North Macedonia has taken a significant step in regulating market competition with the enactment of the Law on the Prohibition of Unfair Trade Practices in the Supply Chain of Agricultural and Food Products (Law).
This legislation, modeled after the eponymous EU Directive 2019/633 and the respective laws of Croatia, Slovenia, Bulgaria, and Sweden, aims to create a fairer marketplace, particularly for small and medium-sized enterprises and farmers who often face disadvantages when negotiating with large buyers. The Law is expected to curb abusive practices and improve market dynamics, but it also raises significant questions about its potential impact on businesses and consumers, as well as the economy in general.
Suppliers and buyers of agricultural and food products established in North Macedonia were forced to amend the existing distribution agreements or to conclude new ones by September 27, 2024, prior to the product’s delivery. This was an arduous process that completely changed their business relationships.
Suppliers can no longer demand buyers purchase products they do not seek and the agreed delivery period of the products cannot exceed 30 days. On the other hand, buyers shall cease predatory practices ranging from the use of sufficient bargaining power, unilateral contract modifications to delayed payments, unfair delisting of products, return of expired, spoiled, or damaged goods at the manufacturers’ expense, requesting investigation or complaint-related costs excessive to reasonable administrative fees. These are only several out of 26 unfair trade practices which the Law provides.
However, it is of utmost importance that the Law restricts the expenses that buyers were imposing on suppliers. Currently, the buyer may be granted discounts and some ‘fair’ compensations for storage, personnel, advertising, and marketing of up to 10% of the annual turnover. Though promotional discounts are excluded from this limitation, any other payments to the buyer are prohibited, especially if they are not related to the sale of products.
By implementing this regulatory framework, North Macedonia aspires toward a competitive and transparent business environment in which all market participants adhere to defined and equitable standards, stimulating growth while deterring exploitative conduct. Eliminating dominant players may discourage foreign investments, but it enhances market stability and predictability. It offers the prospect of better financial liquidity for smaller suppliers and bolsters the national economy by facilitating domestic production and innovation. As to buyers, while ethical business practices encourage more sustainable cooperative relationships with suppliers, the operational costs may escalate. This potentially leads to buyer’s reliance on cheaper international suppliers, who are not subject to the Law until North Macedonia’s accession into the EU. Otherwise, higher consumer prices in the short term are a feasible salvation for buyers.
Yet, the mentioned challenges are often overlooked when discussing the Law. The mere focus is placed on the fact that previously, discounts determined by the (large) buyers were reaching an insane 40%, thus resulting in constant price increases of the products so that the suppliers could accept the set terms and sell their products. As a result, it is expected that the Law will positively affect the final price of 2,548 agricultural and food products. Capping discounts and compensations aims at price stabilization, a gradual price reduction, and better product availability in the long run. As a result, inflation should also be limited and the living standard of the citizens should improve. Nonetheless, this will only happen if buyers do not increase the margins and, consequently, product prices, keeping in mind that the Law regulates the relationship between the suppliers and the buyers and not the margins. For the time being, this is prevented by occasional governmental decisions controlling the maximal margins or prices of essential food products. However, this is not a permanent solution. The effectiveness of the Law will depend on how well it balances protecting businesses while maintaining products’ affordability for consumers.
Ultimately, North Macedonia’s Law on the Prohibition of Unfair Trade Practices in the Supply Chain of Agricultural and Food Products represents an important milestone toward ensuring fair competition and economic stability and growth. By rectifying systemic power imbalances, unfair contract terms, and excessive discounts, the legislation lays a solid foundation for protecting businesses and consumers alike while strengthening the economy. However, its true efficacy will be determined by the rigor of its enforcement, its subsequent adaptability to the market reality, and the willingness of market participants to embrace fair trade practices.
By Sonja Anastasova, Head of Regulatory and Compliance, Bona Fide Law Firm
This article was originally published in Issue 12.3 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.
