The agriculture and food sector brings together businesses of hugely different shapes and sizes, from small-scale family farms to huge multinational enterprises. Large retailers and brands dominate the market, meaning that smaller suppliers are vulnerable to being treated unfairly.
This unfair treatment can include cancelling orders at the last minute and failing to pay on time – practices that create insecure incomes and poverty amongst suppliers whether they are based in the EU or around the world. Research has consistently demonstrated that the European food sector is rife with this kind of abuse, with a 2011 survey finding that 96% of food businesses had experienced unfair commercial practices.
Estimates suggest that this equates to an overall cost to food suppliers of €30-40 billion each year. In order to find these savings, businesses seek to reduce their costs in whichever way possible. They may compromise on food safety, wages or the terms of employment offered to workers. This translates to poverty amongst those that work to put food on the shelves, and leaves consumers with no certainty that the food in their shopping basket is not the result of exploitation.
A new EU law, due to be signed off by MEPs this week[TW1] , aims to tackle this situation and support suppliers of agricultural products to get a fairer deal from their trading relationships. I have picked out some of the key features of the law below.
The law defines what practices are unfair
The European Commission conducted a wide-ranging survey of farmers, food manufacturers and industry groups, asking which purchasing practices they felt were the most problematic and widespread.
The results of this are reflected in the final law, which lists what buying behaviours that will be judged as Unfair Trading Practices (UTPs). These include cancelling orders at the last minute, paying a supplier more than two months late and refusing to agree a written supply agreement if requested.
The law protects the majority of food suppliers from these practices
Suppliers of agri-food products to EU buyers are able to access protection under this law, regardless of where they are based. The only provisions are that they must have a turnover of below €350m (which excludes only a handful of the largest food businesses) and they must be selling to a buyer that is larger than them.
And the definition of agri-food is very broad – it covers everything in this list, as well as foods made out of any of the products on the list, such as processed meals. That means that the law applies to the trade of everything from vegetables to honey to lasagne, as well as things that we might not think of like tobacco, wine and flowers.
The law will be enforced by a network of public authorities
The law requires each of the 28 EU Member States to designate an ‘enforcement authority’: a public body with the power to investigate suspected incidents of unfair trading practices and to punish buyers which are found guilty (through penalties such as fines).
A number of European countries already have some form of legislation aimed at tackling unfair trading practices. But this law means that for the first time there will be a shared minimum standard for fair trading practices enforced around Europe. When companies such as Tesco, Lidl, Aldi, Carrefour and others have a presence in a number of European countries, it makes sense to have a law that is applied consistently across the continent.
This will provide regulatory certainty to buyers, confidence to suppliers that they will be able to access protection regardless of where their European buyer is based, and prevent countries engaging in a ‘race to the bottom’ in a bid to attract businesses by relaxing their regulations and allowing abusive purchasing.
What impact will this have on farmers and workers in developing countries?
In 2016, the European Union imported €100bn of food, meaning that hundreds of thousands of farmers and growers around the world rely on their trading relationships with the EU market. This law could make a massive difference to those people, and Traidcraft Exchange worked closely with MEPs to ensure that this Directive covers suppliers to the EU market based outside the continent.
Farmers in developing countries are often particularly vulnerable to UTPs. They are less likely to have links with alternative markets and may have limited access to legal support, a functioning union or the necessary information to challenge the unfair practices of a big European customer.
Knowing that an order will not be cancelled provides producers with predictable incomes and means that they are more likely to invest in their businesses or in other expenses such as improving housing or paying for the education of their children.
Will suppliers actually complain?
The success of this Directive does rely on suppliers coming forward. Many suppliers, especially those based overseas, may not have the time, training, support or language to understand the implications of new EU laws. It’s crucial, then, that EU countries work with diplomats, producer associations and even international NGOs to ensure that vulnerable producers are able to access their legal rights, including providing resources where necessary.
However, even suppliers who are aware of the law may be reluctant to complain due to the fear that they will be identified as troublemakers and suffer commercial retribution. We hope that the national enforcement authorities are aware of this dynamic and that they will do everything they can to reassure suppliers that complaints will be kept confidential.
A hard-won feature of this Directive is that it allows other organisations (such as NGOs, producer organisations and unions) to make complaints on behalf of suppliers, making it more likely that complaints will be made to highlight illegal practice.
Furthermore, it’s not as if the only situation in which this Directive will tackle UTPs is when an enforcement authority successfully investigates and fines a rogue buyer. Experience shows that the very existence of a law, and the potential of being hit with a fine, is enough to ensure that buyers hold themselves to a higher standard in their supply chain relationships.
What about the United Kingdom?
If it leaves the EU, the UK will be treated the same as any other country in the world as far as this Directive is concerned. Specifically, any farmer exporting food to the EU that is being subjected to illegal practices by their buyer will enjoy the same protections as an EU farmer, and would be well-advised to make a complaint to the enforcement authority in the country in which the buyer is based.
Additionally, any food importer that is buying agri-food from an EU supplier will fall within the remit of this law and therefore will have to ensure that its buying operations comply with the terms of the Directive.
Trying to achieve greater parity between the powerful and the weaker parts of a supply chain after generations of inequity is going to be a long and slow process. This Directive is a huge step in the right direction. EU organisations that are interested in ensuring that the law is as effective as possible should engage with the government in their country, ensuring that the law is transposed properly and well-enforced. In four years’ time there will be a review of the Directive, and this will also serve as an opportunity to push for improvements.
Anyone with questions about how this law might work, what it might mean and how it can be harnessed for good should get in by contacting firstname.lastname@example.org.