The EU takes aim at unfair trading practices
The European Union is set to pass a law that could tackle abusive practices which impoverish millions of farmers and workers in food supply chains. Tom Wills explains what’s at stake.
Unfair trading practices are a common way in which powerful companies bully their suppliers. They include not paying invoices on time, changing orders at the last minute or charging suppliers spurious fees.
In the food sector large retailers and brands have been using these tactics for decades to maximise their profits while their suppliers lose out. Facing unpredictable incomes and potentially losses, suppliers will be less able to produce quality food, protect the environment and pay their own workers a living wage. Vulnerable food producers, such as smallholder farmers, often rely on the custom of their buyers and are effectively powerless to complain about unfair treatment.
The European Union is proposing to tackle this situation by passing a law against Unfair Trading Practices (UTPs). It defines UTPs as practices that deviate grossly from good commercial conduct, are contrary to good faith and fair dealing and are unilaterally imposed by one trading partner on another. It is impressively comprehensive in that its proposals would extend to all food supply chains, including those where the supplier is based outside Europe, and because they would apply to all the business relationships in a supply chain – from farmers, to manufacturers and brands, to retailers.
Phil Hogan, the EU’s Agriculture Commissioner, has described tackling UTPs as being ‘in the interests of the food supply chain as a whole – from the farmer in the field to the consumer in the supermarket aisle.’
In its substance this is not new – there are already a number of initiatives aimed at tackling UTPs, including the UK’s Groceries Code Adjudicator. However, this is the first time that a properly international approach has been proposed.
Big food businesses are international: selling to customers in different countries, with supply chains extending around the world and sometimes purchasing as part of an international buying alliance.
Piecemeal approaches to the problem of UTPs, led by national-level regulators that don’t talk to each other, are simply not sufficient to properly regulate the behaviour of multinational brands and retailers. To improve this process, the EU proposes that each member state would have their own ‘enforcement body’ for tackling UTPs, but that these bodies would have:
A shared set of minimum standards
A shared set of minimum powers, including the ability to fine companies which step out of line
The opportunity to share information regularly, and to coordinate their regulatory approach
This is an international solution to an international problem. It sets clear minimum standards for what constitutes acceptable behaviour and if properly enforced will shake up the culture of the food industry. As such it has been welcomed by everyone from farming unions to brands and food manufacturers. We are especially pleased that the Directive would apply to suppliers based in non-EU countries, since it is in developing countries (with weaker regulations and unions) where the impact of unfair trading practices is often most keenly felt.
Tellingly, the big retailers are the only group kicking up a fuss and are calling (to the surprise of absolutely no one) for continued ‘self-regulation’.
Over the next few weeks the proposed Directive will be discussed by the European Parliament and by national governments. This is a valuable opportunity to ensure that the law is designed as well as possible, and there are a few areas where Traidcraft Exchange is hoping that the draft will be improved:
The proposal only extends to SME suppliers and non-SME buyers, whereas it should cover all buyers and sellers of food regardless of size (see diagram)
Often suppliers are reluctant to complain about their buyers’ behaviour, nervous that they will be identified and suffer commercial repercussions such as delisting. The proposal should be amended to ensure that groups with relevant information (such as unions or NGOs) are able to complain on behalf of suppliers.
More information on these suggestions, and our other proposals, can be found in our briefing – made jointly with a number of European NGOs.
What of the UK’s role in this?
UK MEPs can still vote to get the best possible law when this is discussed by the European Parliament on 22nd October.
If the UK leaves the European Union, it may not have to follow this Directive (depending on timings, and on the detail of the transition agreement). But we would hope that it would choose to match the EU’s approach and support fair and competitive supply chains.
Failing to do this will make the UK a less attractive market for exporters based overseas. Additionally, it would create the bizarre and embarrassing situation in which UK farmers selling their produce to a European brand would have more protections that if they were selling to a UK brand.
This Directive has the potential to transform how trade is done in food supply chains by banning abusive practices. We call on European governments and MEPs to make sure that the Directive has a smooth passage through negotiations. And the UK shouldn’t sit idly by as the EU sticks up for fair and sustainable supply chains: it would be in everyone’s interest for Theresa May’s government to implement this Directive, regardless of how Brexit pans out.
Tom Wills is a Policy Advisor with Traidcraft Exchange.