UK: EU Proposes Actions To Improve Functioning Of The EU Food Supply Chain

Last Updated: 4 November 2009
Article by Susan Hankey and Caroline Hobson

On 28 October 2009 the European Commission published a report on the food supply chain in the EU and how to make it more efficient, to the benefit of consumers, farmers, food processors and distributors alike.

The report was prompted in part by concerns that since mid-2007, agricultural commodity prices surged and then fell back again but consumer food prices lagged behind, only starting to decline in May 2009, raising concerns that consumers are not getting a fair deal. This report also follows on from the European Commission's December 2008 interim report on "Food prices in Europe".

Overall, the Commission found significant tensions in contractual relations between different parties in the food supply chain, stemming from their different positions as well as differences in bargaining power. The report also highlights a lack of transparency of prices along the food chain and continued fragmentation of the market for food across products and EU Member States, despite efforts to create the EU "single market". The report makes a number of recommendations for change, in particular:

  • taking action at EU and Member State level to eliminate unfair contractual practices;
  • developing a common approach across the European Competition Network (ECN) to competition issues in the sector; and
  • increasing price transparency at all levels in the food supply chain.

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Full Article

On 28 October 2009 the European Commission published a report on the food supply chain in the EU and how to make it more efficient, to the benefit of consumers, farmers, food processors and distributors alike.

The report was prompted in part by concerns that since mid-2007, agricultural commodity prices surged and then fell back again but consumer food prices lagged behind, only starting to decline in May 2009, raising concerns that consumers are not getting a fair deal. This report also follows on from the European Commission's December 2008 interim report on "Food prices in Europe".

Overall, the Commission found significant tensions in contractual relations between different parties in the food supply chain, stemming from their different positions as well as differences in bargaining power. The report also highlights a lack of transparency of prices along the food chain and continued fragmentation of the market for food across products and EU Member States, despite efforts to create the EU "single market".

The report identifies three major priorities for food supply in the EU:

  • to promote sustainable and market -based relationships between stakeholders in the food supply chain;
  • to increase transparency along the chain, to encourage competition and improve its resilience to price volatility; and
  • to foster the integration and competitiveness of the European food supply chain across Member States.

Contractual practices between business actors all along the food supply chain

These came in for heavy scrutiny in the report. The European Commission specifically found that action is needed to eliminate unfair contractual practices. This will involve the EU and Member States:

  • exchanging information on contractual practices, including a clarification of contractual rights and the legality and fairness of commonly used contract clauses;
  • launching awareness campaigns to inform stakeholders of their contractual rights and of potentially unfair or illegal practices;
  • exchanging best practices on notification of contractual practices (e.g. Ombudsmen, actions by enforcement authorities, collective actions).

The European Commission also intends to:

  • work with food supply chain stakeholders to prepare sets of standard contracts. These would be voluntary and reflect the diversity of the food supply chain;
  • assess unfair contractual practices in the EU internal market and it will propose EU legislation to address them, as appropriate;
  • work with the European Commission Network to develop a common approach to relevant competition issues, establishing joint working teams in orders to enhance cooperation, better detect endemic food market problems and promptly coordinate future actions.

The report notes that the European Commission and the ECN believe special attention should be paid to practices such as joint commercialisation agreements, tying and bundling, buying alliance and the increasing use of private labels. It also states that for such practices, a careful balancing of efficiency enhancing and potentially anti-competitive effects is needed, although it concedes that each case must be assessed on its own facts, based on the specificities of local market conditions.

Transparency along the food supply chain

The European Commission made the following recommendations:

  • oversight and overall transparency of agricultural commodity derivatives markets should be improved in the context of the Commission's overall approach to derivatives and the review of MiFID (the directive for Markets in Financial Instruments);
  • that all EU Member States have web-based and easily accessible food retail price comparison services.

The Commission also published, at the same time as the report, the first edition of the European Food Prices Monitoring tool. It also committed itself to examining ways of developing this further to cover more food products and chains, starting from summer 2010, with the cooperation of EU Member States' national statistical institutes.

Fostering integration and competitiveness of the EU food supply chain

The European Commission proposes to:

  • assess measures to address territorial supply constraints, to the extent that these create economic inefficiencies and contradict internal market principles. It will produce an impact assessment based on a detailed study by the end of 2010;
  • review elected environmental standards and origin labelling schemes that may impede cross-border trade;
  • work with Member States and the food industry towards better harmonising the implementation of EU food safety standards;
  • promote and facilitate the restructuring and consolidation of the agricultural sector;
  • take action to bring forward the proposals of the High Level Group on the Competitiveness of the Agro-Food Industry;
  • take action to foster innovation and exports in this sector.

The European Commission has stated that it will by November 2010 issue a follow-up to the actions proposed in the report.

While the food industry has been under a deal of scrutiny recently, it appears that this scrutiny is only set to continue, given the report's proposals. It will be interesting to see how the more far-ranging proposals such as the standard contracts for the food supply chain are realised in practice. More details from the European Commission are available here.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 03/11/2009.

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