‘. https://www.greatitalianfoodtrade.it/consum-attori/pasta-fresca-ripiena-il-gusto-delle-etichette-ingannevoli-38-prodotti-a-confronto
Dario Dongo, lawyer and journalist, PhD in international food law, founder of WIISE (FARE - GIFT - Food Times) and Égalité.
