Thanks to EU legislation, farmers are now protected against unfair trading practices in their business relationships. In this article, Donnacha Anhold outlines how these regulations benefit farmers and food producers when dealing with larger buyers.
With the objective of protecting small suppliers such as farmers, against large buyers, such as the major food processors or supermarkets, the EU has adopted legislation regarding unfair trading practices (UTPs) in business-to-business (B2B) relationships within the agri-food sector.
These rules, contained in EU Directive 2019/633 of 17 April 2019, were not implemented into Irish law until the 1st of July 2021 and were done so by the entry into force of SI 198/2021, the EU (Unfair Trading Practices in the Agricultural and Food Supply Chain) Regulations 2021, dated 28 April 2021 (the UTP Regulations).
The UTP Regulations contain a list of both ‘black clauses’ (practices that are prohibited in all circumstances) and ‘grey clauses’ (agreements that are banned unless the parties agree otherwise).
The regulations have applied since 1 July 2021 to any new supply agreements in the agri-food sector since 28 April 2021. In addition, all relevant supply agreements, including those adopted prior to this later date, must comply with the regulations by 28 April 2022.
The UTP Regulations apply to agricultural and food products listed in Annex I to the Treaty on the Functioning of the Europe Union (TFEU), so the list of relevant products is, therefore, extensive. It includes vegetables, fruit, meats, cereals, fish, dairy products and processed foods (including prepared meals and sauces).
The regulations also apply to non-food products, such as live animals, live trees, cut flowers, and animal feed.
The regulations address agreements for the sale or supply of relevant products by a supplier to a buyer where at least one part to the transaction is established in the EU. They do not apply to agreements between suppliers and private consumers.
A ‘buyer’ is defined in the regulations as any natural or legal person who purchases agricultural and food products. Examples of buyers include processors, distributors, wholesalers, and public authorities. The definition also encompasses groups of such natural and legal persons. The definition of a ‘supplier’ includes farmers, wholesalers/distributors, agricultural producers, plant nurseries or any other group thereof, such as organisations of producers and suppliers.
In considering whether the UTP regulations protect a supplier, the difference in size between the supplier and the buyer to a relevant transaction – rather than the absolute size of the latter – is the determining factor. The regulations apply where both the buyer and the supplier to a particular transaction satisfy the relevant financial thresholds in one of the following scenarios:
- Suppliers with an annual turnover below €2 million, and buyers with an annual turnover over €2 million,
- Suppliers with an annual turnover between €2 million and €10 million and buyers with an annual turnover over €10 million,
- Suppliers with an annual turnover between €10 million and €50 million, and buyers with an annual turnover over €50 million,
- Suppliers with an annual turnover between €50 million and €150 million, and buyers with an annual turnover over €150 million,
- Suppliers with an annual turnover between €150 million and €350 million, and buyers with an annual turnover over €50 million and
- Suppliers with an annual turnover below €350 million, and all buyers that are public authorities.
Interestingly, the regulations are silent on where the relevant turnover is generated and moreover, they do not address whether turnover is to be assessed on a group basis.
There are ten practices that are prohibited in all circumstances by the UTP Regulations. These are known as ‘black clauses’ and comprise of:
- Making payment later than 30 days for perishable agricultural and food products
- Paying later than 60 days for other agricultural and food products
- Cancelling orders for perishable agricultural and food products at short notice
- The buyer making unilateral contract changes
- Requiring payments from the supplier that are not related to the sale of the relevant products
- Requiring the supplier to pay for the deterioration or loss of the product on the buyers premises
- Refusing to enter into a written agreement
- Unlawfully acquiring or using the trade secrets of the supplier
- Threatening to carry out acts of the commercial retaliation
- Requiring compensation from the supplier for the cost if examining customer complaints relating to the sale of the supplier’s product, in the absence of negligence or fault on the part of the supplier.
There are also six practices that are prohibited by the UTP Regulations unless the parties have a clear agreement to the contrary regarding the practice in question. These are known as ‘grey clauses’ and comprise of the following:
- Returning unsold product to the supplier without paying for those unsold products
- Charging payment as a condition for stocking, displaying or listing the supplier’s products
- Requiring the supplier to bear the costs of discounts on products sold by the buyer as part of a promotion
- Obliging the supplier to pay for advertising by the buyer
- Requiring the supplier to pay for marketing by the buyer
- Charging the supplier for staff to fit out premises used for the sale of the products
One might say that this legislation has gone someway towards rebalancing the scales between smaller producers and larger buyers in what has often been a case of David versus Goliath in the past.
If you feel that this legislation would be relevant to your personal circumstances then please contact our head office in Sligo to arrange for an appointment to discuss your case in further detail.
You can call us on 071-9162211 or email email@example.com