Summary
EC proposals to eliminate unfair trading practices along agricultural supply chains are to apply to both EU and non-EU suppliers. This is a welcome development from an ACP perspective given the regularity of UTPs along ACP-EU supply chains for fruit and vegetable products. However the benefits gained by ACP agricultural producers will be critically affected by how the regulation is implemented in practice. It is now up to ACP governments in the countries most affected by UTPs such as Kenya, Tanzania, Ethiopia and Ghana in Africa and the Dominican Republic, Jamaica, Belize and St Lucia in the Caribbean, to ensure a designated authority is created which is empowered to ‘initiate investigations either on its own initiative or based on a complaint’ into unfair trading practices along ACP-EU supply chains. This issue could usefully be taken up under the trade chapter of the post-Cotonou ACP-EU negotiations which will be launched in August 2018.
On 12 April 2018 the EC tabled proposals to address ‘unfair trading practices in business to business relationships in the food supply chain’ which ‘establishes a minimum list of prohibited unfair trading practices between buyers and suppliers in the food supply chain and lays down minimum rules concerning their enforcement’ (1).
The unfair trading practices where prohibitions would be established under the regulation can be summarized as follows:
- ‘late payments for perishable food products;
- last minute cancellations of orders;
- unilateral or retroactive changes to contracts;
- forcing suppliers to pay for wasted products’ (2).
In addition there are some practices which will be banned unless subject to prior agreement in written contracts. This includes:
- ‘buyers returning unsold food products to a supplier;
- a buyer charging a supplier payment to secure or maintain a supply agreement on products;
- a supplier paying for the promotion or marketing of items sold by the buyer’ (2);
- requirements that ‘a supplier pays for the marketing of food products by the buyer’ (1).
Significantly under the proposed regulation a ‘supplier’ is defined as ‘any agricultural producer or any natural or legal person irrespective of their place of establishment, who sells food products’, while a ‘buyer’ is defined as ‘any natural or legal person established in the Union who buys food products by way of trade’ (1).
As the EC explained in the accompanying Fact Sheet the rules will ‘apply to non-EU suppliers…for reasons of fairness and to avoid unintended distorting effects’. It notes ‘if only suppliers in the EU were protected from UTPs, but not suppliers from third countries, buyers might have an incentive to buy from these third country suppliers (where they would be free to impose UTPs)’ (3). The extension of the regulation to 3rd country suppliers is thus intended to avoid encouraging sourcing practices from 3rd countries which undermine the position of 3rd country suppliers.
This international dimension of the proposed regulation can be seen as consistent with the EC position set out the November 2016 EC communication on ‘a new European Consensus on Development’ which committed the EU and its member states to developing ‘agricultural value chains which benefit the poor and encourage agro-industry to generate jobs and added value’ (4) (see companion epamonitoring.net article ‘Implications of the EC orientation for Post Cotonou negotiations for ACP agro-food sectors’, 28 January 2017). It should be noted in this context that UTPs along ACP-EU supply chains fall disproportionately on the shoulders of smallholder producers (see companion epamonitoring.net article ‘Role of UK Groceries Code Adjudicator could be extended’, 17 July 2017)
It can also be seen as consistent with the commitment contained in the December 2017 Annex: Recommendation for a Council Decision on the opening of negotiations on a future partnership the African, Caribbean and Pacific Group of States’, which highlighted the need to ‘strengthen the position of agricultural producers and exporters in global value chains’ (5).
In addition it should be noted the definition of ‘buyers’ means the EU regulations cover the whole of the supply chain and not only the largest supermarkets, as is the case with the UK’s Groceries Code.
The proposal ‘requires member state governments to designate a public authority to initiate investigations either on its own initiative or based on a complaint’ (1). The aim is to set minimum standards which will allow individual EU member states governments to go further if they so wish.
Overall according to Agriculture Commissioner Hogan the EC’s proposed regulation is about ‘strengthening the position of producers and SMEs in the food supply chain’ (3).
The extent to which this is achieved however will depend critically on how EU member states implement the regulation. As the experience of the office of the Groceries Code Adjudicator in the UK highlights the effectiveness of the new regulation in eliminating unfair trading practices will be determined by the resources devoted to enforcement of the provisions of the new regulation (see companion epamonitoring.net article ‘UK Government Fails to Extend Scope of Groceries Code’, 30 April 2018).
The EC’s proposal will now be subject to amendment by the European Parliament and the European Council, with the final text being agreed before May 2019 (2). EU Member states will then be expected to transpose the regulation into national legislation within six months of the entry into force of the new regulation
A range of European development NGOs and European farmers groups have warmly welcomed the EC’s proposal. Oxfam representatives noted the proposal could help smallholder farmers ‘get a fairer deal for their produce’, since it will allow ‘small and medium-sized food producers, wherever they are based, to anonymously complain about abusive practices of large European buyers’. The EC’s decision to treat EU and non-EU suppliers equally was described as ‘very positive’.
However the EU Fair Trade Advocacy Office was more cautious warning the regulation was ‘an important first step to eradicate unfair trading practices in our food supply chain’, but stressed how the ‘European Parliament and member states must now move fast to improve the Commission’s proposal’. In this context a key issue was identified as being the accessibility of the complaint mechanism to ‘the most vulnerable actors in the supply. One specific area of NGO concern is the absence of any ‘EU-level mechanism to tackle transnational UTPs’. NGOs also remain critical of the limited set of UTPs which the EC proposal will seek to prohibit (6).
| Comment and Analysis
From an ACP perspective the new proposed EU regulation on UTPs offers opportunities to improve the returns to ACP producers from existing trade along supply chains where UTPs exist. However the extent to which these opportunities are realised will depend on the mechanisms set in place to promote compliance with the provisions of the regulation along ACP-EU supply chains. Internally in the EU implementation of the regulation will be devolved to designated public authorities who will be empowered to ‘initiate investigations either on its own initiative or based on a complaint’. This raises the question: what will be the designated authority empowered to ‘initiate investigations either on its own initiative or based on a complaint’ into unfair trading practices along ACP-EU supply chains? In addition it needs to be recognised that areas of particular concern to ACP horticultural exporters include last minute cancellations of orders; the introduction of unilateral changes to agreed delivery levels and the practice of leaving unwanted products which have previously been requested by EU buyers in the exporting country. It is then up to the local exporter to dispose of these products as best they can. This commonly leaves primary producers being unpaid for a portion of agreed volumes which the European importer no longer requires for one reason for another. A critical question is what happens to these types of practices along supply chains where no formal written contracts are entered into and transactions are all arranged by phone on a ‘word of honour’ basis? Clearly some EU wide code of conduct is needed which makes written agreements enforceable under the new EU regulations, even where these written agreements take the form of an exchange of emails rather than formal written contracts. These would appear to be the kinds of issue which the ACP should take up in the post-Cotonou negotiations around the future trade component of the EU-ACP partnership arrangement. In the absence of any clearly designated authority empowered to ‘initiate investigations either on its own initiative or based on a complaint’ along ACP-EU supply chains, the provisions of the new regulation are likely to remain mute in regard to eliminating UTPs which undermine on-farm investment in ACP countries. Effective follow up by national ACP governments with the EC on how the new EU regulation will be operationalised in practice along ACP-EU supply chains will therefore be essential if the new regulation is to yield any benefits to ACP agricultural producers. The governments of countries like Kenya, Tanzania, Ethiopia and Ghana in Africa, the Dominican Republic, Jamaica, Belize and St Lucia in the Caribbean would all appear to have interests at stake in ensuring the new proposed EC regulation on UTPs is effectively implemented when it comes to ACP-EU agricultural supply chains. An additional issue arises in the UK, which is still currently a part of the EU, but which will have formally departed the EU by the time the UTP regulation comes into force, namely: how is this EU regulation going to be applied in the UK? The current text of the EU27/UK Withdrawal Agreement requires the UK to remain bound by all existing and new EU regulations throughout the transition period, which is currently scheduled to end on the 1st January 2021. In this context the question arises: to what extent will the UK be obliged to take on board the international dimension of the new EU regulation in defining the scope of the Groceries Code and the role of the Groceries Code Adjudicator? |
Sources:
(1) EC, ‘Proposal for a Directive of the European parliament and of the Council on unfair trading practices in business-to-business relationships in the food supply chain’, 12 April 2018
https://ec.europa.eu/info/sites/info/files/food-farming-fisheries/key-policies/cap/draft-proposal-unfair-trade-practices-com2018-173.pdf
(2) Foodnavigator.com, ‘EC proposals to ban unfair trading practices welcomed’, 19 April 2018
https://www.foodnavigator.com/Article/2018/04/19/EC-to-ban-unfair-trade-practices-Any-chain-is-only-as-strong-as-its-weakest-link
(3) EC, ‘European Commission acts to ban unfair trade practices in the food supply chain’, 12 April 2018
http://europa.eu/rapid/press-release_IP-18-2702_en.htm
(4) EC, ‘Proposal for a new European Consensus on Development Our World, our Dignity, our Future’, COM (2016) 740 final, 22 November 2016
https://ec.europa.eu/europeaid/sites/devco/files/communication-proposal-new-consensus-development-20161122_en.pdf
(5) Annex: Recommendation for a Council Decision, ‘Authorising the opening of negotiations on a Partnership Agreement between the European Union and countries of the African, Caribbean and Pacific Group of States’, COM(2017) 763 final, 12 December 2017
https://ec.europa.eu/europeaid/sites/devco/files/pc-com-acp-2017-763-annex-20171212_en.pdf
(6) IFOAM, ‘Key step taken to end human suffering in EU supermarket supply chains: OXFAM, FTAO, IFOAM EU AND FOE EUROPE media reaction’, 12 April 2018
http://www.ifoam-eu.org/en/news/2018/04/12/press-release-oxfam-ftao-ifoam-eu-and-foe-europe-media-reaction-key-step-taken-end