European Union: EU Continues To Focus On The Food Supply Chain

Last Updated: September 7 2015
Article by Matthew Hall

The EU food supply chain continues to be the subject of significant political and regulatory focus. Players in the sector at any level should carefully monitor the evolving situation, since there are plenty of opportunities to influence developments and, in any event, responses which should be considered.

New High Level Forum for a Better-Functioning Food Supply Chain

The latest activity is the establishment by the EU's civil service, the European Commission (EC), of a new, successor High Level Forum for a better-functioning food supply chain. Starting its work later this year, this High Level Forum will again be populated by a range of public and private stakeholders (no more than 50 members), which will be selected by the EC, following a call for interest.

The previous High Level Forum published its final report in October 2014. This described the deliberations of its members in relation to B2B trading practices, food taxes, sustainability, social dialogue and food price monitoring (amongst other topics).

At the time, the EC commented that, although progress had been made (particularly in the area of B2B trading relationships), work was still needed in certain areas and that various imminent challenges faced the sector. Reflecting this, the focus areas of the new High Level Forum have been identified as:

  • competitiveness and SME policy;
  • B2B trading practices (usually referred to as unfair trading practices or UTPs);
  • the EU internal market;
  • trade and market access, including, presumably, the impact of the proposed Transatlantic Trade and Investment Partnership (TTIP) between the EU and U.S.;
  • sustainability;
  • the social dimension;
  • innovation; and
  • food price monitoring.

The new body will clearly have a full agenda and its members will have significant scope to influence policy. Its influence will be increased by the fact that the new High Level Form will be consulted on any new recommendations from the EC regarding issues linked to the functioning of the food supply chain in the EU.

Unfair Trading Practices (UTPs)

One recommendation may come in the area of UTPs. This is probably the most high-profile and contentious area in the list of issues to be considered by the new High Level Forum, and it will be considered against the background of various other studies.

Separate from the work of the previous High Level Forum, in July 2014 the EC itself adopted a communication encouraging EU Member States to look for ways to improve protection of small food producers and retailers against the UTPs of their sometimes much stronger trading partners. The communication on UTPs suggested a number of stakeholder priorities to facilitate an effective EU-wide framework against such practices. It did not propose regulatory action at EU level but encouraged Member States to make sure they have appropriate measures against UTPs in place, taking into account their national circumstances (which may include at least UTP-specific legislation, modifications of competition law and/or voluntary schemes). This included support for the voluntary EU Supply Chain Initiative launched by the industry in September 2013.

The EC is monitoring and assessing progress by evaluating the actual impact of the Supply Chain Initiative and its national platforms and the enforcement mechanisms set up by member states (particularly confidentiality for companies submitting complaints and the possibility of an independent body for enforcement). It is meeting Member States to exchange best practices and facilitate coordination. The EC will present a report to the Council of the EU (representing the Member States) and the European Parliament (EP) at the end of 2015. In light of this report, the EC will decide whether further action should be taken at EU level to address the issues.

The EP is also in on the act. On 24 March 2015, it held a workshop on "unfair trading practices in the business-to-business food supply chain (UTP)". The workshop "took stock of such practices and [considered] possible regulatory responses to them". The results will provide input for the non-legislative own-initiative report that the Internal Market and Consumer Protection Committee (IMCO) of the EP has requested.

The EC made a presentation at this workshop, putting forward the basic message that, due to the specific features of the food supply chain, there is an increased risk of UTPs, but that (as set out in the communication), the EC does not believe at the moment that EU-level legislation is appropriate. However, it repeated the message that the situation is fluid and that before the end of 2015 it will decide whether further EC action is required.

There is therefore still much to play for in this area. Various stakeholders, including some members of the EP, are agitating for legislation. Those stakeholders which do not want legislation need to ensure that other measures (particularly the Supply Chain Initiative) operate effectively. It should be appreciated that the activities of each player in the chain with some degree of market power (even if not formal dominance under competition law) may impact the ultimate result.

Competition Law; Choice and Innovation in the Food Sector

Also separate from the other work on the food supply chain, the antitrust/competition law directorate of the EC published in October 2014 a retail food study examining whether increased concentration (of food retailers/food brand manufacturers) or other factors (such as shop type/size, private label penetration, socio-demographic characteristics) have affected choice and innovation for the consumer in EU shops. This study assessed how concentration and potential imbalances between retailers and brand manufacturers had been developing in the EU food supply chain over the decade up to 2014.

The EC, in essence, gave the sector an overall clean bill of health (at least in competition law terms). This, therefore, seems to be a good example of a competition authority leading by inaction. It explained to a sceptical public why, in its view, concerns as to the operation of the sector are not justified and why it is broadly working in the interests of consumers. However, the EC gave a warning at the time that the report in some respects was only the beginning. It flagged that new avenues for research could be identified for exploration and invited comments.

Following this report, and despite its overall positive conclusions, the sector remains high on the enforcement agenda of the EC and national competition regulators in the EU, so they will be receptive to complaints. Just one example of an area of potential focus is the use of territorial supply constraints. Only limited restrictions on cross-border sales are permitted under EU competition law, and in its 2014 communication on UTPs, the EC commented that it had identified these as a problematic practice and proposed to address those separately.

There is a compliance message here. Companies need to ensure that competition compliance programmes are in order and that suitable training takes place and also consider whether other measures, such as internal audits, should be taken.

Final Comments

This is a high-profile and sensitive area in the EU, as elsewhere, and many of the same issues arise worldwide. This is perhaps best demonstrated by yet another antitrust study, this one by the OECD, published in May 2014. This included submissions from regulators around the world, including the U.S. Federal Trade Commission (FTC) and Antitrust Division of the Department of Justice (DOJ). In addition, the EC and regulators from the UK, Belgium, France and Germany (amongst other countries) contributed.

The report highlighted the growing political interest in the food supply chain and how this has led to greater monitoring of food prices by competition agencies and, in some cases, even the reporting of price movements to consumers. It also referred to the need to consider how best to tackle buyer power and UTPs and the role of private label and the regulation of conflicts in the food supply chain.

As can be seen from the above discussion, these points largely reflect issues currently very topical in the EU. Wherever a company trades, it needs to be aware of regulators' concerns and consider its response or how it can use these concerns to its advantage. Many of these concerns are the same anywhere.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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