Implementation of EU Directive on unfair trading practices in B2B relationships in the agricultural and food supply chain is approaching

Draft Law no. 1721-B (European delegation law) which Article 7 contains the principles and guidelines for the implementation of European Directive 2019/633 on unfair trading practices in B2B relationships in the agricultural and food supply chain is being approved in the next few days.

Indeed, Member States are required to adopt by 1sr May 2021 the legal, regulatory and administrative provisions that necessary to comply with the European Directive 2019/633.

The Directive provides for a series of cases in which a commercial practice, carried out within the food supply chain, must be considered unfair and, therefore, prohibited. In particular, the Directive considers as always prohibited commercial practices that result in:

1.            in late payments beyond 30 days for perishable products;

2.            in unilateral changes by the buyer of the terms of agreements for the supply of agri-food products concerning the frequency, method, place, time or volume of supply or delivery of the products;

3.            in the cancellation of orders for perishable products at such short notice that it is reasonable to assume that the supplier will not be able to find an alternative to market or use such products;

4.            in the request of payment for deterioration or loss of products at the buyer's premises or after ownership has been transferred to the buyer when the deterioration or the loss are not due to the supplier;

5.            in the unlawful acquisition, use or disclosure by the buyer of the supplier's trade secrets; (vi) in threats (or implementation) of trade retaliation against the supplier when the supplier exercises its contractual and legal rights.

Conversely, practices involving the return of unsold products without payment, the payments as a condition for entering the buyer's distribution chain, as well as payments for promotional, marketing or advertising expenses, are permitted – provided that they have been previously agreed upon in clear and unambiguous terms in the supply agreement or other subsequent agreement between the supplier and the buyer.

A commercial practice shall be considered unfair when it is carried out:

a.            by suppliers with an annual turnover of Euro 2 million or less to purchasers with an annual turnover of more than Euro 2 million;

b.            by suppliers with an annual turnover of between Euro 2 million and Euro 10 million to purchasers with an annual turnover of more than Euro 10 million;

c.            by suppliers with an annual turnover of between Euro 10 million and Euro 50 million to purchasers with an annual turnover of more than Euro 50 million;

d.            by suppliers with an annual turnover of between Euro 50 million and Euro 150 million to purchasers with an annual turnover of more than Euro 150 million;

e.            by suppliers with an annual turnover of between Euro 150 million and Euro 350 million to purchasers with an annual turnover of more than Euro 350 million.

From the text of the Draft Law it can be inferred that the new implementing legislation shall apply to all supplies of agricultural and agrofood products regardless of the company turnover. Therefore, it shall be applied to purchasers with an annual turnover of less than Euro 2 million and to suppliers with an annual turnover of more than Euro 350 million.

Coordination with Article 62 of Decree-Law no. 1 dated January 24, 2012, converted, with amendments, by Law no. 27 dated March 24, 2012, which introduced significant novelties with regard to form of contracts within the scope of commercial relations relating to the agro-food chain and terms of payment shall be accurate: the delegation law requires confirmation that the obligation of the written form of contracts for the sale of agricultural and food products cannot be fulfilled exclusively by means of equivalent forms and that contracts shall be concluded prior to delivery of the products, except for those contracts concluded with the consumer or which envisage payment (at the same time as delivery) of the agreed price; as to the terms of payment, the new legislation shall be coordinated with the provisions relating to electronic invoicing.

On the ground of the Member States’ faculty to introduce stricter national regulations aimed at fighting unfair commercial practices, the Draft Law envisages that among the unfair commercial practices prohibited shall also be included sales of agricultural and food products through recourse to electronic tenders and auctions with double discounts, as well as the sale of products at prices clearly below production costs. With regard to the latter aspect, the regulation concerning sales below cost (Presidential Decree no. 218 of April 6, 2001) is to be revised in order to allow the sale below cost of fresh and perishable food to be permitted only when unsold products at risk of perishing are recorded or in case commercial transactions are planned and agreed with the supplier in writing, without prejudice, however, to the prohibition to unilaterally impose on the supplier, either directly or indirectly, the loss or cost of selling below cost.

Focus is also on the reporting and control phase. The protection of anonymity for complaints relating to unfair practices - which may come from individual operators, individual companies or associations and representative bodies of companies in the food chain – shall be guaranteed.

The national enforcement authority responsible for the supervision of the application of the provisions governing trade relations in the transfer of agricultural products and food, as well as of the application of the prohibitions established by the European Directive 2019/633 and the application of the relevant sanctions shall be identified in the Department of Central Inspectorate for Fraud Repression and Quality Protection of agri-food products and Foodstuffs (ICQRF); such identification seems to conflict with the recent proposals for competition reform sent by the AGCM to the Government dated March 23, 2021, in which the central role in fighting the violations identified by European Directive 2019/633 should be entrusted to the AGCM.

Finally, according to the DDL, the Government is requested to introduce effective, proportionate and dissuasive sanctions that take into account the nature, duration, frequency and gravity of the violation, within the maximum limit of 10 percent of the turnover achieved by the offender in the last financial year prior to the assessment.