UK: Update on EU Proposals to Improve the Functioning of the EU Food Supply Chain

On 7 September 2010, the European Parliament adopted a resolution welcoming a European Commission report of October 2009 aimed at achieving a better functioning of the food supply chain in Europe and, in particular, its recognition of the existence of major power imbalances amongst operators in the food supply chain. 

Overall, however, the Parliament did not believe that the measures proposed in the report were sufficient to deal with the significant problems identified by the Commission.  Specifically, the resolution noted recent food and commodity price volatility; the unequal and unfair distribution of profits, with farmers receiving only a small proportion of price increases; the financial hardship faced by agricultural producers; and the lack of balance in commercial relationships between food producers and retailers and the existence of unfair commercial practices.

The Parliament resolution addressed these points and highlighted a number of measures that should be adopted to address three major priorities for food supply in the EU:

• improving price transparency;
• improving competition; and
• preventing abuse of buyer power and unfair contracting in the food supply chain.

Of note, the Parliament has urged the Commission to conduct a competition sector enquiry into the food supply chain and has called on the Commission to ensure a more targeted application of the competition rules in the food chain.  Furthermore, the Commission is asked to report to Parliament by the end of 2010 on buyer power abuse, anti-competitive behaviour and unfair contractual practices throughout the food chain.

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On 7 September 2010, the European Parliament adopted a resolution welcoming a European Commission report of October 2009 aimed at achieving a better functioning of the food supply chain in Europe and, in particular, its recognition of the existence of major power imbalances amongst operators in the food supply chain.

Overall, however, the Parliament did not believe that the measures proposed in the report were sufficient to deal with the significant problems identified by the Commission. Specifically, the resolution noted recent food and commodity price volatility; the unequal and unfair distribution of profits, with farmers receiving only a small proportion of price increases; the financial hardship faced by agricultural producers; and the lack of balance in commercial relationships between food producers and retailers and the existence of unfair commercial practices.

The Parliament resolution addressed these points and highlighted a number of measures that should be adopted to address three major priorities for food supply in the EU:

• improving price transparency;
• improving competition; and
• preventing abuse of buyer power and unfair contracting in the food supply chain.

Of note, the Parliament has urged the Commission to conduct a competition sector enquiry into the food supply chain and has called on the Commission to ensure a more targeted application of the competition rules in the food chain. Furthermore, the Commission is asked to report to Parliament by the end of 2010 on buyer power abuse, anti-competitive behaviour and unfair contractual practices throughout the food chain.

Abuse of buyer power and contracting

This came in for heavy scrutiny in the resolution, in particular calling on the Commission:

• to initiate a sector inquiry into the food supply chain to determine the level of buyer power abuses (influenced by the success of the recent competition inquiry into the pharmaceutical sector in 2009);
• to report to the European Parliament by the end of 2010 providing data on buyer power abuse in the EU, anticompetitive behaviour and unfair contractual practices throughout the food chain, and proposing suitable responses;
• to ensure that EU competition law is not by-passed in the food chain by buyer power abuse. This can happen, for example, in the form of late payments to farmers, alterations to contract terms, forced discounts, resale at loss, excessively high volume requirements and unjustified listing fees;
• to draw up a list of abusive market practices which should be explicitly outlawed by the EU and for companies failing to comply to be "named and shamed" and penalised;
• to reduce the maximum period allowable for payments from buyers to producers to 30 days for all foodstuffs;
• to promote fair contracting between all actors in the food supply chain based on terms negotiated with farmers' and producers' organisations.

Price transparency

The resolution proposed a number of actions to address the lack of transparency in the food supply chain, in particular calling on the Commission:

• to improve the European food price monitoring tool with the aim of making it more user-friendly;
• to carry out a study of the distribution of profit margins throughout the supply chains;
• to propose mandatory annual reporting by the top European traders, processors, wholesalers and retailers on their market shares (with data on private labels) for key food items and on their monthly sales items. This would enable all market partners to estimate trends in demand, supply and price developments in the food chain.

Competition

The European Parliament proposed the following principal actions, calling on the Commission:

• to establish a new relationship between competition rules and the CAP in order to give farmers tools to improve their negotiating position;
• to examine the consequences of significant market penetration by a single retailer or a small number of retailers in a given Member State, and to introduce corrective measures where a retailer's practices or market share is found to have an anti-competitive effect;
• to ensure a more targeted application of competition rules in the food chain and to consider legislative proposals in this regard to limit the development of dominant market positions in the input, food processing and retail sectors and to strengthen farmers' bargaining power;
• to prohibit selling below purchase price of agricultural products at European Union level.

The resolution also calls on national and European competition authorities, and other regulating authorities involved in production and commerce, to address robustly the dominant position and significant market share of agribusiness traders, input companies, processors and retailers operating in the food supply chain. The Parliament urges those authorities to take action against abusive buyer practices of all actors that put farmers in a very unequal bargaining position.

The European Parliament also welcomed the establishment of ombudsmen for the food retail sector who have the aim of guaranteeing compliance with contractual agreements. The Commission is encouraged to examine experiences and establish an EU-wide food retail ombudsman to enforce codes of conduct and best practices.

The resolution also proposed measures dealing with speculation, self-regulation, sustainable food systems and food quality, and self-supply and food waste in the food supply chain. The full text of the resolution can be found here. The press release can be found here.

This resolution of the European Parliament highlights the continued scrutiny of the food industry and, in particular, the focus on competition law concerns. It will be interesting to see the Commission's response to the actions proposed and how these will be implemented in practice.

Our previous Law Now, published at the time of the European Commission report of October 2009, is available here.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 13/09/2010.