Circular agriculture, sustainability and the cartel prohibition: power to the farmer?

The climate agreement, greenhouse gas reduction, the transition to circular agriculture and the reappraisal of the manure policy have become staples of the social and political debate. But who will foot the bill for the development of a sustainable food supply chain? That question is often raised when these subjects are discussed. We will address below the relevant developments in the food supply chain and the supervision of that chain. We will also shed light on the consequences of three steps taken by the Dutch Ministry of Agriculture, Nature and Food Quality (“Ministry of Agriculture”): (i) the submission before the summer break of a legislative proposal aimed at giving farmers more clout in dealing with purchasing alliances and supermarket chains; (ii) the creation of the Earning Potential Taskforce of the Ministry of Agriculture; and (iii) the introduction of the Agricultural Value Monitor of the Netherlands Authority for Consumers and Markets (“ACM”). We will also address European rules aimed at prohibiting unfair commercial practices in the agricultural value chain, which must be implemented in the Netherlands by 1 November 2021 at the latest.

Ministry of Agriculture aims for transition to circular agriculture

The Ministry of Agriculture is actively aiming for a speedy transition to circular agriculture. In circular agriculture, as little waste as possible is generated and the emission of harmful substances and loss of resources and of end products are kept to a minimum. According to the Ministry of Agriculture, the Agriculture, Nature and Food: Valuable and Connected vision sets out a framework for a more sustainable future of agriculture, nature and fishery. In the Ministry’s opinion, this will contribute to:

  • a stronger position of farmers;
  • a great appreciation of food;
  • closer cooperation between nature and agriculture;
  • more sustainable cattle breeding; and
  • new agreements for an international approach to circular agriculture.

Fair price for farmers: an important condition for transition to circular agriculture

In August 2018, the Ministry of Agriculture identified the vulnerability in achieving circular agriculture: “The transition to circular agriculture can 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, the supermarkets and consumers.” The government’s focus on a speedy and drastic transition to circular agriculture has been received with mixed feelings in the agricultural and horticultural sectors for several reasons. The Rutte III Cabinet does claim to be aware of the problem identified by the agricultural and horticultural sector that farmers and growers are footing the bill for the intended sustainability. The coalition agreement states, for instance, that farmers and growers should receive higher prices if non-statutory requirements are set regarding sustainability and animal welfare. So far no specific action has been taken on this point. Will that change in the near future?

Legislative proposal before 2019 summer recess

Minister Schouten has promised to present a legislative proposal before the 2019 summer recess that should give farmers and growers more clout in relation to purchasing alliances and supermarket chains. She has not yet said anything specific about the proposal, but it would allegedly give farmers a special position in several areas, without any changes being made to the cartel prohibition. The Centraal Bureau Levensmiddelenhandel (“CBL”), the trade association of Dutch supermarkets, immediately warned Minister Schouten not to restrict freedom of contract. The CBL critically responded to Minister Schouten’s proposal to give farmers and growers greater power, arguing that her plan would ultimately be harmful to both consumers and the Netherlands as an exporting country.

Ministry of Agriculture’s Earning Potential Taskforce and ACM’s Agricultural Value Monitor

On 13 May 2019, a special Earning Potential Taskforce was set up at the Ministry of Agriculture. The taskforce is in charge of investigating the earning potential of farmers in light of the drop in sales prices. Minister Schouten recently reported that she has also instructed ACM to investigate pricing in the food supply chain. ACM will draw up an Agricultural Value Monitor to that end. Minister Schouten believes that such a monitor will provide more information on the pricing of agricultural products. She hopes that the first edition of the monitor will be presented in mid-2020.

Taskforce and Monitor: power to the farmer?

ACM has not placed the agricultural value chain (and the pricing within that chain) on its agenda of spearheads for 2018/2019, but has now nevertheless been instructed by the Ministry of Agriculture to investigate pricing in the agricultural value chain. That subject is not entirely new to ACM. In 2014 it published a similar monitor. In 2009 ACM (named the NMa at the time) also published such a monitor. Those earlier ACM monitors did not lead to a change in the market position of farmers, growers, breeders or fishermen. One of the conclusions of the 2009 monitor was that supermarket chains generated the highest margins for various products (such as sweet peppers, onions and potatoes) compared with other links in the food supply chain, such as the farmers. Although one of the main conclusions of the 2014 study was that, in the opinion of Wageningen Economic Research, pricing in the food sector is not characterised by simplicity and is therefore impossible to make any general statement as to where the highest margins are generated, it became apparent also in 2014 that supermarket chains generated the highest margins for sweet peppers, onions, potatoes and apples compared with other links in the food supply chain. Studies in the Netherlands and abroad suggest that that situation has not changed. One question that this raises is what ACM and the Ministry of Agriculture will do after that same conclusion is reached (again). Will additional legislation be introduced to help farmers achieve the Ministry of Agriculture’s circular agriculture ambitions?

Who will foot the bill for sustainability in the agricultural value chain?

One issue that ACM failed to investigate in its Agricultural Value Monitor in both 2009 and 2014 is who should foot what part of the bill for making the agricultural value chain sustainable. A great deal is being said about how to deal with non-statutory requirements (such as sustainability, environmental friendliness, animal welfare, additional organic and other quality marks, etc.) that retailers impose on the producers of agricultural and horticultural products. An express fear of producers of agricultural and horticultural products is that they will (again) be stuck with most of the sustainability bill. Will producers be able to obtain a price from supermarket chains for the non-statutory requirements set that covers the (structural) additional costs, or will they (regularly) have to supply below cost price? Whether and to what extent that is currently the case will have to form part of the Earning Potential Taskforce’s study and ACM’s Agricultural Value Monitor.

Statutory prohibition of below cost sales

A subject that Minister Schouten failed to mention in the recent interview is a prohibition of below cost resale of certain agricultural and horticultural products. Several countries, such as France and Belgium, have already prohibited such practices. Albert Heijn was faced with the practical impact of this statutory prohibition in Belgium in 2019. It started a price war in Belgium by offering three products for the price of one. Certain products, such as semi-skimmed milk, were therefore significantly cheaper at Albert Heijn in Belgium than in the Netherlands. The Economic Inspectorate investigated the issue and the Federal Consumer Affairs Minister in charge stated: “It is essential that Albert Heijn put an end to this campaign. It may benefit consumers in the short term, but it will be harmful in the long term, because many small retailers cannot compete in this manner.” If the Dutch government suited its actions to its words in the coalition agreement, a similar prohibition would have to be on the list of options. The reports of the Earning Potential Taskforce and the ACM Agricultural Value Monitor can play an important role in answering the question whether such a statutory prohibition is desirable or necessary to arrive at sustainability and circular agriculture. But those reports will not be published for at least a year. That gives rise to the question what will be done in the interim about effective legal protection of farmers, growers, breeders and fishermen in light of the procurement power of purchasing alliances.

Implementation of Unfair Commercial Practices Directive

The Directive prohibiting unfair commercial practices of certain businesses in the agricultural and food supply chains entered into force in April 2019. That Directive (EU) 2019/633 (the “Directive”) protects micro, small and medium enterprises (“SMEs”) with an annual turnover of less than EUR 350 million, provided that they sell agricultural food products to large retailers. This also includes producer organisations. The Directive adopts the approach of minimum harmonisation and must be implemented in the Netherlands and other EU Member States by 1 November 2021 at the latest.

The Directive contains a minimum list of the following prohibited unfair commercial practices, among others:

  • late payment and short-notice order cancellation for perishables and other agricultural food products;
  • various unilateral changes to contractual delivery conditions;
  • forcing suppliers to pay for discarded products;
  • making payments that are unrelated to the sale of the supplier’s agricultural and food products;
  • denying a supplier’s request to confirm contractual delivery conditions in writing;
  • unlawfully obtaining or using a supplier’s company secrets;
  • threatening or taking commercial retaliatory measures if the supplier exercises its contractual or statutory rights; and
  • demanding reimbursement of the cost of investigating complaints of customers regarding the sale of the supplier’s products that are not due to any fault or negligence on the part of the supplier.

The following practices are permissible under the Directive only if a clear and unequivocal agreement is in place between the supplier and the retailer:

  • the retailer returns unsold agricultural and food products to the supplier without paying for those products or without paying for their removal, or both;
  • the supplier is charged a fee for the storage, display or sale of its agricultural food products, or for offering such products on the market;
  • the retailer requires of the supplier that it pay all or part of the costs of discounts for agricultural and food products sold by the retailer as part of a promotional campaign;
  • the retailer requires of the supplier that it pay for the retailer’s advertising of agricultural and food products;
  • the retailer requires of the supplier that it pay for the retailer’s marketing of agricultural and food products; and
  • the retailer requires of the supplier that it pay staff to fit out the spaces used for the sale of the supplier’s products.

Enforcement of the Directive; what if SGB is of no avail?

The Directive provides that Member States must designate an enforcement authority to handle complaints. The Coalition Agreement appears to assign that task to a special team at ACM. ACM’s actual role on this point is not yet clear. Minister Schouten in any event wishes to designate the Stichting Geschillencommissies voor Beroep en Bedrijf (the “SGB”) as the independent arbitrator. The SGB will have to investigate unfair commercial practices and ultimately issue a binding opinion. Farmers that have a dispute with one or more retailers are meant to solve the conflict in that manner. It remains to be seen whether that approach will work, since complaining to the hand that feeds you and your family, particularly if that cannot be done on an entirely effective anonymous basis, is by no means an appealing prospect. At the same time the current Coalition Agreement states: “ACM will ensure that farmers and growers receive higher prices from retailers that set non-statutory requirements, for instance regarding sustainability or animal welfare.” Especially if the SGB’s involvement is of no avail, it cannot be precluded that there will be a lobby in the Netherlands to prohibit below cost sale or resale of certain food products (which is already prohibited in other EU Member States), with a view to the (accelerated) transition to a sustainable food supply and circular agriculture envisaged by the government.

Update: on July 25, ACM announced that it will start an investigation on pricing within the food supply chain. The first report will be published in mid-2020.

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