Directive (EU) 2019/633 introduced the legal basis to prohibit unfair trade practices and restore balance in the relationships between players in the agribusiness supply chain.
In Italy, Coldiretti and Confindustria have betrayed their members by, among other things, giving the large-scale retail trade (GDO) 60 days’ delay on payment terms defined in the EU. (1,2,10).
In France, on the other hand, unions and politics work for the good of the system-country. Also on the front of Unfair Trading Practices (UTPs) that plague farmers, ranchers and processors.
France, theavant-gardein the Loi EGalim
The law ‘for the balance of trade relations in agriculture and food and healthy, sustainable and accessible food for all‘ – c.d. loi EGalim, 2018-938 -aims to rebalance the asymmetries between upstream players (farmers and processors) and downstream players (large-scale retail, but also industries at the supply stages) in the agribusiness supply chain. (3) Balance and transparency are the key words of the loi EGalim, whose first objective is to ensure the economic sustainability of local agriculture, a key sector in French society that is in fact its leader in Europe (followed by Italy).
Sustainability of consumption choices is also considered in its broadest sense:
– economic sustainability through protection of weak contractors. Farmers and SMEs but also less affluent consumers, to whom local food aid can be directed (following the Catalan AlterBanc model),
– ecological transition. The Stratégie France agency has already shown, in this regard, how the organic system is the most profitable for farmers (as well as being the most reliable, as revealed by Que Choisir),
– animal welfare, all-round sustainability of production and packaging.
Loi EGalim, protection begins with the Contract
So-called contractualisation was already at the heart of the Law for the Modernization of Agriculture and Fisheries (LMA, 2010), where the Code rural prescribed the written form for ‘extended’ contracts for the transfer of agricultural commodities concluded by trade associations or imposed by decree of the Conseil d’Etat, (Art. L631-24-2 code rural).
La c.d. inversion de la contractualisation introduced by the loi EGalim also requires that the contractual offer come from the manufacturer, for the specific purpose of preventing the possible insertion of unfair clauses by the first buyer. Any reservation or rejection of clauses of the proposal by the latter must be communicated and justified within a reasonable time, taking into account the delivery time.
Essential elements of the contract, unfair trade practices, penalties
The subject matter of the sales or supply contract cannot be changed in its essential elements in any case, for the best protection of the supplier. Therefore, the price of the foodstuffs, their quantity and quality, origin, delivery and/or transportation methods, payment methods and terms, duration of the contract and framework agreement, and clauses applicable in case of force majeure (Art. L631-24 code rural) must be defined in advance.
Unfair business practices ‘absolute,’ meaning always and in any case prohibited (and void) are those in which the buyer ‘Unilaterally modifies the terms of an agricultural and food supply agreement relating to the frequency, method, place, time or volume of supply or delivery of agricultural and food products, quality standards, payment terms or prices‘ (EGalim loi, art. 3(c). With administrative penalty of up to 2% of last fiscal year’s turnover.
Transparency and equity in the value chain
The loi EGalim then went beyond the directive, extending the criteria of transparency and fairness from the individual supplier-first buyer agreement to the entire downstream supply chain. In fact, all contracts subsequent to the first must report the indicators used to determine the price paid, upstream, to the agricultural producer (Art. L.631-24-1). This limits downstream discretion in determining the price of agricultural commodities.
Price indicators ensure the fair remuneration of farmers. They are developed and disseminated by interprofessional organizations, taking into account:
– production costs,
– trends in the final prices of agricultural commodities and foodstuffs observed in the markets where the buyer operates,
– Quality, quantity, composition, origin,
– Traceability and compliance with specifications.
Observatory of price formation and margins
TheObservatoire de la formation des prix et des marges, a body established within the Ministry of Food and Consumer Affairs, is tasked with ensuring transparency on price formation in the agri-food sector and overseeing ex lege the correct application of indicators. (4)
Tying prices to indicators thus makes it possible to enhance quality and local production, give security to farmers, and strengthen the confidence of the most virtuous farmers who invest in quality, sustainability, and organic production.
Certain payments that are not subject to random depreciation downstream in the supply chain allow for better planning of agricultural activity over the long term. This encourages investment and youth access in senescent agriculture.
Undercost outlawed, promotional sales limited ex lege
In contrast, sales below cost-hailed in Italy with jubilation by agricultural confederations and industry associations-are banned in France(ordonnance 12.12.18, 2018-1128). (5) It is therefore forbidden for distributors to resell or announce the sale of a product at a price lower than the actual purchase price(Code de commerce, Art. 442-5).
Promotional sales are then subject to additional limits, subject to penalties of up to € 350,000 or half of the advertising expenses, doubled in case of repetition:
1) loss-making resale threshold (SRP, seuil de revente à perte). It is prohibited to resell agri-food products at a price lower than the actual purchase price plus 10%,
2) value limit. Promotions on a specific product, even cumulative, cannot reduce the selling price to the consumer by more than 34 percent, nor increase the quantity of product at the same price by more than 34 percent. Therefore, ‘2×1’ (2 products for the price of 1) is prohibited, but ‘3×2’ ( 3for the price of 2) is not,
3) volume limit. Promotional sales may not extend beyond 25 percent of the total products offered for sale by the distributor. Exemptions are allowed on perishable agricultural products only, those from short production cycles, fish and aquaculture products, and live animals (e.g., mollusks, snails). In addition to highly seasonal products, whose sales are concentrated within 12 weeks.
Loi EGalim, impact assessment
The effectiveness of loi EGalim is a priority of the political forces and trade unions that truly represent the social partners concerned in France. In the fall of 2020, two years into its implementation, Agriculture Minister Julien Denormandie issued an exploratory mandate to Serge Papin, former president and general manager of the French supermarket cooperative Systeme U and an active promoter of the ecological transition of agribusinesses.
The objective of the survey is to verify the level of effective implementation of the loi EGalim throughout the supply chain, assess the effectiveness of good practices adopted at the local, national and supply chain levels, reflect on their possible extension to other areas, and identify operational areas for improvement. The intensive work involved more than 60 stakeholders: confederations of farmers and processors, industry and retailers, consumer groups, government agencies and research centers. (6)
Loi EGalim, the reform project. Bargaining criteria
Rapport Papin was presented to the Ministry of Agriculture on 3/25/21. (7) As a result of the analysis on two years of application of the loi EGalim, the former PDG of Systeme U made some proposals for reform. First, new bargaining criteria must be introduced that consider:
1) production cost trends (marche en avance du prix). The unions FNSEA(Fédération nationale des syndicats d’exploitants agricoles) and JA(Jeunes Agriculteurs) denounce the lack of consideration for the soaring costs of farmers and ranchers. Serge Papin therefore proposes to include -in contracts for the supply of products ‘with a strong agricultural component’ (raw materials, first processing)- non-negotiable indexation clauses, to automatically modulate transfer prices to the evolution (upward and downward) of raw material costs. Also providing that pricing arrangements shall be transparent in all subsequent contracts,
2) Three-year periodicity of business relations, upstream (producer and first processor) and downstream (transformer/distributor). Multi-year contracts make it possible to transform ‘tactical’ and contradictory relationships into cooperative strategies, fostering interprofessional synergy and long-term investment.
Value of food
Restoring value to food without debasing its price is the second cornerstone of the Papin report. The value and volume limits on promotional sales provided for in the EGalim loi have not prevented large-scale retailers from pursuing other forms of promotions, such as those awarded to loyal consumers through loyalty cards, which nonetheless reflect on the supply chain.
The former PDG of Systeme-U points out that the economic benefit of promotions for consumers is only apparent, as the selling off of products with ‘owl prices’ is only a technique of marketing aimed at attracting consumers to the point of sale, where the distributor realizes other benefits (at the expense of the ‘underbid’ supplier). ‘Vile pricing’ should therefore be banned in any form, except only in cases of explicit agreements with the relevant professional group. And its advertising outside supermarkets should be prohibited (e.g. flyers and websites).
Food sovereignty, origin, aggregations
Food sovereignty is the concept-key to stimulating value and employment in territories, preserving agricultural and manufacturing traditions, and keeping rural areas alive. Maybe even guard soils and biodiversity, in organic supply chains. To this end, Serge Papin proposes:
– Indicate origin and provenance of ingredients, including in mass catering. As has been the case in France since 2002 with the origin of meat in restaurants, (8)
– Encourage the grouping of producers to increase their bargaining power and foster the development of new market access channels,
– strengthen ties between cooperatives and their members, making the former more consistent with the expectations of the latter.
EGalim 2, En Marche!
On 4/15/21 Gregory Besson Moreau, deputy of the political group LREM(La République En Marche!) filed a proposal to reform theloi EGalim. The proposed EGalim 2 bill, immediately welcomed by the Minister of Agriculture, incorporates the criteria proposed in Rapport Papin:
– Formal mandatory and multi-year bargaining,
– Full value chain traceability of agricultural raw material prices linked to bound revaluation indexes,
– Label indication of origin and/or provenance of products and their ingredients,
– Establishment of an alternative dispute resolution committee,
– Definitive bans on underselling and two-for-one promotions.
‘If the loi EGalim allowed for a change in the general spirit, it clearly did not get to the bottom of its ambitions to end cheating to lock the agribusiness world into this price war. I am convinced that these proposals (…) will make it possible to achieve the goals of the EGalim law, and strengthen farmers’ income’ (Julien Denormandie, French Minister of Agriculture). (9)
France, agriculture and industry cohesive
Real unions in agriculture and the food industry share a motto, food sovereignty. While in Italy the magic circle of Coldiretti and the camel-ridden troops of Confindustria sell off the rights of those they are supposed to represent in exclusive double-down deals, (10) theAssociation Nationale des Industries Alimentaires (ANIA) expresses head-on a cohesive stance with FEEF and ILEC (the Confindustria and Centromarca confederations from beyond the Alps), alongside farmers and de La Coopération Agricole. To seek unqualified approval of loi EGalim 2.
ANIA, the French Federalimentare, notes that in the 2021 negotiations, all categories of agricultural products (with the exception of fresh dairy) experienced a 3 percent reduction in transfer prices. It therefore claims the need for a fair food price, suitable for remunerating farmers and ranchers as well as the processing industries. (10) The only alternative to EGalim 2 is to give up food sovereignty.
From Grandeur française to #VanghePulite
The National Assembly in Paris has set an accelerated procedure for consideration of EGalim 2, set for June. Meanwhile, the government is in the process of updating the code rural and code de commerce to ensure the completeness of the transposition of the UTPs directive (EU dir. 2019/633. See footnote 11).
Instead, Italy flounders in conflicts of interest within opaque organizations, where decisions are made on behalf of hundreds of thousands of operators kept in the dark and imposed on a political class lacking vision.
How many farmers and ranchers, artisans, cooperators, entrepreneurs, and agribusiness supply chain executives are informed and satisfied with the double-down deals and the delegation to the government that followed (12.1)? And how many would like Italy to follow the French example instead?
#CleanSpades. Legality, governance and renewal of intermediate bodies cannot wait any longer.
Dario Dongo and Giulia Orsi
Notes
(1) Dario Dongo. Unfair trade practices and the European delegation law, a critical analysis. GIFT (Great Italian Food Trade). 4/24/21, https://www.greatitalianfoodtrade.it/pratiche-commerciali-sleali-e-legge-di-delegazione-europea-analisi-critica
(2) 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
(3) Loi n° 2018-938 du 30 octobre 2018 pour l’équilibre des relations commerciales dans le secteur agricole et alimentaire et une alimentation saine, durable et accessible à tous. https://www.legifrance.gouv.fr/loda/id/JORFTEXT000037547946/2021-03-03/
(4) Code rural, art. L682-1
(5) Art. 125, LOI n° 2020-1525 du 7 décembre 2020 d’accélération et de simplification de l’action publique.
(6) All parties consulted are listed at the end of Rapport Papin, pp. 22-24
(7) Serge Papin. (2021). Rapport de la mission de médiation et de conciliation concernant le bilan de la loi EGalim et la nécessité de mieux rémunérer la chaine de valeur agricole. https://agriculture.gouv.fr/file/rapport-de-la-mission-de-mediation-et-de-conciliation-concernant-le-bilan-de-la-loi-egalim-et
(8) Most recently, Conseil d’Etat, décision no. 404651, 10.03.21 which annulled Decree No. 2016-1137, 19.8.216 on the indication of the origin of milk and milk and meat as ingredients. https://www.conseil-etat.fr/fr/arianeweb/CE/decision/2021-03-10/404651
(10) Dario Dongo. Unfair trade practices, double-down supply chain agreement. GIFT (Great Italian Food Trade). 7.3.21, https://www.greatitalianfoodtrade.it/mercati/pratiche-commerciali-sleali-accordo-di-filiera-al-doppio-ribasso
(11) ANIA. Compléter EGAlim ou renoncer à la souveraineté alimentaire, il faut choisir! Communiqué de presse, 21.4.21. https://www.ania.net/economie-export/completer-egalim-ou-renoncer-a-la-souverainete-alimentaire-il-faut-choisir
(12) Loi n° 2020-1508 du 3 décembre 2020 portant diverses dispositions d’adaptation au droit de l’Union européenne en matière économique et financière. V. Chapitre III, Art. 9. https://www.legifrance.gouv.fr/jorf/id/JORFTEXT000042607095/