I thank the Chairman and I welcome this opportunity to brief the committee on the proposed draft directive on unfair trading practices in business to business relationships in the agrifood supply chain.
I will start with the legislative process for the draft directive. Commissioner Hogan presented this draft directive to the EU Committee on Agriculture and Rural Development, COMAGRI, for the first time in April this year. It is one of a range of initiatives aimed at strengthening the power of the primary producer in the food supply chain and improving transparency and predictability. In addition to the proposed directive, these initiatives include measures aimed at improving price transparency, support for producer organisations and co-operation between farmers, to improve their collective bargaining power and the possibility for them to make complaints regarding unfair trading practices.
The draft directive has since been discussed in detail at four meetings of a working group, and at four meetings of the Special Committee on Agriculture, SCA, to date. The Austrian Presidency has proposed a number of amendments to the Commission text on key issues based on these discussions, and today we received a further Presidency draft following the latest SCA discussion on 17 September.
When a general position is agreed by the Committee on Agriculture and Rural Development, it will form the basis for a mandate for negotiations with the European Parliament. The European Parliament, meanwhile, will bring forward its own proposed changes to the draft directive. Mr. Paolo de Castro, MEP, has been appointed as the rapporteur for the proposal to COMAGRI in the European Parliament. We understand that a plenary vote on the European Parliament’s proposals is planned for late October. Members may have seen the interesting debate on the proposal at COMAGRI yesterday afternoon in the European Parliament.
When an agreed approach is in place on the Council side and the Parliament side, trilogues will begin between the Council, the Commission and the European Parliament to seek agreement on a final version of the directive. The objective is to have the directive enacted before European Parliament elections next May. While this timescale is ambitious, all sides have made every effort to expedite the process.
I now turn to the unfair trading practices that are covered in the proposal. The proposed directive does not ban all potential unfair trading practices, UTPs, but instead establishes a shortlist of prohibited UTPs in the food supply chain. Article 43 of the draft directive classifies these UTPs into two groups. The first group are practices that are simply unfair; the second are practices that may be acceptable if clearly agreed by the parties, and would become unfair only when applied without agreement.
In terms of the first group, the four trading practices that would be prohibited outright are as follows:
A buyer pays a supplier for perishable food products as follows: in cases where the supplier presents the invoice, later than 30 calendar days after the receipt of the supplier's invoice, provided that delivery has been made; or in cases where the buyer presents the invoice, later than 30 calendar days after the date of delivery of the perishable food products, or where products are delivered on a regular basis under a supply agreement, later than 30 calendar days after the end of each month in which deliveries have been made;
a buyer cancels 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; a buyer unilaterally and retroactively changes the terms of the supply agreement concerning the frequency, method, place, timing or volume of the supply or delivery of the agrifood products or the quality standards or prices of the agrifood products; and, a buyer requests a supplier to pay for the deterioration or loss of agrifood products, or both, that occurs on the buyer's premises and is not caused by the negligence or fault of the supplier.
The four trading practices that fall into the second group would be prohibited, unless they are agreed in clear and unambiguous terms at the conclusion of the supply agreement. They are as follows: a buyer returns unsold agrifood products to a supplier; a buyer charges a supplier payment as a condition for the stocking, displaying or listing agrifood products of the supplier; a buyer requests a supplier to pay for the promotion of agrifood products sold by the buyer - prior to a promotion, and if that promotion is initiated by the buyer, the buyer shall specify the period of the promotion and the expected quantity of the agrifood products to be ordered; and, a buyer requests a supplier to pay for the marketing of agrifood products by the buyer.
I should note that I am citing the latest Presidency text dated 17 September. As I have explained, the text was updated today and has not yet been agreed as the Council position.
One important point to note is that Ireland has suggested that a clause be added to the section on payments within 30 days, which now reads as follows: "where products are delivered on a regular basis under a supply agreement, later than 30 calendar days after the end of each month in which deliveries have been made". Without this extra provision, the existing milk cheque payment system in Ireland might potentially have had to change, with significant additional administrative costs.
I shall now discuss the scope of the draft directive. In presenting the draft directive to the Agriculture Council in April, Commissioner Hogan emphasised that his aim was to provide a minimum common standard on unfair trading practices in the food supply chain across the EU. Many member states, but not all, already have specific national rules that protect suppliers against unfair trading practices occurring in business to business relationships in the agrifood supply chain. However, member states' unfair trading practices rules, where they exist, are divergent. This directive proposes to allow member states to integrate the relevant rules into their national legislation in such a way as to bring about a cohesive regime. Member states will not be precluded from maintaining, introducing, adopting or applying stricter national rules provided such rules do not interfere with the proper functioning of the Single Market.
The draft directive proposes the prohibition of certain unfair trading practices, UTPs, as I have outlined, which occur in terms of the sales of food products by a small and medium-sized enterprise, SME, supplier, including farmers, and to a buyer, that is a large entity and larger than an SME. The EU defines SMEs as "Enterprises which employ fewer than 250 persons and which have an annual turnover not exceeding €50 million, and/or an annual balance sheet total not exceeding €43 million". In setting out the directive in this way it seeks to contribute to ensuring a fair standard of living for those producers who are particularly vulnerable to UTPs, have the least bargaining power, and are least able to address UTPs without negative effects on their economic viability, particularly as agricultural products are perishable and seasonable, and subject to adverse weather conditions.
The issue of the scope of the proposed directive, in terms of the size of the entities concerned, has been a key issue for debate at the working groups and at the Special Committee on Agriculture, SCA. Some member states have suggested that, rather than being confined to small sellers and large buyers only, the scope should be extended to also provide protection to large sellers, and that the directive should also apply to small SME buyers. However, both the Council and Commission Legal Services have advised that the legal basis of Article 43.2 of the EU treaty, which is being used for the proposed directive, would be open to a legal challenge if the scope of the directive was extended. Article 43.2 allows for the Council to establish the common market for Agriculture and Fisheries to pursue the objective of Article 39b, which is as follows: "to ensure a fair standard of living for the agricultural community, in particular by increasing the individual earnings of persons engaged in agriculture".
Thus UTPs that threaten the profitability of farmers fall under the Common Agricultural Policy, CAP, and therefore the legal basis of Article 43.2, which contributes to the achievement of fair living standards for farmers, is an appropriate legal basis.
The Commission and Council Legal Services have indicated that if the scope is opened to all buyers and sellers, it will be protecting large companies against each other and Article 43.2 could not, therefore, be an appropriate legal basis. It is on the basis of this legal advice that Ireland, while recognising the desirability of extending the scope of the directive to address the issue of unfair practices, irrespective of the size of the entity, has acknowledged at the recent SCA meetings the concerns of the legal services about the legal basis for further extending the scope. Ireland also recognised the possibility, set out in Article 8 of the draft directive, for member states to lay down or maintain stricter rules to extend the scope to other types of buyers and suppliers and to prohibit other UTPs in national legislation. We have just received a revised Presidency text and there will be further discussion on this in the weeks ahead.
In terms of Irish legislation, at present in Ireland UTPs are addressed under our national legislation entitled the Consumer Protection Act 2007 (Grocery Goods Undertakings) Regulations 2016. Article 3 relates to "any food or drink that is intended to be sold for human consumption by a grocery goods undertaking engaged in the retail or wholesale of grocery goods in the State that has, or is a member of a group of related undertakings that has an annual worldwide turnover of more than €50 million so the entity covered is larger than an SME." Therefore in Irish law, the regulatory burden falls on large non-SME retailers and wholesalers only. A similar approach is in place in the UK where we export over 40% of our agrifood exports.
The Department of Business, Enterprise and Innovation, DBEI, is the lead Department in the area of UTPs at retail level in Ireland. Recently the Department completed a public consultation process on the draft directive. DBEI has been consulted by my Department, the Department of Agriculture, Food and the Marine, on each draft, while my Department has met stakeholders and kept them informed of developments.
Under the proposed directive, member states are required to designate a competent authority for enforcement of the agreed directive. At present in Ireland, the Competition and Consumer Protection Commission, CCPC, is the competent authority for the implementation of the existing Grocery Goods Undertakings Regulations 2016. The definition of buyer in the proposed UTP directive is considerably broader than in our grocery regulations. While likewise confined to large non-SME entities, a buyer is defined as an entity that "buys agrifood products by way of trade", so that, unlike the grocery regulations, it is not confined to retailers and wholesalers only. This considerably increases the number of entities that will require to be regulated under the directive. This will require that domestic legislation be amended to bring the directive into operation, and would also have significant resource implications and requirements for the enforcement authority envisaged in the draft directive.
So far Ireland has been successful in negotiations in suggesting additions to the draft Presidency text in ensuring that the milk cheque system that we currently have is not inadvertently affected by the 30-day payment rule, and also in addressing text that has raised constitutional issues for Ireland in terms of, for example, the issue of fines and the burden of proof.
In conclusion, I acknowledge, as has Commissioner Hogan, that this is very much a first step in tackling unfair trading practices across the EU. However, given Ireland‘s export focus, having that minimum common standard to protect smaller suppliers against larger buyers of food products across the Single Market would in itself represent significant progress in terms of transparency and predictability of supply arrangements, with benefits for the consumer as well as farmer.
I very much welcome the opportunity to hear the committee's input and answer the questions of members.
