The regulation of promotional sales-as far as agri-food products are concerned-still does not provide adequate and effective protection of producers and consumers.
Farmers and food processors should be protected against below-cost sales, in theory, through application of Leg. 198/21 implementing EU dir. 2019/633. (1)
Consumers in turn should be protected against deceptive business practices with regard to the size of discounts and the availability of products on offer. (2)
1) Protection (theoretical) of agribusiness producers.
1.1) Sales below cost between economic operators
Below-cost sales of agricultural and food products-in B2B(business-to-business) trade relations only, not also in B2C(business-to-consumer) ones-are prohibited by Leg. 198/21. Except for the cases of:
– supplies to cooperatives and producer organizations (POs),
– Unsold perishable fresh food at risk of perishability,
– Scheduled business transactions agreed upon in writing.
1.2) B2B undercosting, the reality
However, enforcement of the ban on undercutting is problematic, an understatement, in two respects:
– actual production costs are uncertain. It would be enough to process and track the cost structure of enterprises in blockchain, applying accounting principles. (3) Where, on the other hand, estimates of average costs in ISMEA bulletins or those of average prices ‘for similar products in the reference market‘ are theorized for the purpose of automatic price substitution (Legislative Decree 198/2021, Art. 7.3),
– public inspections are entrusted to an authority, ICQRF, completely lacking the resources to perform them on a potentially boundless pool of operators (360 inspectors, already busy on numerous other fronts, and about 3 million companies involved in the agrifood supply-chain in Italy).
2) Consumer protection in the EU
The historic Directives 98/6/EC and 2005/29/EC-implemented in Italy by the Consumer Code and subject to recent revision (4,5)-protect consumers in very general terms, with respect to unfair commercial practices that may take the form of misleading information on the selling price.
2.1) Historical Directives and the Consumer Code.
‘It is considered deceptive [and incorrect, ed.] a commercial practice that contains information that is untrue or, while factually correct, in any way, including in its overall presentation, induces or is likely to mislead the average consumer with respect to one or more of the following and, in any case, induces or is likely to induce him or her to make a transactional decision that does not would otherwise have taken: ( …)the price or the way in which this is calculated or the existence of a specific advantage as to the price’ (d.lgs. 206/05, art. 21.1.d).
2.2) EU Dir. 2019/2161
EU dir. 2019/2161 reforms the historic directives above by introducing ‘effective, proportionate and dissuasive‘ penalties of up to 4 percent of the previous year’s turnover. On the subject of promotional sales, the new directive-which member states were supposed to transpose by Nov. 28.11.21, ensuring its application as of May 28.22-states the following.
‘1. Any announcement of a price reduction must show the previous price charged by the practitioner for a given period of time before the reduction was implemented.
2. Previous price means the lowest price charged by the practitioner during a period of time not less than 30 days before the price reduction was applied.
3. Member states may set different standards for goods that are likely to deteriorate or expire rapidly.
4. If the product has been on the market for less than thirty days, member states may also set a shorter time period than that referred to in paragraph 2.
5. Member states may stipulate that in cases where the price reduction is progressively increased, the previous price shall be the price without the reduction prior to the first application of the price reduction.’ (EU dir. 2019/2161, Article 2. New Article 6a of dir. 98/6/EC). (6)
3) Italian law of commerce
3.1) Extraordinary sales
The so-called law of commerce (Legislative Decree 114/1998) defined three hypotheses of extraordinary sales in Italy, requiring that on such occasions merchants offer consumers favorable, real and effective purchasing conditions:
– liquidation sales. They are carried out for the purpose of liquidating all inventories in stock in a short period of time. Following cessation of business activity, transfer of business, transfer of business to other premises, conversion or renovation of premises. They can be carried out at any time of the year, subject to notification to the municipality of the data and the elements that prove the prerequisites,
– end-of-season sales. They concern products of a seasonal or fashionable nature that are susceptible to considerable depreciation if they are not sold within a certain period of time,
– promotional sales. They are performed on all or part of commodity products and for limited periods of time.
3.1) Below cost sales to the consumer
The law of commerce merely defines sales below cost as having the object ”the sale to the public of one or more products made at a price lower than that resulting from the purchase invoices, plus value added tax and any other tax or fee related to the nature of the product and less any discounts or contributions attributable to the product itself provided they are documented.‘ (7)
3.2) Promotional sales, the rules in Italy
In the case of extraordinary sales, regardless of the category to which it belongs, the discount or rebate made must be expressed as a percentage of the normal sale price, which must be displayed in any case (Legislative Decree No. 114, 31.3.98, Art. 15.5).
Regions have the competence to regulate in their territories the manner of conduct and advertising, including for the purpose of proper consumer information, as well as administrative sanctions, periods and duration of sales. In accordance with the criteria set forth in the Consumer Code.
3.3) Concurrent regional legislation
Concurrent regional legislation supplements national regulations with measures to be applied that also pertain, as noted above, to spatial governance. (8) Promotional sales, moreover, were deregulated by Law 248/06, which eliminated the time limits hitherto stipulated, and rarely observed, by the law of commerce.
Regional laws are therefore devoid, in fact, of any real utility for the weak parties in the supply-chain, upstream producers and downstream consumers. In fact, they overlap with national legislation, which itself is obsolete compared to the reform introduced through EU dir. 2019/2161. Without adding more than trivial details, and draconian penalties. (9)
4) Economic aspects
4.1) Larks’ mirrors.
Promotional and below-cost sales continue to be used as ‘red herrings,’ as signals to lure consumers to a physical or online store where the shopping cart tends to be filled with other references on which the retailer can recover marginality.
The current economic crisis and its dramatic impact on the spending ability of Italian households are stimulating retailers to include as many below-cost offers as possible. Although consumers have learned to build loyalty to chains and brands, e.g., private label, (10) with the different ‘everyday low price’ approach.
4.2) Medium-term effects
Beyond the initial blunder-now chronicled, unfortunately-promotional and below-cost sales sacrifice the existence of farmers and food production enterprises that are unable to sustain the price war, and the below-cost war. Except for giving up workforce and safety standards. (11)
In the medium term, this phenomenon leads to the disappearance of the Italian entrepreneurial fabric, which is essentially composed not only of microenterprises and SMEs but also of medium to large industries that are unable to compete with the giant ones and thus lose market share. (12) Crisis announced.
4.3) Socio-economic impact
The difficulties and disappearance of businesses that succumb to the price war is the bane of hundreds of thousands of workers in every part of Italy, even in rural areas where alternatives do not exist. Industry leaders, after clearing the competition, can moreover impose new price lists or reduce the quantities of foods in the packages (e.g., Barilla, bronze pasta, 400 g).
At the macroeconomic level, the disappearance of a vibrant productive fabric overwhelms the supply chain associated with it in the territories and thus adversely affects GDP (Gross Domestic Product), employment rate and trade balance. And the chasm in the Italian economy that the government of the best continues to dig reaches abysmal depths.
5) Interim Conclusions
The profligacy of promotional sales based on buying goods below cost from their manufacturers is the beginning of a disaster with no return that already manifests obvious symptoms in the hitherto concealed stagflation. (13)
The only solution in the specific context is to ensure the transparency of the value chain in individual supply chains and the effective implementation of Leg. 198/21, also making use of already available IT tools. (14) For the good of all.
Dario Dongo
Notes
(1) UTPs(Unfair Trading Practices). V. Dario Dongo. Unfair trade practices in the agribusiness supply chain, Leg. 198/2021. ABC. GIFT (Great Italian Food Trade). 26.2.22, https://www.greatitalianfoodtrade.it/mercati/pratiche-commerciali-sleali-nella-filiera-agroalimentare-d-lgs-198-2021-l-abc
(2) UCPs(Unfair Commercial Practices). Dir. 2005/29/EC, implemented in Italy by d.lgs. 206/05 et seq. (Consumer Code. Text updated 17.1.22 on Normattiva, https://bit.ly/38fuXgV)
(3) Dario Dongo. Public blockchain and agribusiness supply chain, sustainability for producers and consumers. GIFT(Great Italian Food Trade). 28.2.21, https://www.greatitalianfoodtrade.it/progresso/blockchain-pubblica-e-filiera-agroalimentare-sostenibilità-per-chi-produce-e-chi-consuma
(4) Dario Dongo, Giulia Caddeo. Consumer protection, new EU directive approved. GIFT(Great Italian Food Trade). 12/21/19, https://www.greatitalianfoodtrade.it/consum-attori/tutela-dei-consumatori-approvata-la-nuova-direttiva-ue
(5) Directive (EU) 2019/2161, amending Council Directive 93/13/EEC and Directives 98/6/EC, 2005/29/EC and 2011/83/EU of the European Parliament and of the Council for better enforcement and modernization of Union rules on consumer protection. https://bit.ly/3wQvLAW
(6) The transposition of EU dir. 2019/2161 in Italy is delayed, as usual. Its implementation was delegated by Parliament to the government in the yet-to-be-approved European Delegation Bill 2021 in Article 4
(7) Legislative Decree. 31.3.98 n. 114, Article 15. Reform of the regulations on the trade sector, in accordance with Article 4, Paragraph 4 of Law 15.3.97, no. 59. Text updated as of 8/30/12 on Normattiva, https://bit.ly/3wDZsqd
(8) Dario Dongo. Sustainable development in the Constitution and the vices of Italian democracy. #CleanSpades. GIFT (Great Italian Food Trade). 17.2.22, https://www.greatitalianfoodtrade.it/idee/lo-sviluppo-sostenibile-nella-costituzione-e-i-vizi-della-democrazia-italiana-vanghepulite
(9) See, for example, Lazio Regional Law 6.11.19 no. 22
(10) Marta Strinati. How inflation changes food spending. ISMEA Survey.. GIFT (Great Italian Food Trade). 5/22/22, https://www.greatitalianfoodtrade.it/come-linflazione-cambia-la-spesa-alimentare-indagine-ismea
(11) Vito Gulli and Dario Dongo. Canettone and panettone, the necessary revolution. GIFT(Great Italian Food Trade). 12/17/18, https://www.greatitalianfoodtrade.it/idee/canettone-e-panettone-la-rivoluzione-necessaria
(12) Dario Dongo. Unfair trade practices in the agribusiness supply chain, the protections that are missing. GIFT(Great Italian Food Trade). 4/26/21, https://www.greatitalianfoodtrade.it/idee/pratiche-commerciali-sleali-nella-filiera-agroalimentare-le-tutele-che-mancano
(13) Dario Dongo. Price increases in Germany, below-cost sales in Italy. GIFT (Great Italian Food Trade). 4.4.22, https://www.greatitalianfoodtrade.it/mercati/aumenti-dei-prezzi-in-germania-vendite-sottocosto-in-italia
(14) Dario Dongo. A telematic commodity exchange to promote transparency and fairness in the food supply chain. GIFT(Great Italian Food Trade). 8.3.21, https://www.greatitalianfoodtrade.it/idee/una-borsa-merci-telematica-per-favorire-trasparenza-ed-equità-nella-filiera-alimentare
Dario Dongo, lawyer and journalist, PhD in international food law, founder of WIISE (FARE - GIFT - Food Times) and Égalité.
