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23 nov '21
Marijn van Tuijl,
As from 1st November 2021, the Unfair Trading Practices in Agriculture and Food Supply Chain Act entered into force. The new Act has far-reaching consequences for the food industry and its suppliers and purchasers. The enforcement of the new Act rests with the Netherlands Authority for Consumers & Markets (ACM). Violations are punishable with heavy fines. Have you already checked whether your sales and purchase contracts contain (possibly) unlawful clauses? In this article, Marijn van Tuijl discusses the implications of the new Act.
It is remarkable that the Act restricts the freedom of parties, suppliers and buyers, to enter into agreements on payment and other conditions when purchasing and selling foodstuffs and food raw materials.
It is unusual for business-to-business trade to be extensively regulated, and the freedom of contract to be restricted as a result. After all, freedom of contract is one of the basic principles of civil contract law. Other areas in which the legislator has restricted freedom of contract relate, for example, to consumer protection, competition and public procurement.
As is often the case with new legislation, this concerns the implementation of European legislation (here: the Directive (EU) 2019/633 on unfair trading practices in business-to-business relationships in the agricultural and food supply chain) in the national legal frameworks of the Member States, and therefore also in the Netherlands. The purpose of the directive is to protect smaller market players in the entire agricultural and food supply chain (from production to retail) against 'unfair trading practices' that arise due to the dominance and purchasing power of large players, such as supermarket chains. The aim is therefore to counteract excesses of the market economy.
Whether the Act offers protection to the supplier in the event of (possible) unfair trading practices depends on the supplier's turnover in relation to the buyer's turnover. Suppliers with an annual turnover of up to EUR 350 million can (depending on the annual turnover of the buyer) invoke protection in accordance with the following scheme:
At most 2 million
More than 2 million
More than 2 to at most 10 million
More than 10 million
More than 10 to a maximum of 50 million
More than 50 million
More than 50 to a maximum of 150 million
More than 150 million
More than 150 to a maximum of 350 million
More than 350 million
At most 350 million
If the supplier and the buyer are equivalent in terms of turnover category, or if the supplier has a higher turnover than the buyer, the Act does not apply and offers no protection to the supplier. Suppliers, located both inside and outside the EU, are eligible for protection under the Act as from 1st November 2021. Existing agreements concluded before 1st November 2021 will be respected until 15th April 2022.
What does the protection include? The Act does not provide for a general prohibition or an open norm. Instead, a black list specifies nine types of provisions that are unlawful in the relationship between supplier and buyer. This includes the maximum payment term of a supplier's invoices (i.e. later than 30 days for perishable products and 60 days if a product has a longer shelf life). Other provisions prohibited by the black list include:
In addition, a grey list states which provisions shall only permitted if they have been explicitly agreed in writing in advance. This includes the agreement to return unsold foodstuffs to the supplier without payment and to require compensation from the supplier for being included in the buyer’s product assortment.
Based on the wording used in the Act, it is the buyer's responsibility to check whether the supplier is entitled to protection in accordance with the above turnover bandwidth and, accordingly for example, to apply an appropriate payment term: under the Act, the application of a prohibited provision or an undue payment term in a purchase agreement automatically causes an unlawful act on the part of the buyer.
If an undue payment term, or another prohibited provision, is applied in a purchase agreement, the supplier can either challenge this in a civil court, or through a specific disputes committee instituted under the Act, or by way of intervention of ACM. ACM may impose fines in respect of violations on the buyer of up to EUR 900,000.-, or up to 10% of the buyer’s annual turnover, whichever is higher. These are considerable; it is therefore important to check whether your existing and future contracts are in compliance with the new Act.
In practice, we notice that knowledge of the new Act is not yet widely present among companies in the various sectors within the food industry. It is important to carefully examine the purchase and sales contracts for any black or grey listed provisions. The provisions and payment terms prohibited by the new Act have been declared to be ‘overriding mandatory' law. This means that buyers who are subject to the Act, regardless of the law applicable to the agreement, are bound by it.
It is already clear that the new Act gives rise to various issues, partly because European Directive (EU) 2019/633 has not been implemented in the same manner across the various EU Member States. For example, Germany has set the turnover limit for protected suppliers of meat, dairy and fruit at EUR 4 billion in its national legislation, while under the Directive and under the Act protection is limited to suppliers with an annual turnover of EUR 350 million. We are already seeing the first discussions about this in practice.
The specialists of our International Trade, Customs and Product Safety team are happy to assist you if you have any questions on this topic, or in respect of other issues related to the manufacture, trade, import and export of food and other products. Thanks to our many years of experience in the food industry, we can serve you quickly and effectively. Please contact Marijn van Tuijl (firstname.lastname@example.org).
Attorney at law, Partner
Customs,Transport law,Administrative law,
Customs, Trade & Logistics,Transport and logistics,Food,
Customs and international trade,Brexit,Corona (COVID-19) legal helpdesk,Enforcement and sanctions,
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