Germany to implement UTP-Directive on unfair trading practices in food supply chains

The transposition deadline of EU Directive 633/2019 against unfair trading practices in the food supply chain (UTP-Directive) is approaching. By 1 May 2021, EU member states must implement this directive. For farmers, suppliers and retailers alike, how the various member states implement the UTP-Directive will be crucial, especially concerning the question of whether higher standards of protection will be introduced including a wider scope of application.

The UTP Directive introduces a minimum standard for protecting suppliers whose turnover does not exceed EUR 350 million annually. Suppliers that fall under the scope of the UTP-Directive will enjoy protection against "black-listed" unfair trading practices including:

• late payments;
• short cancellation of orders for perishable goods;
• unilateral changes of a supply agreement regarding frequency, method, place, timing or volume, quality standards, terms of payment or the price;
• certain unjustified payments or compensation;
• refusal to confirm in writing the terms of a supply agreement;
• disclosure of trade secrets; and
• retaliation measures.

Furthermore, the UTP-Directive identifies a list of "grey-listed" practices, which are prohibited unless they have been previously agreed upon in clear and unambiguous terms. These practices include:

• the return of unsold goods without payment;
• charging payment for stocking displaying, listing making available on the market;
• charge payment for the advertisement or marketing of a product; or
• charging the supplier for staff fitting premises used for the sale of the supplier's products.

As the deadline for transposition approaches, member states have options when drafting national legislation. Since the UTP-Directive only introduces a minimum standard, EU member states can ensure a higher level of protection. Therefore, national legislators can legislate against other unfair trading or blacklist practices that the UTP-Directive only included in its grey list. They can also expand the scope of its application to suppliers with a higher turnover or to all suppliers.

In Germany, the vote on the draft Agricultural Organisations-and Supply Chain Act (Agrarorganisationen- und Lieferkettengesetz) of 21 January 2021, scheduled for the first week of March, has been postponed. Legislators have not yet reached an agreement regarding changes to the draft, which initially adhered to the scope of application as envisaged in the UTP-Directive. This draft, however, quickly became a point of criticism. Germany's governing coalition is still in discussions over whether to expand the scope of the bill and introduce a general clause in addition to the exhaustive list of unfair trading practices.

During the expert hearing on 22 February, the need for stricter rules was emphasised by the German Farmer's Union (Deutscher Bauernverband). The threshold of EUR 350 million per supplier is seen as insufficient. In addition, the German Farmer's Union also calls for blacklisting all practices that are currently on the grey list, arguing that these practices may be the result of negotiations between parties of unequal power, and result in a shift in risk and costs to weaker suppliers.

Similarly, the German competition authority stated in its Kaufland/Real decision that suppliers reported problems during the yearly negotiations. Retailers are said to use their buyer power to enforce their demands through methods such as transnational delisting. In this respect, it was suggested that the Directive does not accurately reflect the actual problems in the supply chain.

It remains to be seen if the German legislator will reflect these concerns in the legislation. In any event, the UTP-Directive stipulates that unfair trading practices may occur at any stage of the sale of an agricultural or food product – before, during or after a transaction. The member states should ensure that this directive applies to such practices whenever they occur (i.e. during or in the context of negotiations). Some of its protections against unfair trading practices will also be useful in the context of negotiations and transnational delistings since it prohibits certain unilateral changes to agreements and retaliation measures.

However, the question of threshold remains crucial since it determines the suppliers that will be protected.

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