Unfair trading practices in the agricultural and food supply chain

Companies acting in the food supply chain for 2021 should revise their supply agreements and harmonise their business practices with the new national laws implementing Directive (EU) 2019/633 on unfair trading practices in B2B relationships in the agricultural and food supply chain. The unfair trading practices (so-called UTPs) scheme must be transposed to national legislations by 1 May 2021.

WHAT?

The UTPs scheme seeks to combat B2B practices in the agricultural and food supply chain that grossly deviate from good commercial conduct, are contrary to good faith and fair dealing, and are unilaterally imposed by one trading partner on another. In short, the intention of the rules is to shield agricultural producers or any natural or legal person selling agricultural and food products from UTPs. The Directive envisages that national laws will appoint competent authorities to enforce the UTP rules.

WHO?

The rules are not automatically applicable to all supplier-buyer relationships. The rules apply when there is a significant imbalance in negotiation power, which is assessed by comparing the annual turnovers of the parties.

HOW?

Precautionary measures for determining business relationship conditions must be applied since national laws have a wide discretion in defining the UTPs, provided that at least those specified in the Directive are included. The list of UTPs is divided into practices that are always forbidden (e.g., payment periods longer than 30 or 60 days (depending on the type of products), unilaterally changing certain terms of a supply agreement, etc.) and those forbidden depending on the circumstances (e.g., requiring the supplier to bear the costs of discounts or advertising, or to accept back unsold products without the obligation of the buyer to pay for them or for their disposal).

IF NOT?

The fines, other penalties, and interim measures will also be defined through national legislation. Additional powers such as carrying out unannounced on-site inspections will be useful in helping national authorities to enforce the UTP rules.

WHEN?

While the deadline for transposing the Directive into national legislation is 1 May, the national law may postpone applying the adopted measures until 1 November 2021. The national measures will be applicable to all supply agreements concluded after the national law enters into force. When it comes to supply agreements that are already in place, the respective companies will have a period of 12 months to bring their business practices into compliance with the new rules. 

With the deadline for transposing the rules on prohibiting UTPs rapidly approaching, food sector companies should press pause and assess the conditions agreed with suppliers to lower the risk of penalties and other sanctions to zero.

EU/NON-EU?

To prevent companies trying to circumvent the obligation to refrain from UTPs by transferring their seat to another country, the Directive clearly stipulates that the rules apply to cases where either the supplier or the buyer, or both, are established in the EU. 

This overview aims to provide the status of Directive implementation in EU jurisdictions, indicating whether a new UTPs law has been adopted or an existing law amended to meet the Directive’s goals. It should be noted that the overview does not represent an exhaustive list of all laws applicable to the supplier-buyer relationship (such as general trade laws, etc.).

As the companies operating in the CEE region are interested in the status of the regulation of UTPs in non-EU countries, the overview provides relevant information for some non-EU countries as well. If there are no specific UTP laws in non-EU countries, the overview provides a wider picture and refers to the rules that should, nevertheless, be taken into consideration in such supplier-buyer relationships. 

The status of UTPs laws in certain CEE countries can be checked in the table below: