Unfair trade practices, double-down supply chain agreement

0
17

Unfair trade practices are still the thorn in the side for the Italian agribusiness sector, which, however, is celebrating a double-digit ‘supply chain agreement’ these days.

The understanding is proposed two months before the deadline for Italy to transpose EU Directive 2019/633 (UTPs, Unfair Trading Practices), 1.5.21, with a duty to implement the new rules by 1.11.21. (1)

However, agricultural and distribution representations aim to reduce protections for farmers and food businesses, as the analysis below shows. Superficiality or connivance?

Background

Unfair contracting practices over the past two decades have severely weakened the profitability of farmers and food processors in Italy and Europe. Vendite sottocosto e promozioni imposte dagli acquirenti, gravi ritardi nei pagamenti (con medie variabili tra i 100-120 e 180 giorni, nei vari Paesi UE), sconti fuori fattura anche retroattivi (es. contributi di fine anno), indebite pretese unilaterali (es. contributions to logistics, ‘innovative and/or additionalmarketing plans, ‘new openings,’ etc.) and other anguish, such as different levels of negotiation (central purchasing, super and hypermarket channels)-in addition to listing fees-have made it impossible to plan the supply conditions of agricultural and food commodities.

Micro-enterprises and SMEs, i.e., the backbone of agribusiness production in the old continent (90-95% of operators), have thus found themselves exposed to serious survival risks, with negative repercussions on employment and the economy of the districts. The Lisbon strategy, implemented by the European Commission with the ‘
Community Lisbon Program.
‘ (2005) had also included some measures to support employment in the structural and cohesion funds, as well as in those dedicated to rural development. Without, however, succeeding in the goals.

Unfair trade practices, precedents in EU

The European Commission established a High Level Group on the Competitiveness of the Agro-Food Industry in 2008, which was transformed into HLF for a Better Functioning of the Food Supply Chain in 2010. With the stated goals of promoting synergies and mitigating the contractual overpower of modern distribution vis-à-vis its suppliers.

The HLF omitted to consider the equally critical relationships between agriculture (almost absent) and industry (very present). In any case, six years of consultations and meetings in which the writer participated resulted in the adoption of a ‘supply chain agreement’ (
the Supply Chain Initiative
), completely devoid of sanctions, as well as concrete implementation. Tarallucci and wine below cost.

Precedents in Italy, Article 62

Italy moved ahead of Europe in an attempt to restore balance in supply chain relations through mandatory legal regulations proposed and drafted by this writer, which the then ministers Mario Catania and Corrado Passera included in Article 62 in Decree Law 1/2012. But then an incestuous agreement between the then presidents of Confindustria and Federdistribuzione intervened.

Article 62 – amended following a ‘supply chain agreement’ – was therefore nullified by reforming its text in parliament (Law 24.3.12 No. 27, conversion of Legislative Decree 1/2012). The powers of investigation and sanction, originally entrusted to the Guardia di Finanza, were in fact given to the Antitrust Authority (2). Which-unlike the GdF-has no duty but rather the power, almost never exercised, to instruct investigations and impose sanctions (3,4).

March 2021, the new ‘supply chain agreement’

March 2021 saw yet another ‘supply chain agreement’ inspired by the narrative of Giuseppe Tomasi di Lampedusa’s The Leopard. Changing everything to change nothing. It was joined by most of the agricultural representations, all of the large-scale retail representations and a hybrid:

– Coldiretti, Confagricoltura, Cia-Agricoltori Italiani, Copagri, and Alleanza delle Cooperative Agroalimentari,
– ADM (Modern Distribution Association), and so do Federdistribuzione, ANCC-Coop, ANCD-Conad,
Filiera Italia. A hybrid created by Coldiretti’s magic circle to aggregate powers of food and non-food industries, banks, etc. (5)

What supply chain?

Il Sole 24 Ore, the historical voice of Confindustria, points out as the objectives of the so-called ‘supply chain agreement’ in early March ‘the protection of operators … in every sector of the Italian agri-food supply chains‘ and ‘the economic sustainability of all sectors of the supply chain. Without noting the absence of:

processing enterprises. Confartigianato, CNA (National Confederation of Crafts and Small and Medium Enterprises), as well as the now-disbanded Federalimentare, (6)

Traditional distribution and public establishments. Confcommercio and FIPE (Federazione Italiana Pubblici Esercenti), Confesercenti.

Federalimentare and Centromarca in fact had in turn signed an agreement with the distribution sector on the same subject on 20.11.20. (7) And it is all the more curious that the same parties, on both sides of distribution, industry and cooperation (since some large groups are members of both Filiera Italia and Federalimentare or Alleanza Cooperative) sign several ‘supply chain agreements’ that exclude other players. Divide and rule?

EU Dir. 2019/633. Scope, the issue of services

The so-called March 2021 supply chain agreement underscores the need for reciprocity in Italy’s implementation of Directive 2019/633. Which should apply to operators in both roles of buyers (e.g., raw materials) and sellers. However, five basic needs are neglected, to follow.

1) Ecommerce. It should be pointed out that the new rules also apply to ecommerce activities. It is noted in this regard how the Antitrust Authority dismissed our complaint of outlaw business practices by Amazon, which is now instead under investigation by the European Commission for abuse of dominant position (8,9).

2) provision of services. The provision of services to enterprises, cooperatives and other entities operating in the agribusiness chain must also come under the new rules. A crucial aspect both to include services that otherwise have agricultural and food commodities as their object (e.g., canteens, gardening services) and to protect VAT numbers, professionals, businesses and cooperatives otherwise crushed by the contractual overpower of large clients.

Scope, unfair competition

3) Turnover limits. The new rules to all players in the supply chain, regardless of their turnover. Limiting its scope to only contracts with smaller suppliers means incentivizing industry and large retailers to turn to the giants (e.g., Bonifiche Ferraresi, B.F. SpA) in order to escape the application of the rules. To the detriment of – as it happens – SMEs and micro-enterprises in agriculture and food.

4) Horizontal purchasing. It is also necessary to apply the UTPs directive to transactions between operators in the same industry. For example, to prevent milk producer A from buying milk below cost from producer B, but it is only A who is protected when he sells and resells the milk to the dairy.

5) Inter-group purchases and cooperative contributions. The prevalence of cooperatives in the Italian agribusiness supply chain postulates the need to equate cooperative input of commodities with third-party sales. The same applies to Inter-group supplies. Keeping in mind that any exclusion from dir. 2019/633 corresponds to unfair competition against protected operators. With obvious risks of market distortion.

Below cost, Coldiretti’s agreement.

Coldiretti and other signatories to the so-called ‘supply chain agreement’ propose that the Italian legislature exclude below-cost restrictions:

– Those very fresh products subject to particular seasonal or market variations. Green light, then, to replicas of watermelons at €0.01/kg and authentic Italian panettone 2€/kg, (10.11)

– ‘fresh, very fresh and perishable food products (…) in the case of registering unsold product at risk of perishability or in the case of planned business operations agreed with the supplier in writing‘. The Leopard.

Undercosting and supply chain responsibility

Undercutting is an insult to the value of land, food and those who work them. As well as the intelligence of the consumer himself, lured with ‘super offers’ to enter a supermarket rather than elsewhere. Rather, respect is expressed in the ‘everyday low price‘ lesson of Mario Gasbarrino, creator of the ‘Viaggiator Goloso‘. Banning below-cost is crucial to ending the socio-environmental dumping that penalizes domestic production over foreign production (e.g., fruit and vegetables, ‘extra virgin’ olive oils) and triggers downward competitions where the drug of price trumps all.

Integrated supply chain responsibility-already introduced to ensure food safety and consumer information (12,13)-must therefore be extended to:

Ban on underselling, including on foodstuffs arriving from abroad,

guarantee of workers’ rights. Those who are unable to ensure the complete legality of the supply chain must be held accountable. This is the only way to put an end to caporalism and abuses that take place on the Mediterranean but also in Germany, as seen in the meat supply chain, and elsewhere (14,15).

Payment terms

Payment terms are defined by the European legislature as 30 days for perishable products, 60 days for others. From the date of delivery or ‘from the date on which the amount to be paid was determined, whichever is later‘ (EU dir. 2019/633, Art. 3.1.a). Instead, the so-called ‘supply chain agreement’ aspires for a derogation – unconstitutional, due to its conflict with the EU directive – aimed at maintaining the 30-60 days end-of-month invoice date.

However, no one is in charge of ensuring that the deadlines are actually met. In Italy, there has never been any record of supplier billing for default interest, with the sole exception of Bunge, which tried it once but was then forced to issue credit notes. The only solution is to entrust checks on payment times to the Guardia di Finanza, with automatic application of default interest and deterrent penalties (outside of cases of necessity only).

Online auctions

Double-down is recalled as being the only problem in online auctions. Although back in 2017, large-scale retailers in Italy had renounced applying them by signing a special ‘code of ethics‘.

Online auctions are problematic in other respects, which the so-called ‘supply chain agreement’ overlooks altogether:

purchasing specifications and production controls. When price is the sole driver of adjudication, audits are likely to result in mere formalities designed to endorse the most unscrupulous bids,

transparency. While respecting the confidentiality of bidders, formal compliance with the conditions set for the execution of auctions and their awards must be ensured.

Supervision and sanctions, ICQRF?

The best guarantee of disapplication of the new rules is to entrust supervisory powers to an authority that is understaffed as well as lacking the necessary expertise in analyzing complex contracts, cash flows and budgets. The so-called ‘supply chain agreement’ therefore proposes to designate the ICQRF as the ‘competent authority’ to oversee the implementation of EU Directive 2019/633.

360 inspectors, including university graduates and graduates – who follow the practice of conducting inspections in at least 2, even 3 units – already engaged in inspections of about 3 million enterprises called to apply the Food Information Regulation (EU reg. 1169/11, Legislative Decree 231/17), in addition to investigations into quality schemes (geographical indications, organic) and the prevention of food fraud (16,17).

Controls, sanctions and mediations. The indispensable role of the Guardia di Finanza

The Guardia di Finanza is the only investigating authority with the necessary organic resources, training, and expertise for checks on the correct application of the rules introduced by EU Directive 2019/633. Such inspections should be in the context of its routine inspection activities, without the need to receive mandates from other entities (e.g., antitrust, judiciary). Indeed, the effectiveness of controls is the necessary basis for ensuring the effectiveness of the new regulations.

Penalties must be dissuasive and proportionate to the turnover of companies or cooperatives and their groups responsible for violations. Mediation, loudly invoked in the so-called Coldirettian-driven ‘supply chain agreement,’ is a residual option since unfair trade practices should not escape punishment. However, it will have to be done under the coordination of the Finance Guard so as to overcome the imbalance of contractual powers.

Supply chain understandings?

Supply chain equity and integrity, social justice, safeguarding businesses and jobs, and enhancing the value of Made in Italy are just words if rules are not applied that are fit for purpose. The Leopard should be relegated to the history books.

The European legislature, once again, has offered an excellent basis that requires adaptations in a restrictive and certainly not derogatory direction, taking into account the extreme fragmentation of the production chain in Italy.

Dario Dongo

Notes

(1) Dario Dongo. Unfair trade practices, the EU directive 2019/633. GIFT(Great Italian Food Trade). 4.5.18. https://www.greatitalianfoodtrade.it/mercati/pratiche-commerciali-sleali-la-direttiva-ue-2019-633
(2) For further discussion see the writer’sebookArticle 62, a revolution‘ (Il Fatto Alimentare, Milan, 2012). Download at https://ilfattoalimentare.it/scarica-gratis-libro-articolo-62-pagamenti-commercio.html

(3) Dario Dongo. Article 62: good intentions all remain on paper. Regulations are not enforced and it is the weakest in the supply chain who lose out. Food Fact. 7.10.16, https://ilfattoalimentare.it/articolo-62-regolamenti-filiera.html

(3) Dario Dongo. Sardinia, Antitrust investigates milk and pecorino cheese prices. Some market data. GIFT (Great Italian Food Trade). 19.2.19, https://www.greatitalianfoodtrade.it/mercati/sardegna-l-antitrust-indaga-sui-prezzi-di-latte-e-pecorino-alcuni-dati-di-mercato

(4) Dario Dongo. Unfair trade practices, it’s directive. GIFT(Great Italian Food Trade). 12/20/18, https://www.greatitalianfoodtrade.it/mercati/pratiche-commerciali-sleali-è-direttiva

(5) Enrico Netti. Trade, competition understanding. The Sole 24 Ore, 3.3.21

(6) Dario Dongo, Marta Strinati. Food industry collective agreement, Confindustria splits over renewal. GIFT (Great Italian Food Trade). 2.8.20, https://www.greatitalianfoodtrade.it/mercati/contratto-collettivo-industria-alimentare-confindustria-si-spacca-sul-rinnovo

(7) Economy Drafting. Agribusiness, agreement between industry and distribution against unfair and anti-competitive practices. The Evening Courier. 11/24/20, https://www.corriere.it/economia/aziende/20_novembre_23/accordo-industria-distribuzione-contro-pratiche-sleali-anticoncorrenziali-7366c2c4-2d6b-11eb-b83d-41802abb4d33.shtml

(8) Dario Dongo. Amazon, cyberbullying. GIFT (Great Italian Food Trade). 4/24/18, https://www.greatitalianfoodtrade.it/consum-attori/amazon-cyber-bullismo

(9) Dario Dongo, Silvia Giordanengo. Amazon, abuse of dominant position. European Commission takes action. GIFT (Great Italian Food Trade). 11/16/20, https://www.greatitalianfoodtrade.it/mercati/amazon-abuso-di-posizione-dominante-la-commissione-europea-si-attiva

(10) From Eurospin watermelon for 1 cent. Will fruit and vegetables go the way of pandoro? Fruitbook magazine. 12.8.20, https://www.fruitbookmagazine.it/da-eurospin-anguria-a-1-cent-lortofrutta-fara-la-fine-del-pandoro/
(11) Vito Gulli, 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) Reg. EC 178/02, Article 17.1. Reg. EU 1169/11, Article 8.3

(13) Dario Dongo. The responsibilities of large-scale retail trade. GIFT(Great Italian Food Trade). 3/17/18, https://www.greatitalianfoodtrade.it/etichette/le-responsabilità-della-gdo

(14) Fabio Ciconte, Stefano Liberti, Mariangela Paone, Apostolis Fotiadis (2021). E(U)xploitation. Corporalism: a southern issue. Italy, Spain, Greece. Earth Association! https://www.associazioneterra.it/wp-content/uploads/2021/02/EUxploitation_WEB.pdf

(15) Dario Dongo. Slaughterhouses and meat industries. Behind the contagions at Covid-19, German-style caporalism. GIFT (Great Italian Food Trade). 7.7.20, https://www.greatitalianfoodtrade.it/sicurezza/macelli-e-industrie-delle-carni-dietro-i-contagi-ai-covid-19-il-caporalato-alla-tedesca

(16) ICQRF is organized into 10 management offices on a regional and interregional basis, with 19 territorial inspection offices, 5 analytical laboratories and 1 central review and research laboratory. 791 total units with 3 1st-rank managers and 22 2nd-rank managers

(17) See ebook Dario Dongo. 1169 Penalties. Reg. EU 1169/11. Food news, inspections and penalties (Great Italian Food Trade, Rome, 2017). Download at https://www.greatitalianfoodtrade.it/libri/1169-pene-e-book-gratuito-su-delitti-e-sanzioni-nel-food

+ posts

Dario Dongo, lawyer and journalist, PhD in international food law, founder of WIISE (FARE - GIFT - Food Times) and Égalité.