Further Steps to Regulate the Imbalances in the Food Supply Chain

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Date: 23/03/12

The perceived imbalance in bargaining position between big retail and food producers has long been a contentious issue in both the UK and in the EU Parliaments.  Following inquiries by the Competition Commission, and considerable public pressure, the UK government concluded that action was needed and introduced the Grocery Suppliers Code of Practice in 2009 in an attempt to redress that balance.

The food supply chain has also regularly been the focus of EU attention.  Whether it is through fishing quotas, agricultural subsidies, or the wider Common Agricultural Policy, the EU has not been afraid to act in the past to protect an industry that accounts for 7% of total employment in the EU and is worth approximately EUR 1400 billion a year to the EU economy. 

More protection needed?

The issue is once more on both the EU and the UK political agenda. The EU Parliament is concerned that the prices paid by consumers for products are not reflected in the prices paid to farmers for their production.  As a result, the EU Parliament concludes that this loss of bargaining power coupled with the increase in production costs and the impossibility of recovering those costs along the food distribution chain, may endanger the survival of agricultural industry which has an obvious on impact on the food supply chain.

On 19 January the EU Parliament passed a resolution calling for the EU Commission to take action.  The Parliament asked for a number of measures to be taken, including robust legislation "to guarantee fair and transparent relationships between producers, suppliers and distributors of food products".  The EU Parliament also called for the proper implementation of the rules already in force.

Almost in parallel with this development, on 24th January at the Opposition Day Debate in the House of Commons on rising food prices and poverty, the UK Government said that plans to appoint the Groceries Code Adjudicator would be pushed through as soon as possible.

In calling for this resolution, the EU Parliament identified a non-exhaustive list of thirty two practices that were of concern.  Eight of these practices deal with access to retailers and twenty four relate to contractual terms or practices used by retailers. They include the examples listed below:

Access to retailers practices of concern 

• shelf space pricing
• payment delays
• entry fees
• listing fees
• advance payments for accessing negotiations
• pricing and promotions
• favoured client clauses

Contractual terms or contractual practices of concern

• unilateral/retrospective changes to contractual conditions
• margin recovery
• payment for not reaching certain sales levels
• imposition of unreasonable costs for consumer complaints
• non written agreements
• retaliatory practices
• payment for shrinkage
• payments for customer complaints

Many of these practices, such as listing fees or shelf space allocation fees, are prohibited in the UK for retailers operating under the Groceries Supply Code of Practice (GSCOP) but certain retailers are managing to circumvent a number of these prohibitions by other means.  Retailers will however be concerned about the prospect of further regulation in this area and the imposition of enforceable restrictions on the ways in which they conduct business, while the food manufacturing industry is likely to welcome additional protection.

Legislation on the way?

The EU wants action to be taken and as a first stage is seeking a full inquiry into the practices in the sector to ensure that the food manufacture and agricultural industry is preserved.

The EU recognises that the amount of time it takes suppliers to get paid can have significant impact on cash flow and the viability of suppliers.  As a result the EU is also requesting a mechanism to address the late payment of invoices, particularly of perishable short life foods where the problem is more acute.  The EU Parliament is seeking “urgent” action to harmonise EU regulation in this area and extend it where necessary to protect suppliers.

With the EU Parliament also discussing the potential harmonisation of competition law across member states as well as extending the continual price and market share monitoring across the EU, significant changes could be planned.

Given the political pressure that is mounting in the EU, it is likely that draft legislation (either entirely new legislation or significant amendments to existing legislation) will be the next step.  While any legislation being implemented is some way off, UK food manufacturers and retailers alike will be well advised to keep a close eye on the progress of this EU Resolution to ensure that any further legislation does not restrict trading

If you would like to discuss how we can assist you in this area, please contact Paul Attwood on 0151 907 3015.

To see the full text of the EU Parliament Resolution click here: http://www.europarl.europa.eu/sides/getDoc.do?type=TA&reference=P7-TA-2012-0012&language=EN&ring=B7-2012-0008

If you would like to discuss in more detail please contact Paul Attwood on 0151 907 3015 or email paul.attwood@dwf.co.uk

This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.

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