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EU tackles unfair B2B food trading practices

European Commission proposal aims to ensure fairer treatment for farmers & SMEs

A draft EU law to help protect farmers from unfair trading practices in the food supply chain was presented by European Commissioner for Agriculture Phil Hogan on April 12. Members of the European Parliament (MEPs) described the proposal as a landmark, but one that could yet be improved. The Commission proposal would ban the unfair trading practices (UTPs) considered most harmful to farmers. These are payments later than 30 days for perishable food products, last minute order cancellations, unilateral and retroactive contract changes, and making suppliers pay for wasted products. Member states would each have to designate a public watchdog to enforce the new rules and impose “effective, proportionate and dissuasive” fines for infringement.

The goal is to reduce the occurrence of UTPs in the food supply chain by introducing a minimum common standard of protection across the EU. The protection covers small and medium-sized agricultural producers (including their producer organisations) and other small and medium-sized enterprises (SMEs) in the chain who sell food products to buyers who are not small or medium-sized. Other practices will also be banned unless allowed in an upfront agreement between the parties. These are buyers returning unsold food products to suppliers; buyers charging suppliers for stocking, displaying or listing a food product; and obliging suppliers to pay towards a buyer’s promotion or marketing campaigns. Of note, SME food producers supplying large EU buyers would be able to invoke the rules and complain anonymously about abusive practices whether based inside or outside the EU. In the proposal, the Commission says there is a widespread consensus that UTPs occur throughout the food supply chain. Agricultural producers are particularly vulnerable as they often lack the bargaining power of the downstream players that buy their products and they have limited alternatives for getting their products to consumers.

More price transparency across EU food chain

Hogan said the proposal is “fundamentally about fairness and about farmers,” He also said it was historic, being the first time the Commission had proposed legislation in this area. He added it will be followed by measures to improve market transparency. This is expected to include, by the end of 2018, moves to increase sharing of data, such as on farmgate and other prices in the food supply chain, in addition to the Commission’s existing market observatories and dashboards. The Commission has also signalled supporting measures to promote consolidation – such as the formation of producer cooperatives without fear of contravening competition laws – in the highly fragmented farming sector. The initiative comes in the wake of a European Parliament resolution in June 2016 calling on the Commission to propose legislation to tackle UTPs in the food supply chain. In its motion for the resolution, Parliament noted the fruit and vegetable sector is among those where farmers and cooperatives face an extremely critical situation. At that time, Members (MEPs) stressed that selling below the cost of production, and the serious misuse of basic agricultural foods such as fruit and vegetables as ‘loss leaders’ by large-scale retailers, threaten the long-term sustainability of EU production of such items. They urged the Commission to put forward proposals against UTPs so as to ensure fair earnings for farmers and a wide choice for consumers, and to ensure fair and transparent trade relations among food producers, suppliers and distributors. Fair trading should in turn help to prevent overproduction and food waste, they also said.

Initial reactions broadly positive

Farm groups, agricultural NGOs and politicians have generally described the plan as an important step in the right direction, while some distributors and retailers argue it would reduce competition and see consumers pay even more for food. According to Eureporter, Oxfam, Fair Trade Advocacy Office and IFOAM-EU welcomed the move but called on the European Parliament and Council to strengthen the proposal. Friends of the Earth Europe argued for complementary measures to support direct sales and short food supply chains. FoodDrinkEurope called for the proposal to be widened to cover not only SMEs but all players in the supply chain. Similarly, European Parliament AGRI rapporteur Paolo De Castro also said the proposal was constructive but should encompass all agricultural production, including flowers and feed. Copa-Cogeca chief policy advisor Paulo Gouveia said it is important to address the “fear factor” that often prevents complaints and called for additional measures including modernisation of competition law.

What now

The two co-legislators, the European Parliament and European Council, will separately discuss amendments to the Commission proposal in coming months with a view to a common position and then final text being agreed before the Parliament elections next May. It would probably then be at least 1.5 years before the directive is transcribed into national laws in each EU state. Meanwhile, stakeholders can provide feedback on the plan until June 14.

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About the proposal

The European Commission has asked the Parliament and Council to issue a directive on unfair trading practices (UTPs) in B2B relationships in the food supply chain.
UTPs to be banned:
1. Payments later than 30 days for perishable food products
2. Short-notice cancellation of orders for perishable foods
3. Unilateral and retroactive contract changes
4. Forcing suppliers to pay for wasted products
5. Unsold product risk transferred to supplier Parties’ *
6. Payments for stocking, displaying and listing agreement matters *
7. Contributions to buyer’s promotion campaign *
8. Contributions to buyer’s marketing campaign *

* parties’ agreement matters

  • SMEs are enterprises employing less than 250 people and which have annual turnover not above €50 million, and/or an annual balance sheet total not above €43 million.
  • A directive is a legal act of the EU requiring member states to achieve a particular result without dictating the means of achieving it.

UTP example
It is not uncommon that following an order given, a producer organisation prepares a batch (with the required grading, packaging and labelling) for which the quantities are revised downwards by the buyer (a retailer or its buying subsidiary) after the batch has left the packing station (e.g. to take into account short term fluctuation of demand at retail stage, in a just-in-time logistic approach). This means that the supplier (i) has to find an alternative outlet (usually at lower price, e.g. on a wholesale market) (ii) has to usually regrade and repack the goods not at its own premises implying extra costs and (iii) lose freshness of the product. In such cases, risks (short term fluctuation of demand) and related costs are entirely passed to the supplier (in many cases a farmer or a producer organisation) and directly result in an income decrease.

Why no outright ban on supplier contributions to retail promotions
Banning suppliers’ contributions to promotions as a general rule could cause losses to suppliers because consumers might instead buy other products, such as ones that were promoted instead. For example, if suppliers of fresh fruit and veg couldn’t contribute to promotions, retailers would have to bear the entire cost of them and might deflect the promotions to other categories of products, such as processed food products, thus negatively affecting sales of fresh fruits and vegetables.

Source: Commission document assessing the potential impact of the proposal for the UTP directive (Brussels, 12.4.2018, SWD(2018) 92 final)

Find out more:
https://ec.europa.eu/info/publications/key-documents-unfair-trading-practices_en
https://ec.europa.eu/info/food-farming-fisheries/key-policies/common-agricultural-policy/market-measures/unfair-trading-practices-food-chain_en#legislativeproposal
Follow the proposal’s progress in the EU Parliament:
http://www.europarl.europa.eu/oeil/popups/ficheprocedure.do?lang=&reference=2018/0082(COD)#tab-0

Main photo: EU Commissioner for Agriculture and Rural Development Phil Hogan (© European Union , 2018 / Source: EC – Audiovisual Service / Photo: Lukasz Kobus) 

JB

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EU defends its fruit marketing and trading rules

Brazil to reopen borders to Argentina’s apples and pears

European Commissioner for Agriculture and Rural Development Phil Hogan has defended EU fruit marketing and trading standards amid concerns they are having undesirable effects.

Czech MEP Stanislav Polčák (PPE) says the ‘standardisation’ applied to fruit unnecessarily deprives consumers of quality fresh apples. In a written question in the European Parliament he asked if the Commission would consider abolishing the policy.

“According to estimates, 70% of this year’s (2015) apple harvest in the Czech Republic will undergo further processing to be turned into apple juice and other apple products, as it is not suitable for direct consumption. The reason for this is standardisation: apples and other types of fruit and vegetables are subject to European standards. One of the standardisation parameters is the size of fruit. Due to this summer’s drought in the Czech Republic much of this year’s apple crop is below the desired size and is thus excluded from sale. For various reasons, I find this exclusion to be highly unreasonable,” Polčák wrote.

In his response, Hogan said the Commission had not been aware of the estimates quoted by Polčák concerning the Czech apple crop.

“For apples there exists indeed a specific EU marketing standard. To be marketed apples must have a minimum diameter of six cm, or five cm if a certain degree of maturity is guaranteed (sugar content of 10.5° Brix). This is in line with the provisions of the international standards for apples, developed by the United Nations Economic Commission for Europe and by Codex Alimentarius.

“Such marketing and trading rules are made in the interest of producers and traders to enable a smooth functioning of the internal market but also in the interest of consumers to receive adequate and transparent product information.

“Some exceptions to this apple marketing standard do exist. Smaller apples can always be directly sold by producers to consumers on the farm. In addition, Member States may provide exception from this marketing standard for sales on local markets. Finally, Member States can allow these products to be sold in retail shops on their territory, provided the apples are labelled as “intended for processing” or any equivalent wording. This enables small apples to find their way to consumers.

“A substantial reform and simplification of all marketing standards for fruit and vegetables was introduced in 2008,” Hogan concluded.

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Putin prolongs Western food ban

Spanish fruit and vegetable growers are among those asking the European Commission to urgently adopt new aid measures for them amid Russia’s extension of its veto on certain Western food imports.

Spanish fruit and vegetable growers are among those asking the European Commission to urgently adopt new aid measures for farmers amid Russia’s extension of its veto on certain Western food imports.

The Russian move came in retaliation to the EU decision to prolong until January sanctions against Russia over the Ukraine conflict.

Russia’s original ban – which applied to food products including vegetables, fruit, beef, pork, fish and dairy products from the EU, the US, Canada, Norway and Australia – was introduced last August. Yesterday, Russian President Vladimir Putin announced he was extending it, “by one year beginning from today.”

Fepex, the Spanish federation of associations of producers and exporters of fruit, vegetables, flowers and live plants, immediately called on the European Commissioner for Agriculture Phil Hogan to extend the exceptional measures used by the Commission to help EU fruit and vegetable growers affected by the existing ban.

In a letter to Hogan, Fepex said the Russian ban on the import of EU fruit and vegetables in force since last August had deprived the Spanish fruit and vegetable sector of the top non-EU export market. “There are no alternative markets that can compensate for this loss,” it said.

Fepex calculates Spanish fruit and vegetable exports to non-EU countries in the first quarter of this year were down 17% – a total of 218 million tons – on the same period in 2014. It said the extension of the veto “will worsen a major crisis in the EU summer fruit market” and called for the Commission to urgently adopt market crisis management measures.

Meanwhile, Murcia’s Ramón Luis Valcárcel Siso, a member of the European Parliament from Spain’s ruling Partido Popular party, in a written question in the Parliament has called for stone fruit to be covered under the earlier exceptional support measures.

He said these existing measures did not contain any exceptional support for Spanish plums, table grapes, kiwifruit, peaches, apricots or nectarines.

“Exports to alternative markets have not absorbed the 60,698 tons which were previously exported to Russia. Measures need to be taken therefore to prevent prices falling as they did between 2013 and 2014 (by 32.3% for plums, 36.7% for yellow flesh peaches and 44.9% for yellow flesh nectarines). The marketing season started in April and farmers are now extremely concerned,” he said.

Photo of Russian President Vladimir Putin: Kremlin.ru [CC BY 3.0 (http://creativecommons.org/licenses/by/3.0)], via Wikimedia Commons