New European Directive on unfair trading practices in the food supply chain

European Directive 2019/633 on unfair trading practices in B2B relationships in the agricultural and food supply chain has been published in the Official Journal of the European Union. This Directive aims to protect SMEs and mid-range enterprises against stronger buyers (large retailers and processors) by establishing a list of 15 prohibited unfair trading practices.

The imbalances in bargaining power between suppliers and buyers are a common occurrence within the food supply chain and may lead larger operators to impose unfair trading practices (“UTPs”) on smaller operators. The European Parliament and the Council have adopted a new Directive 2019/633 to combat such practices in the European Union.

Scope of application

The Directive benefits producers and suppliers of food products. It applies to UTPs in relation to sales of agricultural products and processed agricultural products (in chocolate, prepared meals and yoghurts, for example) by:

1. suppliers with a turnover not exceeding EUR 2 million to buyers with a turnover of more than EUR 2 million;
2. suppliers with a turnover of between EUR 2 million and EUR 10 million to buyers with a turnover of more than EUR 10 million;
3. suppliers with a turnover of between EUR 10 million and EUR 50 million to buyers with a turnover of more than EUR 50 million;
4. suppliers with a turnover of between EUR 50 million and EUR 150 million to buyers with a turnover of more than EUR 150 million; and
5. suppliers with a turnover of between EUR 150 million and EUR 350 million to buyers with a turnover of more than EUR 350 million.

The turnover of the suppliers and buyers referred to in points a) to e) above is the annual global turnover.

Prohibited UTPs

The Directive provides for a black list of clauses that are abusive and prohibited in all circumstances:

1. late payments (later than 30 days after the end of the agreed delivery period or the date on which the payment is due for perishable products, or later than 60 days for non-perishable products);
2. last-minute order cancellations;
3. unilaterally changing the terms of the supply agreement;
4. requiring payments from the supplier that are not related to the sale of the products;
5. requiring the supplier to pay for the deterioration or loss of the products on the buyer’s premises;
6. refusing to enter into a written agreement;
7. unlawfully acquiring or using trade secrets of the supplier;
8. threatening to carry out acts of commercial retaliation; and
9. requiring compensation from the supplier for the cost of investigating customer complaints when there is no negligence or fault on the supplier’s part.

The Directive also provides for a grey list of UTPs that are prohibited unless they have been agreed “in clear and unambiguous terms in the supply agreement or in a subsequent agreement between the supplier and the buyer”:

1. returning the unsold products to the supplier without paying;
2. charging payment as a condition for displaying or listing the supplier’s products;
3. requiring the supplier to bear the costs of discounts on products sold by the buyer as part of a promotion (unless the buyer, prior to the promotion, specifies the period of promotion and the expected quantity of products to be ordered at the discounted price);
4. requiring the supplier to pay for advertising by the buyer;
5. requiring the supplier to pay for marketing by the buyer; and
6. charging the supplier for staff to fit out premises used for the sale of the products.

Enforcement

Each Member State must designate one or more authorities to ensure the prohibition of UTPs. Suppliers affected by a prohibited UTP can address complaints to these enforcement authorities. The supplier can ask for its identity to be protected.

The enforcement authorities have the power to conduct investigations, require buyers and suppliers to provide information, carry out on-site inspections, require buyers to terminate prohibited UTPs, impose fines and publish their decisions.

Next steps

The Directive introduces a minimum standard of protection and allows Member States to adopt or maintain national rules that go beyond the UTPs listed in this Directive. Member States must implement the Directive in their national laws by May 2021 and apply it six months later.