A report by the EU Commission, released late last week, has looked into unfair business dealings in Europe and made recommendations to improve the position of smaller or weaker parties in the food supply chain.

The report, which was flooding up on Commission work from July 2014, noted that the market structure of Europe’s food supply chain makes it particularly vulnerable to unfair practices, which can seriously affect those with less bargaining power. Last week’s report came in response to demands from the agriculture ministers of seven EU countries to analyse the impacts of unfair trading practices on less powerful players in the face of low prices in 2015. The Commission said these low prices, which have hit dairy and pig producers hardest, stem from the Russian embargo, oversupply of certain products and weaker commodity prices.

Last week, the Commission announced that it will extend storage aid for butter and skimmed milk powder until 30th September 2016, after Member States approved a proposal to continue with aid package. Private storage aid schemes were introduced in summer 2014 to counteract the effects of the Russian food trade embargo.

Commission findings

Unfair trading practices identified by Commission researchers could be divided into four main types. These include:

•    A more powerful business shifting risks or costs onto a less powerful operator;
•    One business demanding undue benefits from another;
•    One business making unilateral and/ or retroactive changes to contracts;
•    One business using termination of contracts as a threat or unfairly terminating contracts with another.

Researchers acknowledged that measures to combat imbalance and unfair trading practices have mostly developed at the member state level, and that there has been a flurry of action in recent years. Three quarters of member states with legislation on unfair practices between businesses (which the Commission said often arises from an imbalance of power) introduced these measures in the last five years.

Because national governments have taken action on the issue, and there is no legislation at the EU level, the approach differs frown one country to another, with some states (including Germany and Austria) adopting a case-by-case assessment of each dispute and looking at abuses stemming from economic power imbalances, whilst many Eastern European states have adopted blacklists of forbidden practices, which are not tolerated. The Commission said the two approaches have different strengths and weaknesses in terms of their ability to detect new and emerging unfair practices and sanction unfair practices without the need for expensive fact-finding investigations into each case.

The report emphasises the importance of confidentiality is in empowering smaller players to speak up about unfair practices; issues of confidentiality and third party referrals played a key part in negotiations over the remit of the Supermarket adjudicator in the UK.
https://www.nfuonline.com/sectors/food-chain/food-chain-rh-panel/report-gscop-breaches-says-nfu/

Commission researchers also noted that “Measures to tackle [unfair trading practices] must act as a real deterrent” to be effective. However, as the UK’s supermarket ombudsperson was only empowered to impose financial penalties for infractions which took place after 6 April 2015, the adjudicator was unable to fine Tesco after finding that the supermarket breached the UK’s code of practice following her first investigation in post, the results of which were published last week.

Commission rapporteurs recommended that member states whose legislation doesn’t cover the whole supply chain should consider extending these protections (in some cases unfair trading practices can only be pulled up when one business is a retailer). The report points out that most small operators in the food sector don’t deal directly with retailers, so they are more vulnerable in states where legislation doesn’t cover all business relations. The UK’s ombudsperson only deals with the country’s ten largest supermarkets and their suppliers, though there have been calls to extend her remit. Rapporteurs said that any legislation should also cover suppliers in non-EU countries.

Voluntary measures versus legislation

Commission rapporteurs said more than 20 member states have introduced legislation or are planning to do so. However, the only EU-wide scheme is the Commission’s own Supply Chain Initiative (SCI), a voluntary framework which was launched in 2013. The scheme aims to increase fairness throughout the supply chain by mediating disputes and encouraging staff training but can’t sanction abusers of power.

Independent analysis commissioned of the SCI project commissioned by the EU executive revealed that small businesses, and farmers in particular, are still under-represented in the Initiative, and suggested that “The fact that the members of the Governance Group [leading the initiative] represent stakeholder groups may be seen as restricting their impartiality.”
 
Overall, the investigation suggested that the Initiative has begun to “promote cultural change in the food supply chain” though it is too early to say for certain. Even so, the Commission’s desire for less regulation, and pro-trade governance, has brought it into conflict with sections of the Parliament, notably the EU Greens, who believe this comes at the cost of firm protection for society and the environment.
http://www.greens-efa.eu/better-regulation-15047.html

The researchers noted that in Belgium, where voluntary measures have been in place since 2010, they appear to have worked well, whereas in Finland the country’s main farm union withdrew its support after a year and a half, and in the UK ineffective voluntary measures “Confirmed the need for regulatory measures and effective independent enforcement.”

The Commission has pledged to look into both voluntary and regulatory frameworks. Its High Level Forum for a Better Functioning Food Supply Chain will maintain dialogue with businesses and member states, but will continue to push the voluntary SCI. The Commission will reassess the situation in the food sector before its current term of office ends in 2019.