As part of its 2017 Work Programme, the European Commission (EC) is targeting improved transparency and a more equitable distribution of value in the food sector. In order to achieve this, it is examining the “differences in bargaining power between smaller and thus more vulnerable commercial operators”, and their economically stronger and “highly concentrated” commercial partners downstream.
European regulators launched an Inception Impact Assessment last month after a European Parliament resolution called on the Commission to act in the area of unfair trading practices (UTPs). In this document, the EC set out a number of options for action.
“The objective of policy action in the field of UTPs would be to strengthen governance of the food supply chain by preventing undue pressure on weaker operators in the chain including farmers that could affect their commercial viability. Legal certainty would be enhanced,” the EC said.
Proposals ranged from a “baseline” option that would maintain the status quo, to EU framework legislation that would govern relationships in the supply chain.
Farmers’ group calls for protection
Speaking yesterday (22 August) after delivering feedback to the EC, Copa and Cogeca, which represent European farmers and agri-cooperatives, backed an approach that would see EU framework legislation introduced to protect “weaker operators” in the food supply chain including farmers.
“The huge imbalance of power in the food supply chain has left us with no choice but to… call for legislation to be introduced to improve farmers’ positioning and to stop unfair trading practices. It is unacceptable that farmers get for example only 20% of the price of a piece of steak when they are the ones who do the majority of the work in producing it,” Copa and Cogeca secretary-general Pekka Pesonen said.
Market transparency needs to be increased, Copa and Cogeca argued, because improved information will enable operators in the food supply chain to more informed decisions.
The organisation also argued that competition regulations should be relaxed in order to allow cooperatives greater collective scale and therefore increased negotiating power. “We need to have derogations from competition law to enable agri-cooperatives and other types of producer organisations to grow in size and scale,” the trade body insisted.
Food manufacturers want ‘whole chain’ approach
Statements from the EC have largely focused on the role of farmers as the weakest link in the supply chain. However, a spokesperson for FoodDrinkEurope (FDE) insisted that manufacturers are also confronted with UTPs.
“It is not only a problem for farmers, it is also a problem faced by the entire manufacturing industry, small, medium and large companies,” the spokesperson told FoodNavigator.
FDE said the issue is widespread. According to a 2013 survey completed by the EC, some 96% of food processors reported exposure to UTPs. This has a “negative financial impact” on their businesses and affects companies’ ability to invest and innovate, the FDE spokesperson suggested.
The spokesperson also noted that the European food sector is “largely made of small and micro companies” facing a “difficult business environment”. Figures quoted by FDE show that the 285,000 SMEs in the EU generate almost 50% of the food and drink industry turnover and provide two-thirds of the employment in the sector.
“FoodDrinkEurope considers that this initiative should cover the whole food chain,” the spokesperson concluded.
Retailers insist legislation ‘not right solution’
In contrast, European retailers do not back a legislative approach to UTPs.
The European Retail Round Table (ERRT) argued that while UTPs have been studied at a European level since 2009 there has, to date, been “little objective evidence” pertaining to whether they are a common phenomenon.
In a position paper, ERRT flagged the role that the voluntary Supply Chain Initiative can play in combatting UTPs where they do exist. The SCI established by eight European organisations representing food manufacturers and retailers. “We wish to stress the efforts of our members towards drastically reducing the potential for UTPs to arise in their commercial relationships," ERRT noted.
Copa and Cogeca's Pesonen was quick to dismiss the validity of the SCI as a means to combat unfair practices. “The voluntary Supply Chain Initiative, which was developed by retailers and processors, to which Copa and Cogeca did not sign up to, clearly does not work,” he insisted.
Nevertheless, the ERRT emphasised the need for members of the supply chain to act in partnership to foster innovation and best practice in the food sector.
“Every retailer needs to work closely with thousands of suppliers to cultivate long-standing relationships and therefore have a vested interest in not allowing UTPs to affect commercial relationships with their suppliers. Many retailer-supplier relationships have grown into successful partnerships over many years, benefiting consumers, producers and retailers.”