Clovers reports an important new regulation with important effects in the field of contracting and commercial practices in the food industry.
THE NEW REGULATION OF UNFAIR COMMERCIAL PRACTICES IN THE AGRI-FOOD SECTOR
As you may already know, the recent implementation in Italy of EU Directive 2019/633 has introduced stringent rules to which companies operating in the agricultural and food supply chain must comply from 15 December 2021.
The main novelties of this reform concern both the contracts (in existence or to be stipulated), and the discipline of competition between companies operating in a sector that is of vital importance in the promotion of Italian excellence and that involves products ranging from milk to plants, passing through wine and tobacco.
In order to ensure compliance with the new regulations, penalties are also foreseen, which can reach the threshold of 10% of the transgressor's turnover in the financial year preceding the assessment.
You will find below the most relevant aspects of the new discipline, divided by thematic areas of interest.
What is this about
The reform deals with the regulation of contracts, commercial practices, the practice of selling below cost and other important aspects that regulate the agri-food chain in Italy.
To whom it is addressed
It is a discipline that applies only to B2B relations, excluding, therefore, contracts with final consumers.
The recipients are both suppliers and buyersoperating in the agro-food supply chain sector:
- who are involved in the transfer of agricultural and food products,
- in cases where the supplier is established in Italy,
- whatever their turnover is.
Novelties regarding contracts
As far as supply contracts are concerned, the regulation provides for compliance with precise obligations regarding content, duration and form and establishes that all existing contracts must be adapted by June 15, 2022at the latest.
1. obligations (and prohibitions) regarding content
- When negotiating new contracts or adapting existing ones, the key rule is clarity: the legislation spells out precisely which provisions must be included in contracts and which are prohibited:
- From a practical point of view, all contracts between suppliers and purchasers must always include precise indications regarding the quantities and characteristics of the products sold, the price (which may be fixed or determinable on the basis of criteria established in the contract) the duration, the delivery and payment methods for the goods supplied.
- On the other hand, it is expressly forbidden to include in contracts agreements aimed at:
- establishing payment terms of more than 30 days for perishable products and more than 60 days for other agricultural and food products
- allowing cancellation by the buyer of orders for perishable products with less than 30 days notice, with some exceptions;
- unilaterally changing terms and conditions regarding the frequency, method, location, timing or volume of supply or delivery of products, quality standards, payment terms or prices, or regarding the provision of ancillary services;
- allowing the supplier to be required to make payments which are not related to the sale of the agricultural and food products or to bear the costs of deterioration and/or loss of products occurring on the buyer's premises or otherwise after such products have become the property of the buyer, where such deterioration or loss has not been caused by the supplier's negligence or fault;
- imposing, directly or indirectly, unjustifiably onerous conditions of sale, purchase or other contractual terms;
- selling agricultural products and foodstuffs on contractual terms that are unduly burdensome, including selling at prices that are manifestly below the cost of production;
- imposing on the buyer products with expiration dates that are too short;
- imposing contractual constraints on the maintenance of a certain assortment of products;
- imposing on the purchaser the inclusion of certain products in the assortment;
- imposing on the purchaser the obligation to reserve for certain products privileged positions on the shelves or in the stores.
- excluding the application of default interest to the detriment of the creditor or the costs of debt collection; provide for the supplier's obligation not to issue an invoice until a certain period of time after delivery of the products, with certain exceptions;
and more generally
- apply objectively different conditions for equivalent services;
- subordinate the conclusion and execution of contracts and the continuity and regularity of commercial relations to the performance of services which, by their nature and according to commercial usage, have no connection with the subject matter of the contracts and commercial relations; and
- impose the obligation to provide services and ancillary services which have no objective connection with the products transferred under the contract
- impose an unjustified and disproportionate transfer of economic risk from one party to its counterparty.
It is allowed, as long as it is clearly written and agreed upon by the contracting parties (see the following paragraph on the so-called "grey list"), to include clauses that provide that:
- the buyer returns unsold agricultural and food products to the supplier, without paying any payment for such unsold products and/or their disposal;
- the supplier is required to make a payment as a condition of storing, displaying, listing or marketing its products;
- the buyer requires the supplier to bear the cost of discounts on agricultural and food products sold by the buyer as part of a promotion, with some exceptions;
- the purchaser requires the supplier to pay the cost of advertising the purchaser's products;
- the purchaser requires the supplier to pay the costs of the purchaser's marketing of products;
- the purchaser requires the supplier to pay the costs of staff to organise the supplier's product sales space.
Duration
An important indication concerns the duration of contracts, which must be at least 12 months, unless proven requirements arising, e.g., from the seasonality of the products to be supplied, specifically agreed by the parties or through trade associations; outside this exception, contracts entered into with a shorter duration, will be considered valid for up 12 months.
Written form
Again with the aim of reducing the margin of uncertainty between suppliers and purchasers as much as possible, the new regulations require contracts to be in writing.
NB: good business practice
Among the most important innovations, the regulation expressly provides for the possibility for operators in the supply chain to use in their activities advertising messages bearing the following wording: "Product conforms to good commercial practices in the agricultural and food supply chain", when not only the criteria set out in point 1 regarding the content of contracts are met, but it is demonstrable that the parties are acting in accordance with fairness, transparency and good faith in the reference market.
The use of this claim is always subject to verification by the ICQRF.
Prohibited commercial behaviors and in "Grey list".
The new regulations list in detail a series of prohibited commercial behaviors that must always be avoided by all companies operating in the agri-food sector, regardless of the existence or not of contractual relationships.
These are so-called "unfair commercial practices" which are distinguished, according to their seriousness, as follows
1. commercial practices that are in any case prohibited (so-called "black list") and
- practices that would be prohibited unless previously agreed between the parties in the transfer contract or in another subsequent agreement. (so-called "grey list")
1. The so-called "black list"
Prohibited practices include all the conduct already examined with reference to prohibited content in contracts between suppliers and buyers, but there are also others, which are independent of an existing supply relationship between the parties, including:
- the unlawful acquisition, use or disclosure by the buyer of the supplier's trade secrets;
- the threat of, or the very act of, commercial retaliation against the supplier when the latter exercises his contractual and legal rights
- the sale of agricultural products and foodstuffs through the use of tenders and electronic auctions with double discounts;
- the omission of at least one of the conditions required by Article 168(4) of Regulation (EU) No 1308/2013 on the common organization of the markets in agricultural products;
- the imposition, directly or indirectly, of unjustifiably burdensome sales, purchase or other contractual conditions;
and, more generally:
- the adoption of any further commercial conduct that is unfair even taking into account the complex of commercial relations that characterize the conditions of supply.
- The grey list
As seen above, on the other hand, it is possible to escape censure of competitive unfairness for these provisions, if they are included in a clear and determined manner in the contract:
- the buyer returns unsold agricultural and food products to the supplier, without paying any payment for such unsold products and/or their disposal;
- the supplier is required to make a payment as a condition for the storage, display, listing or marketing of its products;
- the buyer requires the supplier to bear the cost of discounts on agricultural and food products sold by the buyer as part of a promotion, with some exceptions;
- the purchaser requires the supplier to pay the cost of advertising the purchaser's products;
- the purchaser requires the supplier to pay the costs of the purchaser's marketing of products;
- the buyer requires the supplier to pay the costs of staff to organise the supplier's product sales space.
Who monitors?
The Authorities in charge of supervising the implementation of the new rules are the newly established Central Inspectorate for the protection of quality and fraud repression of agro-food products (ICQRF), which can act both ex officio and following a complaint (even anonymous) and the Antitrust Authority (AGCM), without prejudice to the possibility for the parties concerned to resort to mediation procedures or alternative dispute resolution mechanisms.
Summing up
The new discipline, effective immediately, deals with both contracts and behaviors of companies active in the agro-food chain in Italy and establishes precise rights and obligations between the parties, subjecting market operators to the inspection and sanctioning power of specific public authorities.
The regulatory provisions do not simply represent yet another novelty for the sector, but are also an opportunity to rethink the relationships between market operators with a view to rewarding transparency, continuity and the enhancement of the supply chain.
It is in full respect of this aim that we are at your disposal to better cope with these aspects, also in terms of sharing strategies to adapt to the new regulations in the face of a possible change in consolidated relationships between your buyers and suppliers. The firm is also available to schedule a training session, if required.