30 October 2024
The Unfair Trading Practices (Agricultural and Food Supply Chain) Act (website in Dutch) (Wet oneerlijke handelspraktijken landbouw- en voedselvoorzieningsketen, hereinafter the "UTP (Agriculture) Act") aims to protect agricultural producers against large buyers' abuse of procurement power. When the UTP (Agriculture) Act entered into force in the Netherlands on 1 November 2021, businesses had until 15 April 2022 to align their current arrangements with that Act. After that, it did not stay quiet for long. The Authority for Consumers and Markets (ACM) took enforcement action in three cases and accepted commitments in two cases. The Unfair Trading Practices (Agricultural and Food Supply Chain) Complaints Board (Geschillencommissie Oneerlijke Handelspraktijken Landbouw- en Voedselvoorzieningsketen, the "Complaints Board") has now also rendered a decision. This update begins by briefly outlining the UTP (Agriculture) Act, before discussing recent cases in the Netherlands and concluding with the developments at EU level and in other Member States.
Background to the UTP (Agriculture) Act
The UTP (Agriculture) Act implements EU Directive 2019/633/EU (the "Directive"). The Directive harmonises the minimum protection level for suppliers of agricultural products against buyers' unfair trading practices. 'Suppliers' means producers of agricultural and food products and associations of such producers. Despite the grouping of producers in producer organisations as stimulated by EU agricultural policy, the food supply chain still regularly sees imbalances in bargaining power between producers or producer organisations on the one hand and buyers on the other. These imbalances are considered the main cause of unfair trading practices. These are defined as practices that grossly deviate from good commercial conduct, are contrary to good faith and fair dealing, and are unilaterally imposed by one trading partner. In line with the general directive concerning unfair business-to-consumer commercial practices (Directive 2005/29/EC), the Directive contains a black list and a grey list of prohibited practices. Blacklisted practices are unlawful. Practices on the grey list are unlawful unless they have been previously agreed in clear and unambiguous terms. These rules only apply if the supplier is considerably smaller than the buyer. The Directive uses relative turnover thresholds to that end.
As the Directive introduces only a minimum level of protection, Member States are allowed to set stricter requirements. Some have indeed done so (see below). The Dutch legislature deliberately chose to implement the Directive almost literally in the UTP (Agriculture) Act, as it did not consider it necessary to take further measures. The Netherlands only goes further than the Directive on the matter of alternative dispute resolution. The Directive encourages but does not require its introduction. The Netherlands did include the option of alternative dispute resolution in the UTP (Agriculture) Act.
The ACM is tasked with enforcing the Act, but suppliers can also submit individual disputes with buyers to the Complaints Board, which can then give a binding decision. In that decision, the Complaints Board can declare a complaint wholly or partly admissible or inadmissible, award damages, establish obligations (including payment obligations), or give any other decision that it considers reasonable and fair. Below, we will discuss the ACM's enforcement practices, the Complaints Board's recent decision, and developments at EU level and in other Member States.
ACM enforcement
To date, there are three known ACM decisions in which the party concerned had acted in breach of the UTP (Agriculture) Act. Two of these are commitment decisions, under which the parties in question committed to aligning their practices with the UTP (Agriculture) Act. In the third decision, the ACM determined the steps the buyer had to take to resolve its breach of the Act, on pain of a penalty for non-compliance.
Vion (commitment decision)
The first case under the UTP (Agriculture) Act concerned slaughterhouse Vion. In response to media reports, the ACM launched an investigation into Vion in November 2022. Shortly afterwards, the ACM received an enforcement request from the Pig Farming Producer Organisation (Producentenorganisatie Varkenshouderij, the POV), which represents Vion suppliers as well as other parties. In essence, the POV complained that Vion had unilaterally changed the terms of supply. Unilaterally changing the terms of supply is on the black list of unlawful practices under the UTP (Agriculture) Act.
Vion concluded an agreement with pig farmers setting out the terms and pricing systems that Vion uses for its pig purchases. This agreement has no end date and can be terminated early by both Vion and the pig farmers. Pig farmers are given a choice of three different pricing systems, including the Price Index Guarantee system (PIG system). If they opt for the PIG system, the farmers are obliged to supply exclusively to Vion. The price is subsequently determined using a 'basket' of quotations from the Netherlands and other countries. Based on its powers to make amendments under the agreement, Vion adjusted the quotations relevant to the price determination in 2022 and 2023. Vion also capped the annual subsequent payment.
The ACM believed that this (old) agreement was at odds with the UTP (Agriculture) Act, more specifically with the prohibition on unilaterally changing the terms of supply. Although, in principle, objective factors were used to determine the price under the PIG system, Vion was allowed to omit greatly inconsistent price indicators from the 'basket'. According to the ACM, it was not clear when Vion was allowed to do so, leading the regulator to conclude that Vion could therefore unilaterally set the price. The ACM subsequently sent Vion and the POV a draft decision containing an order subject to a penalty for non-compliance. In response, Vion proposed commitments to the ACM in order to align its practices and terms of supply with the UTP (Agriculture) Act. The commitments were first published in draft, allowing interested parties (particularly the pig farmers in question) to present their views. The ACM then declared Vion's commitments binding. In summary, the commitments entailed that Vion would provide its pig farmers with a new agreement, which Vion could not amend without the pig farmers' consent, within two weeks of publication of the commitment decision. Further, Vion committed itself to only adjusting the pricing system in consultation with the pig farmers, except in specific situations under conditions and circumstances that have been clearly defined beforehand. Vion's commitments resolve the POV's two complaints about price determination by means of the 'basket' of quotations and the subsequent payment.
Another complaint by the POV, about the method used to calculate the subsequent payment, was denied in a separate ACM decision, essentially because it concerned a difference of opinion on the interpretation of the agreement rather than a unilateral change within the meaning of the UTP (Agriculture) Act. This ultimately ended the matter in March 2024.
Lactalis Leerdammer (order imposed on Lactalis Leerdammer subject to a penalty)
In July 2022, the ACM received an enforcement request against Lactalis, the producer of Leerdammer cheese. The complaint had been filed by the Leerdammer Collective Supplier Association (Leveranciersvereniging Leerdammer Collectief, LVLC), an association of dairy farmers that supply exclusively to Lactalis. According to LVLC, Lactalis unilaterally changed the terms of supply and additionally required payments that were unrelated to the supply of the suppliers' products. Both practices are blacklisted under the UTP (Agriculture) Act.
The price paid by Lactalis to its suppliers is calculated on the basis of the composition of the milk supplied (protein and fat levels). Lactalis sets the fat and protein prices every month. In September 2024, the ACM concluded that Lactalis was infringing the UTP (Agriculture) Act's prohibition on unilaterally changing the terms of supply by unilaterally setting the fat and protein prices, and therefore the milk price, every month without having agreed a transparent system with the suppliers for this purpose. The ACM required Lactalis to align its terms of supply with the UTP (Agriculture) Act within three months of publication of the decision by including a transparent pricing system in the terms of supply. It must be clear to suppliers in advance how the milk price is determined, and the calculation must be verifiable for suppliers. If Lactalis fails to comply with the order, it will incur a penalty of EUR 175,000 per month, up to a maximum of EUR 1,050,000. The ball is therefore now in Lactalis' court.
The second element in LVLC's complaint (required payments that are unrelated to the supply of the suppliers' products) concerned the contribution for sector organisation ZuivelNL charged to the suppliers via Lactalis' terms of supply. The ACM examined this element in a separate decision on ZuivelNL.
ZuivelNL (commitment decision (in Dutch))
ZuivelNL is the supply chain organisation of the Dutch dairy sector. As part of its activities, ZuivelNL organises joint initiatives for dairy farmers and dairy companies, which they pay for with contributions. Briefly put, these contributions are charged to the dairy farmers via dairy companies' terms of supply and then paid to ZuivelNL.
LVLC's complaint against Lactalis states that Lactalis' payments to ZuivelNL are not related to dairy farmers' milk sales and are therefore inconsistent with the UTP (Agriculture) Act. After discussions with the ACM, ZuivelNL has committed itself to presenting and safeguarding its compliance with the UTP (Agriculture) Act more clearly, primarily by plainly describing the activities on which the contributions are spent and the purpose served by these activities. After all, many of these activities involve research and instruments enabling dairy farmers to supply milk that meets the statutory requirements. This means that these activities are in fact related to dairy farmers' milk sales.
ZuivelNL's commitments are:
- to use the contributions paid by dairy farmers only for activities that are related to the supply of milk and that at least benefit the dairy farmers;
- to share this insight with the dairy farmers and to publish it;
- to have the aforementioned breakdown in its financial statements audited by an auditor every year;
- to review the amount of the dairy farmers' contribution every three years in light of the UTP (Agriculture) Act; and
- to proactively inform ACM every year for the period from 2024 through 2027 about the implementation of the above items.
According to ACM, the clarifications in the presentation of ZuivelNL's activities and the corresponding reports will provide the dairy farmers with better insight into the purposes for which their contributions are used. As a result, this element of LVLC's complaint was denied (in Dutch) based on prioritisation.
Comments on the ACM's decisions
Complaints Board decision
Vreugdenhil (Complaints Board decision (in Dutch))
Vreugdenhil is a milk powder producer and buys milk from its suppliers to that end. Vreugdenhil's purchase conditions, which apply to all its suppliers, provide that Vreugdenhil sets the milk price for its suppliers every month. Suppliers must observe a notice period of 12 months if they wish to terminate their agreement with Vreugdenhil. The supplier took the view that the purchase conditions were inconsistent with the UTP (Agriculture) Act, as Vreugdenhil unilaterally determined the monthly milk price without suppliers being able to verify the factors used in calculating this price.
The Complaints Board ruled that Vreugdenhil had violated the prohibition on unilaterally changing terms of supply. According to the Complaints Board, Vreugdenhil's milk pricing is not transparent, comprehensible or verifiable for suppliers, who are nevertheless bound by a 12-month notice period. The Complaints Board considered this to be unlawful. It therefore allowed the supplier's complaint. Vreugdenhil must amend its purchase conditions by 1 January 2025 in such a way that the monthly milk price is determined transparently, comprehensibly and verifiably. In addition, Vreugdenhil must shorten the notice period from 12 to 6 months.
The Complaints Board's decision will become a binding opinion if the dispute is not submitted to the courts within three months of the decision's publication. If Vreugdenhil subsequently fails to comply with the decision, the supplier will have the option of seeking compliance with the binding opinion with the civil courts. However, if Vreugdenhil submits the dispute to the civil courts within three months, compliance with the Complaints Board decision cannot be sought while the dispute is pending.
The Complaints Board decision on Vreugdenhil and the ACM decision on Lactalis share many similarities. Some passages from the Complaints Board decision seem to have been copied from the ACM decision. In addition, the former decision was published only a few days after the Lactalis decision. It is not clear whether this is the result of any consultations or coordination with the ACM. If it is, this raises the question of how this coordination can be reconciled with the Complaints Board's independence.
European developments
Spain stands out in its active approach to unfair trading practices. Out of approximately 1,400 investigations conducted by European enforcement authorities on their own motion in 2022, Spain was responsible for over 1,100 (in 2023: 830 out of 1,107). Further, Poland imposed a remarkably high penalty of over EUR 20 million on a buyer for unfair trading practices in 2023, while the other Member States imposed only EUR 2 million in penalties. Another remarkable aspect is that ACM's enforcement is mostly concentrated on unfair trading practices in the dairy industry, while other Member States focus primarily on retail level practices.
The European Commission (the "Commission") is currently conducting a survey to assess the effectiveness of measures taken by Member States. Suppliers have until 17 December 2024 to complete this survey. The Commission will present the survey results in 2025, if necessary in combination with legislative proposals. The survey into the Directive's effectiveness is part of a wider strategy to strengthen the position of suppliers in the agricultural and food supply chain. Other elements aim to improve cross-border enforcement in the event of unfair trading practices and to amend specific aspects of EU Regulation 1308/2013 establishing a common organisation of the markets in agricultural products.
