The EU Agriculture Commissioner, Phil Hogan, published draft legislation to tackle unfair trading practices (UTPs) in Brussels this week. In doing so, his ambition is to put a basic EU-wide standard in place for supermarkets and large food-service-industry buyers doing business with small- and medium-size suppliers.

The Commission recognises that many member states have already taken action to address this issue and the UK has had a Grocery Code Adjudicator (GCA), formally appointed since 2013, even though she had been in post in a shadow format prior to that. Indeed, the UK model was one of those studied in Brussels, as it contemplated legislation.

Outright ban

The Commission has proposed legislation for the outright banning of certain practices, with the scope of the legislation confined to small- and medium-size businesses. This is the group that is exposed to larger food-buying corporations in the retail and catering sectors, who wield the most power in the business negotiations. Delayed payments will be prohibited outright, with a payment deadline of 30 days from date of delivery of the produce or the receipt of the invoice, whichever is the latest.

The legislation will also ban the cancellation of orders for perishable goods at short notice and similarly any significant change to the terms of a supply contract will be banned. Suppliers having to pay the cost of food waste at the customers’ business will also be banned where the supplier hasn’t been responsible for causing the waste.

In addition to these banned practices, others will have to be clearly provided for in a supply agreement, otherwise they too will be prohibited. These include suppliers having to accept returns of unsold food products and payments by the supplier to secure or retain shelf space. Any payment from suppliers for promotions will have to be agreed in advance and include duration and frequency of promotions as well as the amount of product that will be involved.

Driven by Commissioner

The Agriculture Commissioner, Phil Hogan, has made addressing the imbalance in the supply chain an ambition of his term. Bringing forward UTP legislation was made more complex as it is a subject that doesn’t fit neatly into the agriculture portfolio – many would argue that it is more of an issue for the Competition Commissioner. By securing Commission support for this legislation, Hogan has obviously built the consensus to make it happen.

Of course the Commission cannot legislate on its own: it will require the support of Parliament to close the deal. By taking his legislative proposals to the Agriculture Committee of the Parliament for their first outing, the Commissioner is making a strong pitch for their support.

That should be achievable, because the issue has already had an outing in the EU Parliament with current Vice President Mairead McGuinness the rapporteur on a report from the Agriculture Committee calling for legislation on UTPs back in 20

A motion to Parliament in 2016 calling for the Commission to legislate received huge support and was approved by a margin of 600 votes to 48.

History of legislation

This move by the Commission is a first, at EU level, to tackle the imbalance that is in the supply chain beyond the farm gate. It was considered as far back as 2009 and again in 2014. However, at an EU level there was a lack of enthusiasm in many member states. Up to 20 have already some sort of domestic legislation in place to address the issues. This initiative by the Commission is intended to put a basic standard in place at an EU level with a recognition that member states can choose to go further if they wish.

Until now, tackling UTPs has been left to each member state, with the GCA being the UK’s response to the issue. There was a voluntary EU-wide initiative established in 2013, which is a voluntary code of best practice. This was the outcome of a forum on the better functioning of the supply chain and was made up of EU-wide organisations that represented the food-and-drink sector and was known as the Supply Chain Initiative.

Transparency

One area that was highlighted in the Agricultural Markets Task Force report that this proposed legislation does not address is the issue of transparency in the food chain. While the UTP legislation will benefit suppliers, in practice very few if any suppliers to supermarkets and food service companies are farmers. It is processors that act as the conduit between farmers and the ultimate customer, and many farmers will have as much of an issue with the factories they supply as they have with supermarkets or the catering trade.

A spokesperson for the Commissioner has told the Farmers Journal Scotland that work on transparency remains a work in progress and that we can expect to see results in the second half of this year. This will be of particular interest to farmers, as they see a huge increase in value of the product from it leaving the farm gate until it arrives in the consumer’s basket, and there is little knowledge of what costs and profits are incurred in between.

Effectiveness of the GCA

Although the GCA operates to a code rather than a legislative base, she has been considered a success in regulating supply in the £179bn UK grocery industry. The first big case was Tesco in 2014, but she has also found against other retailers, the most recent being Asda in September last year for breach of the code by requiring suppliers to make financial contributions to secure their business. Asda was found to be the worst-performing of 10 retailers by suppliers in a survey published by the GCA in June 2017.

In March this year, the GCA announced the commencement of an investigation into the co-op for breach of the code in relation to delisting and variation of supply agreements and terms of supply.