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New EU Law Proposed on Unfair Trading Practices in the Food Supply Chain

On 12 April 2018, the European Commission proposed a Directive on unfair trading practices (UTPs) in business-to-business relationships in the food supply chain. The food supply chain is identified as being particularly vulnerable to unfair trading practices due to large imbalances in bargaining power.

The proposal aims to provide a common minimum standard of protection in order to compensate for the relative lack of bargaining power of smaller operators such as farmers or small and medium-sized enterprises (SMEs). SMEs are believed to lack the bargaining power of bigger market players and are therefore felt to be vulnerable to UTPs.

By empowering the weakest links in the chain to compete on fair terms, the Commission intends to increase trust within the food supply chain and to grant greater certainty.

The proposal covers agricultural and fishery products as well as processed products. The proposal targets all players in the food supply chain, including retailers, food processors, wholesalers, cooperatives, producers’ organisations and single producers.

Hong Kong’s food suppliers may like to know that the proposed Directive will apply to EU and non-EU suppliers alike for fairness reasons, and to avoid unintended distorting effects.

For the purposes of the Directive, UTPs are defined as business-to-business practices 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.

Among a wide variety of UTPs in existence, the UTPs targeted by the Commission’s proposal are in particular:

  • late payments for perishable food products;
  • last-minute order cancellations;
  • unilateral or retroactive changes to contract terms;
  • obligation of the supplier to pay for wasted products.

Further practices that will be prohibited unless they are agreed upon in a clear and unambiguous upfront agreement between the parties are:

  • return of unsold food products by a buyer to a supplier;
  • charge of payment by a buyer to a supplier as a condition for a supply agreement on food products;
  • payment by the supplier for the promotion or the marketing of food products sold by the buyer.

The proposal took into consideration an existing voluntary code of best practice in the supply chain, known as the Supply Chain Initiative. The Supply Chain Initiative was established in 2013 by seven EU level associations covering the food and drinks industry, branded goods manufacturers, the retail sector, small and medium-sized enterprises, and agricultural traders.

In elaborating the proposal, the Commission considered various sources: the findings of the Agricultural Markets Task Force, an expert group set up by the Commission in 2016; the Supply Chain Initiative's Principles of Good Practice; and the feedback the Commission received through stakeholder consultations, e.g., the Commission's public consultation on UTPs, in which respondents were asked to identify the practices they considered to be unfair and that had the most negative impact.

The above UTPs outlined in the Commission’s proposal were seen as the most obviously unfair, particularly affecting the weakest links in the food supply chain (namely farmers and SMEs). There was also widespread consensus that these particular UTPs have a disruptive impact on the proper and efficient functioning of the food supply chain.

Under the proposal, Member States are required to designate a public authority for the enforcement of the UTP prohibitions. The authority will carry out investigations and, in cases of proven infringements, impose effective, proportionate and dissuasive fines.

The proposed measures are complementary to measures already existing in Member States and the voluntary code of conduct of the Supply Chain Initiative.

The draft proposal and key supporting documents are available on the Commission’s website. The proposal will be submitted to the European Parliament and the EU Council for eventual adoption.

Content provided by Picture: HKTDC Research
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