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The Croatian Act on the Prohibition of Unfair Trading Practices in the Food Supply Chain aligned with EU rules

The Croatian Act on the Prohibition of Unfair Trading Practices in the Food Supply Chain aligned with EU rules

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The amendments of the Act on the Prohibition of Unfair Trading Practices in the Food Supply Chain (the “Amended Act”) shall enter into force on 1 September 2021, with a few exceptions. The main reason for adopting these amendments was transposition of the Directive (EU) 2019/633 of the European Parliament and of the Council of 17 April 2019 on unfair trading practices in business-to-business relationships in the agricultural and food supply chain (the “Directive”) into the local legal regime. The Directive aims to set out the minimum Union standard of protection by harmonizing Member States’ diverging measures relating to unfair trading practices. With these amendments, the Amended Act is further harmonized with EU acquis.

The Amended Act left a deadline of six months from the date of its entry into force for harmonization of the contracts between suppliers and customers – i.e. until 1 March 2022.

Below is an overview of the most important changes.

  • The range of agricultural and food products has been expanded.

First, it should be noted that the definitions in the Amended Act are in line with the definitions in the Directive. As an example, the term “buyer” was introduced to replace previously used, more narrowly defined terms, and the term “food” was expanded to include “agricultural and food products”.

The list of “agricultural and food products” is set out in the Schedule 1 of the TFEU and will also be reflected in a bylaw which is yet to be adopted by the Croatian Ministry of Agriculture.

The Amended Act also defines “production and market sensitive agricultural and food products” for which it prescribes (i) the final selling price, below which such a product may not be sold to the final consumer and which is formed by multiplying the purchase price of the product by minimum factor of 1.10 and (ii) the limit of the price of such products on sale, which may not be lower than 34% of the final selling price of such a product for the final consumer.

  • The number of addressees to the Amended Act has been expanded by defining the term “buyer” and redefining the scope of the term “significant bargaining power”.

Under the Amended Act, the “buyer” is defined as any natural or legal person, regardless of the business address of that person, that purchases agricultural and food products. The definition of the buyer also encompasses any public body in the European Union or any public body (defined in accordance with the regulations governing administrative disputes) that purchases agricultural and food products, or a group of such natural and legal persons. Previously, there was not a unique definition of a buyer, but rather the law contained separate definitions for a purchaser, trader and a food processor. The definition of a buyer under the Amended Act encompasses a purchaser, a processor and a trader.

The list of addressees to the Amended Act has also been expanded by lowering the threshold of buyer’s total annual turnover which is an indication of having a “significant bargaining power”. Buyers with “significant bargaining power” now encompass all buyers and affiliated companies with a total annual turnover of more than HRK 15 million (approx. EUR 2 million). It should be noted that this is a significant difference, as the threshold was previously set at a substantially higher amount – i.e. it applied to “traders” whose total annual turnover exceeded HRK 100 million (approx. EUR 13,5 million), and “purchasers” or “processors” whose total annual turnover exceeded HRK 50 million (approx. EUR 6,5 million). Furthermore, the Croatian Competition Agency may require the buyers to provide information relevant to the determination of their annual turnover. If the buyer does not comply with this request within the required deadline, he will be considered as having significant bargaining power and may also be subject to misdemeanour fines. This is a rebuttable presumption, but the burden of proof is on the buyer.

The Amended Act is furthermore directly applicable to contracts between suppliers and buyers governing the purchase and sale of agricultural and/or food products, regardless of the law applicable to such contracts.

  • New unfair trading practices

The Amended Act divides unfair trading practices to (i) those that are always and strictly prohibited, and (ii) those that are prohibited, but exceptionally will not be considered as such if they are clearly and unambiguously agreed before the implementation of such practices and provided that they meet the conditions for exemption from the prohibition established by the Amended Act.

The rules regarding exemption of certain practices from the general ban have also been amended. For example, charging a fee to a supplier for product marketing will not be considered as unfair if marketing of agricultural and food products carried out by the buyer is explicitly requested by the supplier and provided that the payment is based on objective and reasonable estimates.

The list of trading practices which are considered as unfair has been increased from 33 to 43, out of which 25 are strictly prohibited i.e. they cannot be exempt. In this respect, the Amended Act introduced all the practices prescribed under the Directive (such as various types of payment for perishable and other agricultural and food products, provisions on cancellation of orders by the buyer of perishable agricultural and food products and provisions on unilaterally change of the terms, etc.) as well as two additional unfair trading practices. The two additional unfair trading practices will be in force as of 31 March 2024 and they are as follows:

  • sale of production and market sensitive agricultural and food products below the final selling price; and
  • sale of production and market sensitive agricultural and food products on sale at a selling price that is below 34% of the final selling price for the final consumer.

According to the stance of the Croatian Competition Agency during the discussions on adoption of the Amended Act, the two additional unfair trading practices were added following examples of some of the EU Member States which recognised the importance of these kinds of products as being paramount to the overall food security of a country.

  • Unannounced controls

The Amended Act further introduced right of the Croatian Competition Agency to conduct unannounced controls. During such controls, the Croatian Competition Agency may inspect the documentation and/or business premises of the buyers, temporarily confiscate items, business books and other necessary documentation, seal the premises and/or business book or documentation etc., and is authorized to perform “other actions necessary to achieve the goal of unannounced control”. In this sense, the Amended Act authorizes the Croatian Competition Agency to act on petitions or other information filed by third parties.

  • Cooperation with the European Commission and the implementing bodies of other Member States

According to the Amended Act, the Croatian Competition Agency will closely cooperate with the implementing bodies of other EU Member States and the European Commission in the procedures for establishing unfair trading practices in the supply chain of agricultural and food products. This particularly includes exchange of information and experiences on best practices, new cases and new developments in the field of unfair trading practices, implementing measures adopted in the procedures for establishing unfair trading practices and providing assistance in the procedures for identifying unfair trading practices which have a cross-border dimension.

  • Fines

As for the criteria for imposing fines, the Amended Act introduced new mitigating circumstances (e.g. the fact that unfair trading practices, although contracted, have not yet been applied), but also additional aggravating circumstances (failure to comply with the Croatian Competition Agency’s decision to accept commitments and disabling or otherwise resisting the exercise of unannounced controls).

Also, in case of repeated violations, the amount of fine may be increased by up to 100%, and by additional 50% for every other established case of violation but may not exceed the maximum amount prescribed for certain violations.

Exceptionally, in a situation where the Croatian Competition Agency established that (i) a violation has occurred, but the severity, the extent, the duration and the consequences thereof are negligible for both the suppliers and the public interest, and (ii) provided that, before the notification on the preliminary established facts of the case, the party in breach has submitted evidence that it has settled its obligations towards the supplier and harmonized its operations with the provisions of the Amended Act, the Croatian Competition Agency may further reduce the amount of the fine.

  • Other changes

The Amended Act also contains certain provisions that facilitate business, such as an exception to the prescribed obligation to enter into a written contract. A written contract is exceptionally not required if the supplier accepts an offer containing publicly announced and binding conditions of the buyer who buys the primary agricultural product on the purchase block for its further sale or processing, provided that the offer contains provisions on terms such as price, quality, payment, delivery, etc. of the agricultural or foods product sold to the buyer.

In addition, the buyer, as a party to the proceedings, is now entitled to propose commitments to the Croatian Competition Agency that would alleviate the Agency’s concerns within 60 days of receiving notification of the initiation of the proceedings. If the Croatian Competition Agency accepts the proposed commitments, it will suspend the proceedings without finding of the breach.

The information in this document does not constitute legal advice on any particular matter and is provided for general informational purposes only.

By Nika Jurkovic, Attorney at Law at Ilej & Partners in cooperation with Karanovic & Partners

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