Inception Impact Assessment on the Initiative to improve the food supply chain

Transcription

1 Position paper 1 / 5 Inception Impact Assessment on the Initiative to improve the food supply chain Ref. Ares(2017) Overall summary Finnish Commerce Federation welcomes the opportunity to comment on the Inception Impact Assesment (IIA) on the initiative to improve the food supply chain. To summarize our statement, we would like to raise the following points: We understand the difficulties farmers face and agree that farmers are crucial for the food supply chain. The IIA fails to identify what Commission is actually trying to achieve and to what extent the proposed actions would help the farmers. The political debate focuses on producer prices, fair value distribution within the supply chain and is addressing especially retailers practices. Retailers typically have few direct relationships with farmers. If the main purpose of the initiative is strengthening farmers position, addressing retailers contractual practices won t deliver this objective. We believe that the contractual relationships of the food supply chain can be best developed through self-regulation in the chain. In Finland, a self-regulation system based on Supply Chain Initiative (SCI) has been in use for a long time already, and retail is strongly committed to developing trading practices through this system. Regulating contracts in the food chain on European level would only add enormous administrative burden to companies, both big and small, in every stage of the food chain. The IIA also fails to identify the consumer interest, which is central for the functioning of the food supply chain. Any policy action to be taken must ensure that consumers are the final beneficiaries. Added bureaucracy to the supply chain and new derogations from the competition provisions to agricultural sector would hardly accomplish this. On the contrary, there should be minimal number of legal derogations from EU competition law in the agricultural sector. The impression given in public of the use of unfair trading practices in the food supply chain is based largely on perceptions, not facts. Support for this view also comes from a recent Finnish study 1 showing among other that on general level contracts are upheld and termination of the contract is not being used as a threat or punishment in contractual relationships in the supply chain in Finland (see also ANNEX 1). We urge the Commission to deliver an evidence-based Impact Assessment and to avoid proposing measures based on perceptions and emotions. 1 Kantar TNS, 2016:

2 Position paper 2 / 5 Objectives and policy options Unfair Trading Practices The IIA identifies three options to deal with the unfair trading practices. The Finnish Commerce Federation finds that the option 1, the status quo, is preferred. In Finland, as in the other EU countries, there is abundant specific and general legislation that is applicable to all contractual relations including the food supply chain. Along with that, competition law can be applied nationally or at the EU level, if the matter is, for example, one of abuse of dominant position. In this regard, legislation concerning the grocery trade were passed in 2014 in Finland. The matter was also handled in Finland in 2016 when a working group on competition legislation, set up by the Ministry of Economic Affairs and Employment, affirmed in its report 2 that there was no need for specific legislation for trading practices in the food supply chain. The working group noted in the report that Finland already has existing legislation that could be applied to problems in contractual relationships between parties in the food supply chain. Self-regulation is faster and more cost-effective way of handling business disputes than any legal framework. Retail sector in Finland is strongly committed to the Supply Chain Initiative, and developing trading practices on voluntary basis through this system. The Finnish platform of the SCI, The Board of Trading Practices 3, was founded in 2014 and renewed in 2017, and is operating in connection with the Finland Chamber of Commerce. The independent and impartial Board actively promotes fair business practices by interpreting the principles of good practice once a complaint has been filed. In addition to handling the complaints, the Board may issue recommendations, arrange discussion and training events as well as develop ethical principles in the food supply chain. The option 2 of the IIA suggest that EU-wide recommendations and guidelines could be given to foster common understanding of what practices are considered unfair. We agree that this could be helpful to promote good business practices and to support developing dialogue and selfregulation both on EU and national level. We do not see added value for EU level legislation as proposed in option 3 and option 4. In assessing the need and possible efficacy of legislation, the structure of contractual relationships in the food supply chain must also be acknowledged. Insofar as protection of primary producers is considered necessary, any such measures should not be directed at the retail sector. For example, in over 90% of cases in Finland, traders in the primary production sector make supply agreements with the food industry. The industry typically purchases from producers only open-air vegetables of various kinds. Only about 5% of the procurement contracts made in the 2 The Ministry of Economic Affairs and Employment, report 20/

3 Position paper 3 / 5 retail sector are made with producers. Of the total value of procurements in the retail sector, producer agreements account for only about one percent. Agriculture Food industry Retail The vast majority of primary production supply agreements are made with the food processing industry. Clearly less than 10% of agreements are done directly with retail. The food industry is the principal purchaser of agricultural products and services. The other contracting party in industrial supply agreements is usually the grocery trade. Businesses in the retail sector almost wholly purchase the foodstuffs from the food industry. Of all the procurement contracts made in the retail sector, only 5% are made directly with primary production. Prohibiting specific practices (option 3) is not a feasible option. These kinds of black lists are not suitable for B2B relationships, as matters typically cannot be categorised always to be fair or unfair. Each situation should be assessed case by case without restricting the freedom of contract. Making it more difficult for retailers to negotiate with their suppliers will increase pressure on the price negotiation. This will not benefit farmers and will ultimately run against consumers interests who will be facing higher prices. The assumption that a common EU framework could encourage stakeholders buy-in to voluntary initiatives is flawed. On the contrary, we believe that companies would lose any incentive to join voluntary initiatives, if a common EU legal framework would be in place. A combination of parallel and divergent legal and voluntary framework is not a workable solution for companies, who are seeking first and foremost legal certainty. Producer co-operation As stated above, any policy action to be taken must ensure that consumers are the final beneficiaries. New derogations from the competition provisions to agricultural sector would create a risk of unlawful competition restrictions and anti-competitive effects. In our view, there should be minimal number of legal derogations from EU competition law in the agricultural sector. On the contrary EU, agricultural policy should create incentives for farmers to adapt to modern market dynamics without adding new legal instruments, which would only maintain the current structural inefficiency in the agricultural sector. Finnish Commerce Federation finds option 1 preferred.

4 Position paper 4 / 5 Market Transparency We have reservations about introducing new EU-level obligations to report on prices. Especially in small market areas like Finland and other Nordic countries, where both retail and food processing industries are highly concentrated, there lies a risk of providing competitors with too much information. This could ultimately lead to anti-competitive effects and higher consumer prices. Finnish Commerce Federation finds option 1 preferred. Preliminary Assessment of Expected Impacts We have serious doubts as to how EU level legislation on unfair trading practices could either help increase disposable farm income an investment possibilities or facilitate business activity in the EU Single Market as stated in the IIA. On the contrary, we are concerned about the compliance cost of legislation for businesses at all levels of the chain, from farmers to retail. We would ask the Commission to duly assess this. Especially Commission should consider to what extent internal market issues arise from different national regulations and schemes and how the suggested measures will help address market fragmentation. So far no evidence has been provided to show that any possible unfair trading practices in some individual country or other might affect trade between the Member States. We are also very concerned that nowhere in the IIA, the consumer interest is given any consideration. There are several policy options in the listed three objectives, which could lead to higher consumer prices as mentioned above. We would ask the Commission to look at this a lot more closely in its Impact Assessment. More details: Senior Advisor Janne Koivisto, janne.koivisto@kauppa.fi

5 ANNEX 1 ANNEX 1: Trade practices in the Finnish Food Chain in various contractual relations, Kantar TNS The study was commissioned by Finnish Grocery Trade Association, Finnish Food and Drink Industries' Federation and Central Union of Agricultural Producers and Forest Owners (MTK).