Agriculture, food and sustainability: who will pay for the greening?

Partly as a result of the Paris Agreement and the Urgenda judgments, a new era is dawning in the agriculture and food sector. The crisis should spur a green recovery, is an often heard motto: the government should work towards more sustainable practices that will have a major impact on all the links in the food chain. That is easier said than done (particularly in the Netherlands). PFAS measures and the nitrogen policy (see also here), for instance, regularly lead to protests from farmers: see here, here, here and here. The agriculture and food sector is locked down, as it were.

Competition authorities play an important role in buying out farmers, switching to circular agriculture, sustainability labels and other supply restriction measures. This blog centres on the role of the European Commission (the “Commission”) and the Netherlands Authority for Consumers and Markets (“ACM”). What action did they take in 2020 and what does the future look like?

Pricing, sustainability and circular agriculture

The Dutch Ministry of Agriculture, Nature and Food Quality (the “Ministry”) previously announced the need to arrive at circular agriculture and reported on the vulnerability that entails: “The switch to circular agriculture will succeed only if farmers are paid a fair price for their products. Farmers (rightly) wish to be rewarded for sustainable, safe and high-quality products. Only then are they able to invest. This vision therefore also applies to the banks, the food industry, supermarkets and consumers.” The agriculture and food sector has mixed feelings about the government’s focus on a speedy and drastic switch to circular agriculture, although the Rutte III government says it appreciates the problem identified by the agriculture and food sector that farmers and market gardeners are paying the costs of the proposed sustainability measures. The coalition agreement states, for instance, that farmers and market gardeners should be paid higher prices if non‑statutory requirements are set regarding sustainability and animal welfare.

The question is what prices will suffice in practice to achieve the proposed sustainable development? And is there room on the market to charge such prices? A market survey by IRI has shown that, so far, there is relatively little demand for organic products. Partly due to the limited willingness of consumers to pay the higher prices, the share of organic products in the supermarket sales figures has fluctuated around 3% for many years. To stimulate the demand for organic products, more than 60 agricultural and nature organisations have proposed, among other things, a reduction of the VAT rate as part of a 10-step action plan: a measure that the government and the ACM will, no doubt, be addressing later this year.

With a view to fair value-sharing, the Directive on unfair trading practices entered into force in April 2019, aimed at tackling unfair trading practices for certain businesses in the agriculture and food supply chain. That Directive (EU) 2019/633 (the “Directive”) is based on minimum harmonisation and protects micro, small and medium-sized enterprises with annual sales of less than €350 million, provided that they sell agricultural/food products to large buyers, including producer organisations. State Secretary Keijzer stated in early 2020 that the Directive’s implementation in Dutch law will be sent to the Dutch Parliament (Tweede Kamer) before the end of this year.

Ministry’s Earning Capacity Taskforce and ACM’s Price-Forming Monitor 2020

In response to a drop in sales prices, the Ministry set up a special Earning Capacity Taskforce in May 2019 to analyse the farmers’ earnings models. It is currently investigating whether farmers can earn back the investments required for sustainable circular agriculture. At Minister Schouten’s request, also the ACM has been investigating value-sharing in the food chain since 2019. The ACM decided to set up a monitor of the price-forming mechanism in the food supply chain (the “Monitor”) for that purpose (as it previously did in 2009 and 2014). For that purpose farmers and processors of food products in the food chain were contacted by ACM and by Wageningen Economic Research to provide information on prices, volumes and sales. With regard to the issue of footing the bill of making the food supply chain more sustainable, special attention was paid to the extra costs connected to sustainability measures and labels. That subject has not been addressed in earlier monitors. The outcome of the Monitor will be published in September 2020.

Supervision of sustainability labels

The ACM recently called on businesses not to use misleading claims and logos and to reduce the number of sustainability labels. In light of the proliferation of certification labels that it established in 2016, the ACM will take stricter enforcement measures the coming year, focussing in particular on sustainability claims of market parties. Martijn Snoep, chairman of the board at the ACM, has stated, for instance: “Information provided by companies on sustainability, for instance, must be fair and understandable. Only then can consumers make informed choices about products and services. Certification labels, claims and logos can help them make the right choices, but the promises made must then be fulfilled”. To inform businesses about its supervision on sustainability labels, the ACM recently published its draft Guidelines on Sustainability Claims. ACM explains in those guidelines, on the basis of five rules of thumb, how business may use sustainability claims and when a claim constitutes an unfair trading practice.

In Signaal 2020 (an annual appeal to Dutch politics), the ACM explains how the proliferation in certification labels can be curtailed. The ACM draws attention not only to businesses’ own responsibility, but also requests the legislature to set stricter standards for existing labels and to consider the introduction of a uniform sustainability label (by means of mandatory accreditation). The increased transparency that, according to the ACM, will result from these steps may make it easier for consumers to include sustainability considerations in their choices.

Room for sustainability agreements

The ACM views sustainability labels from the perspective of both consumer protection and competition law. In ACM’s opinion, sustainability as a factor of competition may play an important role in its supervision. That is apparent, for instance, from the ACM’s recent memo on the Chicken of Tomorrow, in which the ACM found that sustainable chicken has appeared on the shelves also in the absence of restrictive trade agreements. At the same time, the ACM admits that in some cases restriction of competition is required in order to achieve sustainability benefits.

Whereas the ACM was critical about sustainability agreements in the past (see, for instance, the domestic shipping laying-up scheme and the closure of coal-fired power stations), it describes in the recently published draft Sustainability Agreements Guidelines how it intends to assess sustainability agreements between (competing) companies in the future. In response to the market sentiment, that there is insufficient room for sustainability initiatives, ACM claims that agreements that efficiently contribute to standards by which the government is bound (such as the reduction of CO2 emissions; see the Paris Agreement and the Urgenda judgments) do not restrict competition. If the businesses involved have a limited joint market share and the benefits clearly outweigh the disadvantages of the agreement, it is no longer necessary, in ACM’s opinion (unlike in the past), to quantify the consequences of the agreement.

Also remarkable is ACM’s announcement that it will not immediately impose fines if the draft Sustainability Agreements Guidelines have been observed as closely as possible in a sustainability agreement but the agreement is ultimately found not to be in accordance with competition law. In our opinion, this is a positive development, which has also been successfully used in first-line healthcare in the past.

It is crucial to the implementation of the draft Guidelines whether the Commission’s policy (see here for an explanation of the application of this policy to the agriculture and food sector) is in line with ACM’s new approach: the ACM may not be out of step as competition law is to be uniformly and constantly applied in Europe. The Commission is currently evaluating its guidelines on horizontal co-operation agreements and will take ACM’s draft new approach into account in that process.

Information on dawn raids by ACM can be found at invalacm.nl.

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