Bulgaria: Proposal For EU Directive On Unfair Trading Practices In Business-To-Business Relationships In The Food Supply Chain

Can European farmers be certain that a bottle of milk or a kilo of apples will remain more expensive than a bottle of mineral water? By searching for an answer to that question, the European Parliament, the Council and the European Commission agreed in December 2018 to develop a proposal for the first directive regarding unfair trading practices in business-to-business relationships in the food supply chain (the "Proposal"). This Proposal aims to regulate the supply chain of agricultural and food products.

Who is protected by the Proposal?

The Proposal aims to protect small and medium-sized enterprises in the agricultural and food supply chain against the actions of purchasers who are not small or medium-sized enterprises. What is new is that the protection will cover not only small and medium-sized enterprises within the EU, but also those registered outside the EU but operating in the internal market.

The Proposal introduces two new definitions for Food law: "food products" and "perishable food products".

"Food products" includes all agricultural products used as food and listed in Annex I to the Treaty on the Functioning of the EU, including products from fishing and aquacultures, as well as processed agricultural products for use as food, i.e. processed food products, which are not included in Annex I to the TFEU. At this stage, the definition of "food products" in the Proposal raises the question of whether its implementation is justified, due to its obscure scope and the existence of the definition of "foods" in Article 2 of Regulation (EC) No 178/2002.

The Proposal covers the entire food supply chain

The applicable field of the Proposal covers the entire food supply chain and accounts for the fact that unfair trading practices ("UTP") are not always written in an agreement and in principle could arise at any stage of the commercial relationship between the buyer and the food supplier, even after the agreement is signed.

In the Proposal it is considered that in certain cases the UTPs affect the weaker producers, such as farmers, even when they are not directed towards them. If the costs flowing from the UTPs are passed back along the food supply chain, their negative consequences at the bottom of the supply chain, for example between a retailer and a processor, can be felt in the opposite direction and eventually reach the farmers.

The scope of the concept of "supplier" as used in the Proposal is too wide and includes all suppliers selling food products in the chain, including farmers or individuals and legal entities, if they are small or medium-sized enterprises. The concept of "supplier" covers all individuals or legal entities established in the Union that purchase food products for commercial purposes.

Absolute and discretionary prohibitions

The prohibited UTPs are listed in Art. 3 of the Proposal. The current version of Art. 3 implies that UTPs are separated into two groups: (i) absolute prohibitions and (ii) practices not agreed with clear and unambiguous terms when signing the supply agreement.

Absolute prohibitions, such as (i) paying for perishable food products later than 30 calendar days after receipt of the supplier's invoice, (ii) supplier paying for the waste of food products that occurs on the buyer's premises and that is not caused by the negligence or fault of the supplier, (iii) cancelling of orders of perishable food products at such short notice that a supplier cannot reasonably be expected to find an alternative to commercialise or use these products, and (iv) certain unilateral changes by the buyer with opposite effect on the terms of the supply agreement, are objectively justified and do not depend on the discretion of the parties in the agreement process, i.e. their implementation would be qualified as a UTP, which is prohibited by the new rules regarding UTPs.

The envisaged prohibition regarding buyers paying suppliers later than 30 days after the delivery of perishable foods will represent a special provision (lex specialis) for the food sector derogating from the provisions regarding the payment term, envisaged in Directive 2011/7/EU on combating late payment in commercial transactions, which shall be applicable for all other economic sectors (Art. 303а of the Bulgarian Commercial Act).

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