One year has passed since the Act on Counteracting the Unfair Use of Contractual Advantage in the Trade of Agricultural and Food Products entered into force. The act aimed to protect small farmers and grocery suppliers from the abuse of power by large supermarkets and chain stores. During the past year, the Office for Competition and Consumer Protection (OCCP):
- issued one decision regarding the unfair use of contractual advantage;
- launched formal proceedings in two other cases; and
- conducted a number of explanatory investigations.
Further, inspections were carried out at soft fruit purchasing centres and a report on the dairy sector was released. In July 2018 the government adopted an amendment to the act which will allow the OCCP to intervene in cases involving smaller farmers.
OCCP's decisional practice
The OCCP has issued only one decision based on the act so far. In March 2018 it imposed commitments on Cykoria SA, a producer of food concentrates. In the final decision, Cykoria was ordered to amend its contracts with carrot suppliers by:
- providing advance information on the place and date of planned delivery;
- shortening the payment term to 45 days; and
- removing the obligation on suppliers to pay a fee to a trade organisation.
As the case was closed with a commitment decision, no fine was imposed on the party.
Moreover, the OCCP launched formal proceedings against two other companies which, according to the OCCP's press releases, had applied distant payment dates in their contractual relations with suppliers. The abovementioned cases are the result of exploratory investigations into the soft fruits market, during which inspections at 29 soft fruit purchasing centres were carried out to verify whether:
- fruit prices were being set in accordance with the law; and
- purchasing centres had unfairly used contractual advantage in relation to farmers.
Dairy sector report
One of the OCCP's first investigations following the act's entry into force concerned the relationship between milk processers and their suppliers. The investigation revealed some practices which could be seen as conducive to an abuse of contractual advantage. For example, the OCCP had doubts about whether exclusivity clauses that forced suppliers to provide all of their milk to one specific dairy or provisions that allow purchasers to terminate contracts without a notice period were abusive.
One year after the act's entry into force, the government adopted an amendment, which has yet to go through Parliament. The proposed changes aim to protect a larger number of farmers. At present, the act is applicable only to agreements between parties where:
- the total mutual turnover between the purchaser and the supplier in previous year (or during any of the two preceding years) exceeded Z50,000 (approximately €13,000); or
- the turnover of the party that applied the questionable practices exceeded Z100 million (approximately €25 million) in the previous year.
- Under the proposed amendment, the abovementioned turnover thresholds will be abolished. Changes have also been proposed to:
- ensure the anonymity of the complainant in cases regarding the unfair use of contractual advantage; and
- empower the OCCP to pronounce an immediately enforceable decision (which means that the practices analysed in a decision will have to be stopped immediately).
Although in the past year the OCCP issued only one decision regarding the unfair use of contractual advantage and launched only two other formal proceedings, it should be acknowledged that it has been actively enforcing the new law. Numerous actions that the OCCP has taken since the act's entry into force show that it has given a lot of consideration to ensuring that the food supply chain functions properly.
Moreover, the result of the proposed changes will be an increased number of cases in which the OCCP will be empowered to intervene and issue a decision due to the abolishment of the current turnover thresholds.
By Anna Turi, Counsel, Andras Nagy, Associate, Mark Kovacs, Associate Schoenherr