New Food Supply Chain Law: Spain completes the transposition of Directive 2019/633 on unfair trading practices in business-to-business relationships in the agricultural and food supply chain

Carlos Vérgez, Aida Oviedo & Eduardo Crespo

On 15 December, Law 16/2021 of 14 December, which amends Law 12/2013 of 2 August ("Law 16/2021") on measures sought to improve the operation of the food supply chain, was published after being approved by the Plenary of the Spanish Congress on 2 December. In this article the main amendments made to the Food Supply Chain Law are addressed.

The amendment of the Food Supply Chain Law ("LCA") stems from the obligation to transpose Directive 2019/633 on unfair trading practices in business-to-business relationships in the agricultural and food supply chain and the need, given the particular vulnerability of the sector, to make further progress in the approval of measures that improve the rebalancing of the food supply chain. In February 2020, the LCA had already been amended through Royal Decree-Law 5/2020, of 25 February, implementing urgent measures on agriculture and food, which led to the ratification, in December 2020, of Law 8/2020, of 16 December, adopting certain urgent measures on agriculture and food ("Law 8/2020"). It should also be noted that the final text of Law 16/2021 is somewhat different from the Draft Bill amending Law 12/2013, published in November 2020 ("Draft Bill").

Regarding the main developments introduced by Law 16/2021, it is worth mentioning the following key points:

1. The scope of application of the LCA is extended to food supply agreements. From now on, the regulations applicable to food supply agreements will also apply to:

• The contractual relationship between operators, regardless of their status. This implies that even commercial transactions between two small and medium sized companies will fall within the new scope of application of the LCA, which was not the case before.
• Companies in the food service and hotel industries (also known as "HORECA"), unless their turnover is less than EUR 10,000,000 or, for companies in the hotels and accommodation sector, less than 50,000,000 euros. 
• The commercial relationship between operators involved in the food supply chain, even when one of the parties is located outside Spain. If the other operator is based in another EU Member State, the LCA will also apply if the regulations of said Member State aren’t applicable. The LCA seeks to address, through this provision, the frequent situation where only one of the two parties is located in Spain (e.g., sales by primary producers in the context of centralised purchases by large distribution chains, often channelled through companies located in other EU countries).

2. Although the previous LCA already established that agreements had to be drawn up in writing, Law 16/2021 establishes that, in any case, the drafting must be based on the principles of transparency, clarity, concreteness and simplicity. As occurs with other provisions of the LCA, special rules are provided for in the case of agricultural cooperatives, in which the relationship between the parties is largely conditioned by the corporate-cooperative bodies involved. This circumstance had traditionally posed problems in the enforcement of food supply chain forecasts.

3. In addition to the foreseen prohibition of buying at a loss, introduced by Law 8/2020, a prohibition of selling at a loss has been introduced for each phase in the supply chain, including the final sale. This provision is linked to the regulations regarding unfair competition, a reference that is likely to be problematic.

4. The Food Supply Chain Observatory is appointed to draw up and regularly update price and output rates. 

5. A new repertoire of abusive practices is included, distinguishing between prohibited “black  list” practices and prima facie prohibited practices (subject to the weighting clause or “grey-list”):

• Black list practices include demanding payments unrelated to the sale of products, unilaterally modifying the terms of a food supply agreement, carrying out or threatening to carry out acts of commercial retaliation in the framework of a contractual negotiation, including the total or partial interruption of the supply or purchase of agricultural or food products in an ongoing agreement, during the exercise of contractual or legal rights. Taking part in any of these practices are considered serious offences. 
• Grey list practices include one party demanding from the other to pay for the latter's product advertisements, or one party charging the other for personnel to fit out the premises used for the sale of products.

6. Stricter penalties for offences. Specifically:

• A new catalogue of serious and very serious offences has been created (prior to this reform, the possibility of considering an offence as serious or very serious was only foreseen for cases in which  minor or serious offences were recurring incidents): The reform follows the trend of categorising certain behaviours as serious, regardless of recidivism (it should be noted that previous regulations only categorise recidivist offences as serious, with the sole exception of cases exceeding the maximum payment deadlines).
• The regulation has added new offences, many of which are considered serious (including some of those that the Draft Bill initially considered to be minor, such as the prohibition of carrying out or threatening to carry out acts of commercial retaliation).
• In order to determine the exact amount of the penalty for the three types of offences foreseen in the LCA (i.e., minor, serious and very serious), quantification criteria have been set out for each of them (minimum, average and maximum range). The range that will be taken into account to determine the penalty will be decided in view of the specific circumstances of the case (intent, nature of the damage caused, the profit obtained through the offence, etc.) although usually the penalty would be applied in its medium range.

It is also noteworthy that, for the first time, a minimum has been established for minor offences (250€).

• The maximum limit of a penalty has been significantly increased, reaching up to 5% or 10% of the total gross turnover of the offender during the last year, depending on whether the offence is considered to be serious or very serious;
• The director of the Food Information and Control Agency is now responsible for any decisions in regard to minor financial penalties; and
• Confidentiality is ensured during the processing of information within the framework of ongoing procedures. 

7. Certain guarantees have been established for when reporting offences, ensuring confidentiality of the complainant, and presuming confidentiality of the evidence provided, unless he/she requests otherwise. The practical implications of this measure may have an impact, since it could increase the number of complaints, which until now has been very limited due to the fear of reprisals.

8. Penalties for serious and very serious offences that are declared final in administrative or judicial proceedings will be published on a quarterly basis. According to the regulation, only the identity of the offender, the penalty imposed, and the offence committed will be published.

Law 16/2021 came into force on 16 December 2021, with the exceptions provided for in the eighth final provision of the legal text.

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