Unfair Commercial Practices in The Agricultural and Food Supply Chain Act gives ACM new powers

The Wet oneerlijke handelspraktijken landbouw- en voedselvoorzieningsketen (Unfair Commercial Practices in the Agriculture and Food Supply Chain Act – the “Act”) entered into force on 1 November 2021. The Act aims to combat the excessive purchasing power of buyers in relation to suppliers in the food distribution chain. The buyers are primarily retailers and purchasing consortiums that have purchasing power in relation to small and medium-sized suppliers. Both the Commission and several other competition authorities in Europe have tried to address this issue (see, for instance, here and here). In that respect the Act is intended as an important new enforcement weapon of ACM. ACM can impose high fines for violations of the Act, for instance. This blog explains to which parties the Act applies and which prohibitions it entails. It also addresses the enforcement of the Act by ACM and by means of a new disputes committee.

Unfair Commercial Practices Act: prohibited practices and turnover thresholds

The Act is the implementation of European Directive 2019/633/EU (the “Directive”). The Act applies only to commercial relationships in which the supplier is smaller than the buyer. The Act includes turnover thresholds in order to assess this. Those turnover thresholds are shown in the table below.

Turnover thresholds

Supplier’s turnover

Buyer’s turnover

< 2 million

> 2 million

> €2 million and < €10 million

> €10 million

> €10 million and < €50 million

> €50 million

> €50 million and < €150 million

> €150 million

> €150 million and < €350 million

> €350 million

 

The Act sets out two lists of unfair commercial practices (“UCPs”). The black list is a list of UCPs of buyers in relation to suppliers that are classified as wrongful by definition. The grey list is a list of UCPs that are conditionally classified as wrongful. This means that those practices are permitted only if they have been clearly and unambiguously agreed on in advance and in writing between the supplier and the buyer(s) in question. The black and grey lists of UCPs are shown in the table below.

Black list

practices of the buyer that are always prohibited

Grey list

practices of the buyer that are prohibited unless agreed in advance

The buyer is acting wrongfully:

The buyer is acting wrongfully:

  1. in the event of late payment (later than 30 days after delivery for perishable agricultural and food products or later than 60 days after delivery for non-perishable products);
  1. if it returns unsold agricultural and food products without payment;

  1. if it cancels an order at short notice;
  1. if it demands a fee for the storage, display or offering of the products;
  1. if it unilaterally alters the terms of delivery;
  1. if it demands that the producer pay part of the cost of discounts given by the buyer;
  1. if it demands payments that are unrelated to the sale of the producer’s agricultural and food products;
  1. if it demands that the producer pay for advertising;
  1. if it makes the producer pay for deterioration or loss of the products purchased after the buyer has the products in its possession;
  1. if it demands that the producer pay for marketing;
  1. if it refuses to confirm the terms of a supply contract in writing;
  1. if it requires the producer to pay for personnel to fit out the buyer’s premises
  1. if it makes wrongful use of the producer’s trade secrets;

  1. if it retaliates or threatens to retaliate;
  1. if it demands reimbursement of costs involved in investigating complaints of customers of the buyer regarding the products supplied by the producer without the producer being negligent or at fault.


Transitional law

The Act entered into force on 1 November 2021, after which it immediately applied to all new agreements between suppliers and buyers. A transition period applies to existing agreements (in Article 12 of the Act). During the first twelve months after its publication in the Official Gazette (15 April 2021), the Act does not apply to agreements entered into before 1 November 2021. All agreements entered into before 1 November 2021 must therefore be brought in line with the Act by 15 April 2022 at the latest. This requires two steps: both buyers and suppliers must check whether their turnover meets the thresholds of the Act and, if applicable, must check the agreements made between them for any wrongful clauses. If necessary, the clauses must be amended or removed.

Enforcement by a disputes committee: anonymous complaints

In the Netherlands, the introduction of the Act will give rise to a new disputes committee (the “Disputes Committee”). The Disputes Committee will be in charge of resolving disputes between suppliers and buyers concerning the black and grey lists. The legislature has drawn up draft regulations for the Disputes Committee. The Disputes Committee is intended to serve as a more accessible alternative for the supplier than civil proceedings. But the question is to what extent suppliers are willing to present their dispute with a buyer to the Disputes Committee. The reason for this is the following. In the past, a pilot project was conducted in respect of the Fair Commercial Practices Code of Conduct (the “Code of Conduct”). In that pilot project complaints about UCPs could be submitted to an independent adjudicator. A study by Wageningen Economic Research (Wageningen University & Research) showed that the pilot was not a success. Not a single complaint was received from a supplier. There is good reason why suppliers are reluctant to submit disputes with buyers to an independent adjudicator: suppliers are often permanently dependent on (especially large) buyers. If a supplier decides to complain or to institute legal proceedings, it is possible that that supplier’s relationship with the buyer will deteriorate significantly or even come to an end.

The Act now gives a supplier the possibility to complain anonymously to the Disputes Committee. However, the question is whether the Disputes Committee’s draft regulations offer the right basis for doing so. The draft regulations provide that a supplier may submit a complaint anonymously only via an authorised representative. But the supplier must first submit the complaint to the buyer itself, on pain of inadmissibility (Article 6(1) of the draft regulations). This obviously raises a threshold for quickly exposing UCPs. If the complaint, which must first be submitted to the buyer, can also be traced back to the complaining supplier, it is possible that the supplier will not dare to complain after all. When the Disputes Committee’s definitive rules are published, it is therefore important that the legislature clarifies the possibilities and impossibilities of anonymously complaining to the Disputes Committee. Time will tell whether the Disputes Committee can indeed be regarded as an accessible alternative to the civil courts or ACM in the event of violation of the Act.

Enforcement by ACM

The Act gives ACM new enforcement tools in the agricultural and food supply chain. In the event of violation of the Act, ACM may, for instance, impose an order subject to a penalty or a fine on a buyer. The maximum fine is the higher of €900,000 or 10% of the offender’s annual turnover. If a company violates the same or a similar statutory regulation again within five years, the administrative fine may be increased by 100%. In sum, ACM has a serious range of possible sanctions at its disposal. Enforcement action is of course not only taken after a (concrete) complaint or report from a supplier or group of suppliers: ACM also has the authority to investigate violations of the Act on its own initiative. For instance, ACM may (randomly) request copies of contracts from buyers to check them for blacklisted or greylisted UCPs. ACM has focused on one sector in particular in this manner also in the past. That may make a significant contribution to the success of the Act. It is also in keeping with ACM’s priority setting policy. In its 2021 Focus Activities, ACM expressly states that it wishes to monitor UCPs in the food distribution chain, which it recently reiterated.

Moreover, the agriculture and food supply sector is by no means new to ACM. In 2017, ACM was given a mandate in the Coalition Agreement to investigate and, where necessary, combat unfair commercial practices and distorted market power in the food chain. ACM has been investigating the sector for over two years now by means of the Agro-Nutri Monitors. It recently published its second Agro-Nutri Monitor 2021. We previously wrote about ACM’s Agro-Nutri Monitor 2020. Agro-Nutri Monitor 2021 (again) addresses the pricing of various products in the food distribution chain. This time, ACM focuses on the pricing of the following products: yellow onions, (waxy) unpeeled table potatoes, Brussels sprouts, round and vine tomatoes, eating pears, daily fresh dairy products and freshly packaged pork. In its Agro-Nutri Monitor 2021, ACM pays particular attention to the obstacles experienced by producers in switching from regular to sustainable agriculture. The conclusions of the Agro-Nutri Monitor 2021 partly overlap with the conclusion of the Agro-Nutri Monitor 2020. ACM now finds, more so than in the past, that the higher price of sustainable products is the greatest obstacle to more sustainable agriculture. Many consumers are not prepared to pay that higher price if a cheaper, regular alternative is available, according to ACM. The question who pays for the greening of the food supply chain is related to the use of UCPs. As long as buyers are able to use UCPs with impunity, that will put negative pressure on the government’s desire for a rapid transition in the food supply chain towards more sustainable production methods and circular agriculture. Now that the Act has entered into force, ACM has its work cut out for it. If ACM decides to enforce the Act after an investigation (whether or not of its own accord), that will have immediate consequences. That will remove an obstacle to proceedings before the Disputes Committee, since a supplier will not be jeopardising its relationship with a buyer by filing a complaint or conducting (public) civil proceedings. In that case the buyer cannot blame a supplier for complaining, because it was ACM that started the investigation and enforced the Act. An additional effect is that buyers will be more wary of such an approach by ACM than of one or more individual (anonymous) complaints from suppliers to the Disputes Committee.

The enforcement of the Act by ACM also offers other advantages for suppliers, for instance regarding the burden of proof. In proceedings before the Disputes Committee, the supplier itself will, in principle, have to gather evidence in order to demonstrate a breach of the Act, whereas ACM has statutory powers of investigation in the event of enforcement. ACM can demand information from buyers and those buyers are obligated to cooperate. Also, the costs involved for a supplier in an ACM enforcement procedure are likely to be lower than in proceedings before the Disputes Committee. Particularly now that the issues surrounding the Disputes Committee have not yet crystallised and no Disputes Committee has been set up yet, the manner in which ACM uses its statutory powers will be decisive in answering the question whether the Act will be successful.

For more information see also the contribution: Will (the ACM with) the Unfair Commercial Practices in The Agricultural and Food Supply Chain Act tackle the buying power of retailers? in the Dutch Journal of European Law. For more information on the supervision of buying power of retailers and enforcement by the ACM in case of misleading sustainability claims in the agri-food sector see this blog and this blog. Read here about the application of competition law to (the formation of) cooperatives in the agri-food sector and their members.

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