Unfair trading practices in the agricultural and food supply chain – the Bulgarian and CEE perspective

On 17 April 2019, the EU Parliament and the Council adopted the Directive (EU) 2019/633 on unfair trading practices in business-to-business relationships in the agricultural and food supply chain (UTP Directive) with Member States required to transpose the provisions of the UTP Directive into national law and publish them officially by May 1, 2021.
The changes should enter into force by November 1, 2021 at the latest. The parties to supply agreements of agricultural and food products concluded before the date of publication of national provisions above shall be obliged to align their agreements to the UTP.
Directive within 12 months after the date of publication of the measures in the respective Member State. The new national UTP measures shall apply to all supply agreements (subject of the UTP Directive) concluded after the publication and entry into force of the national laws.
The ambitious task of the UTP Directive to harmonize the regulation of competition in the supply chain of agricultural and food products proved difficult for many Member States, and has posed many challenges to the food sector to reorganize the contractual relationship between suppliers and buyers according to the UTP Directive.

UTP Directive main goals

The UTP Directive aims to establish a European Union minimum standard for the protection of farmers and small and medium-sized businesses by harmonizing the divergent measures in all Member States relating to unfair commercial practices in the supply chain of agricultural and food products.
In this regard, the goal at EU level is to provide protection of the suppliers with a turnover of up to 350 million euro with differentiated levels of coverage provided below that threshold. The measures cover not only farmers, but also producer organisations and distributors below the threshold, EU suppliers and buyers and such located in non-EU countries, if one of the parties is located within the EU.

UTPs under the Directive

The UTP Directive does not contain a classical definition of unfair trading practices. It provides for a minimum number of UTPs, which shall be in any case banned by the Member States aiming to strengthen supplier’s position in the food supply chain. A total of 16 UTPs as a minimum are prohibited and are divided into two groups depending on their legal nature as compulsory banned or admissible.
Compulsory banned unfair trading practices are the following:

1. Payments later than 30 days after the end of an agreed delivery period/after the date of delivery for perishable agricultural and food products;
2. Payment later than 60 days after the end of an agreed delivery period/after the date of delivery for other agricultural and food products;
3. Cancellations of perishable agricultural and food products orders at short-notice that a supplier cannot reasonably be expected to find an alternative means of commercializing or using those products (less than 30 days);
4. Unilateral changes in the terms of the supply agreement by the buyer (e.g. the frequency, method, place, timing or volume of the supply or delivery, quality standards, terms of payment);
5. Payments required by the buyer not related to the sale of the agricultural and food products of the supplier;
6. Payment by the supplier for loss and/or deterioration of products in the buyer’s premises or after ownership has been transferred to the buyer, without negligence or fault of the supplier;
7. Refusal of a written confirmation of the supply agreement’s terms by the buyer, despite request of the supplier (with some exclusions);
8. Unlawful acquisition, use or disclosure of trade secrets of the supplier by the buyer;
9. The buyer threatens to carry out, or carries out, acts of reverse commercial retaliation against the supplier if the supplier exercises its contractual or legal rights;
10. The buyer requires compensation from the supplier for the cost of examining customer complaints relating to the sale of the supplier’s products despite the absence of supplier’s negligence or fault.

Banned unfair trading practices, which, if agreed beforehand in a clear and unambiguous manner, are admissible:

1. Return of unsold agricultural and food products to the supplier without paying for those unsold products or without paying for the disposal of those products, or both;
2. The supplier is charged payment as a condition for stocking, displaying and listing its agricultural and food products, or of making such products available on the market;
3. The buyer requires the supplier to bear all or part of the cost for selling its products as part of a promotion;
4. The buyer requires the supplier to pay for advertising by the buyer of agricultural and food products;
5. The buyer requires the supplier to pay for staff for fitting-out premises used for the sale of the supplier’s products.

According to a survey of the European Commission, conducted up to 31 January 2021 among suppliers covered by the UTP Directive at different stages of the agricultural and food supply, in all Member States before entry into force of the internal law implementing the UTP Directive, most suppliers were not aware of existing UTPs in their relations with the buyers. The survey showed that the wholesale buyers and the retailers, followed by the primary processing companies, were more prone to face UTPs. Most of the participants in the survey responded that for the last three years they experienced UTPs in less than 20 % of their usual transactions.
However, 8% of the participants experienced UTPs concerning payments later than 30 days for perishable agricultural and food products in more than 80% of their usual transactions, and between 5-6% of the participants experienced refusal by the buyer to provide written confirmation of a supply agreement or other UTPs in more than 80% of their usual transactions. Important conclusion of the Commission’s preliminary survey was that most of the participants did not raise the issue of UTPs before an enforcement authority because they were not sure what the right authority was and out of fear of some form of retaliation from the buyer.
Considering this, the UTP Directive sets out an obligation for each EU Member State to designate an enforcement authority at national level and to report this authority to the Commission.

UTPs – the Bulgarian perspective

The UTP Directive was implemented in the Bulgarian national law by way of an amendment in the existing Protection of Competition Act, published in February 2021. The national measures will enter into force on November 1, 2021 and, besides the UTPs in the UTP Directive, include the following additional practices:

UTPs prohibited in all circumstances:

1. Prohibition or restriction by the buyer to the supplier to offer or to purchase goods or services to or from third parties;
2. Prohibition, restriction or imposition of sanctions by the buyer upon the supplier for providing the same or better trading conditions to third parties;
3. Unilateral and unjustified termination of the contract by the buyer or termination without notice within a reasonable time frame sufficient for the supplier to cover its investment costs and in view of the previous commercial relations of the parties to the contract.

Conditional banned UTPs:

1. The buyer requires the supplier to pay transportation and/or logistics costs;
2. Request by the buyer for direct reduction of the products prices retroactively or by applying unjustified discounts, bonuses and fees or services provided.

The additional rules along with those in the UTP Directive aim to comply with the established (existing) UTPs in the local market and were subject of analyses and research of the competent authorities. It is important to note that the introduced UTPs shall apply only to supply agreements between suppliers and buyers with a turnover stated in the UTP Directive and shall not apply to agreements between suppliers and consumers. There are also few cases where the prohibited UTPs shall not apply – for example to payments from medical treatment facilities to contracts between suppliers of grapes or grape must and their direct buyers under some conditions etc.

The Protection of Competition Act provides for a pecuniary penalty of 5,000 levs to 300,000 levs (approx. 2,500 euro to 150,000 euro) imposed on the buyers in case of infringements of the prohibited UTPs therein. The designated enforcement authority in Bulgaria is the Commission for Protection of Competition.

UTPs – the CEE perspective

The EU Member States in the CEE region, predictably, must comply with the UTP Directive rules. However, the companies operating in the agriculture and food sector in the CEE region are likely to do business not only with EU based suppliers but also with non-EU. Therefore, the relevant regulations of UTPs in non-EU countries are not of less interest to the business in the sector. Almost all EU countries in the CEE region have implemented the UTP Directive measures in their internal legislation, mainly by amending an existing law, and have designated a competent enforcement authority. In some countries, the amended laws have already entered into force (Slovakia – in June 2021, Croatia – in September 2021). In non-EU CEE counties like Serbia, Bosnia and Herzegovina, North Macedonia, Ukraine and Turkey explicit UTP laws in the agricultural and food supply chain do not exist, but in most of them, the general laws of unfair trading competition apply.

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Thе survey by the Joint Research Centre and the Directorate-General for Agriculture and Rural Development of the European Commission, source – Food Chain – UTP – survey results (europa.eu). Art. 2 of the UTP Directive: “supplier” means any agricultural producer or any natural or legal person, irrespective of their place of establishment, who sells agricultural and food products; the term ‘supplier’ may include a group of such agricultural producers or a group of such natural and legal persons, such as producer organisations, organisations of suppliers and associations of such organisations.
Source: Unfair trading practices in the agricultural and food supply chain (cms.law), issue March, 2021