As part of the modern agri-food supply chain, small and medium-sized food producers must often transact with large and powerful buyers. The resulting imbalances in bargaining power and the contractual arrangements that this can give rise to has led to EU legislation in the form of Directive 2019/633 on unfair trading practices (UTP) in business-to-business relationships in the agricultural and food supply chain (UTP Directive) that seeks to prevent larger actors in the supply chain from imposing particularly onerous contractual terms on their smaller commercial partners. The UTP Directive is transposed into Irish Law by the European Union (Unfair Trading Practices in the agricultural and food supply chain) Regulations 2021 (UTP Regulations).
What are Unfair Trading Practices?
There are ten practices that are prohibited in all circumstances by the UTP Regulations. These are referred to as “black clauses” and comprise of clauses such as
- Making payment later than 30 days for perishable agricultural and food products, and
- Cancelling orders for perishable agricultural and food produce at short notice
There are also six practises that are prohibited by the UTP Regulations unless the parties have agreed to them in clear and unambiguous terms. Examples of these so called “grey clauses” include
- Returning unsold products to the supplier without paying for those unsold products, or
- Obliging the supplier to pay for advertising by the buyer
What agreements do the UTP Regulations apply to?
The UTP Regulations apply to agreements for the sale or supply of agricultural and food products between food suppliers and buyers where the supplier has relatively weaker bargaining power than the buyer, based on annual turnover.
The UTP Regulations have been applicable since 1st July 2021 to all new supply agreements entered into on or after 28th April 2021. From 28th April 2022, all supply agreements that were in place before 28th April 2021 must also comply with the UTP Regulations.
What powers does the UTPEA have?
Enforcement of the UTP Regulations is currently the responsibility of the UTP Enforcement Authority (UTPEA) which sits within the Department of Agriculture, Food and the Marine (DAFM).
As set out in its enforcement policy document available on its website, an important goal of the UTPEA is the development of a culture of compliance with the UTP Regulations through:
- Industry engagement
- The provision of guidance, and
- Analysis of data on industry compliance actions reported on a voluntary basis
The UTP Regulations also provide the UTPEA with various powers of investigation including the ability to undertake unannounced on-site inspections and compel buyers and suppliers to provide it with information. If the UTPEA believes that the UTP Regulations are not being complied with, authorised officers appointed under the UTP Regulations can issue Compliance Notices requiring buyers to:
- Cease a practice prohibited by the UTP Regulations
- Pay for an order of perishable products which were cancelled at short notice, hence prompting the complaint
- Return payments to a supplier, and/or
- Cease a specified operation or activity on a premises
Failure to comply with a Compliance Notice is a criminal offence which is punishable:
- On summary conviction by a class A fine or up to 6 months' imprisonment or both, or
- On conviction on indictment by a fine not exceeding €500,000 or up to 3 years' imprisonment or both
A buyer has a right to appeal a Compliance Notice to the District Court.
Activity Report 2021
The UTP Regulations require the Minister of Agriculture to publish an annual report detailing the number of complaints reviewed and investigations initiated or concluded during the previous year. The Minister may also publish details of decisions relating to certain infringements under the UTP Regulations and information concerning the initiation of proceedings and the imposition of fines and penalties. In the 2021 report, the following activities were highlighted:
- Establishment of a dedicated website containing links to various resource materials for both suppliers and buyers, and
- Stakeholder engagement activities such as media advertisements, press releases, trade show attendances and engagement with liaison officers nominated by the five largest retailers and three largest food wholesalers operating in Ireland
No complaints were received by the UTPEA on the UTP Regulations, and no investigations were opened by the UTPEA in the reporting period.
The 2021 Report went on to list the following as priorities of the UTPEA for 2022:
- Buyer engagement: Continued regular engagement with liaison officers nominated by large buyers along with the publication of further resource materials and information including a buyer checklist
- Supplier engagement: A market research survey of suppliers to ascertain levels of awareness of the UTP Regulations and inform the UTPEA of the issues of most concern to suppliers
- Awareness raising: A major seminar event and comprehensive awareness campaign on the UTP Regulations covering radio, print and social media channels
- Engagement with other enforcement authorities: Formal and informal meetings with other EU Member State enforcement authorities
- Transition of functions to a new State body: Transfer of powers and handover of material gathered as part of activities to a new ‘Office for Fairness and Transparency in the Agri-Food Supply Chain’
In February 2022, the UTPEA commissioned a set of surveys addressed to primary producers and downstream business suppliers. The survey had the stated aim of measuring awareness of the UTP Regulations and informing the UTPEA of the UTP-related issues of most concern to Agri-food suppliers. Key insights from this research, which was presented at a seminar in May 2022, include:
- 14% of primary producers and 1 in 5 business to business (B2B) suppliers surveyed were aware that, as a supplier of agri-food product, they have legal protection against 16 specific unfair trading practices
- 1 in 4 primary producers and over half of B2B suppliers surveyed claimed to have been subjected to an unfair trading practice
- When prompted, 1 in 4 primary producers and half of B2B suppliers surveyed claimed to have been subjected to a Black UTP in the past two years
- 6% of primary producers, versus 3 in 10 B2B suppliers, surveyed were subjected to a Grey UTP
- About half of primary producers and B2B suppliers surveyed that were subjected to a Black or Grey UTP raised the issue with the buyer. The main reasons given for not raising the issue was fear of retaliation from the buyer and that the practices would be considered as common practice
In March 2022, the General Scheme of the Agricultural and Food Supply Chain Bill 2022 (the 2022 Bill) was approved by Cabinet. Like the UTP Regulations, the 2022 Bill aims to strengthen the position of farmers, fishers and other suppliers in the agricultural and food supply chain. The 2022 Bill makes provision for a new independent statutory authority, the Office of Fairness and Transparency in the Agri-Food Supply Chain. This would replace the UTPEA as the Ireland’s designated enforcement authority with responsibility for enforcing rules on unfair trading practices. It is envisioned that the coming into force of the 2022 Bill will involve the repeal of the UTP Regulations and the transfer of enforcement functions from the UTPEA to this new body.
Although changes to the regime implementing the UTP Directive in Ireland are planned, for now the UTP Regulations continue to apply. Stakeholders can do a number of things to keep track of future developments and clarify the possible impact that this legislation can have on their business:
- Determine whether the UTP Regulations apply to their contractual relationships using the relevant relative turnover figures which are:
Less than €2m
€2m - €10m
€10m - €50m
€50m - €150m
€150m - €350m
- Review their agreements to ensure that they are compliant with the UTP Regulations and ensure that none of the "black" practices are included. If buyers wish to include any "grey" practices in their agreements with suppliers, they should ensure that this has been previously agreed in clear and unambiguous terms in the supply agreement
- Buyers can review the “Buyers Business Checklist for the UTP Regulations” recently published by the UTPEA to help them take all the necessary measures to ensure compliance with the UTP Regulations
- Suppliers can consult the “Quick Guide for Suppliers on the UTP Regulations”, also published by the UTPEA and familiarise themselves with the UTP Regulations and protections afforded to them
- All stakeholders should continue to monitor the 2022 Bill as it moves through the legislative process and watch out for any features of the new legislation that would alter the existing UTP rules in Ireland
The content of this article is provided for information purposes only and does not constitute legal or other advice.