The article was prepared especially for the news portal "Delfi"
On 1 November, the Prohibition of Unfair Trading Practices Law entered into force. The aim of the law is to prohibit unfair trading practices throughout the agricultural and food supply chain and prohibit the use of the buying power of the non-food retailers against suppliers. Compliance of market participants' actions with the new law will be supervised and controlled by the Competition Council of Latvia (the CC).
The new regulation was introduced to transpose the European Union (EU) Directive on Unfair Trading Practices in Business-to-Business Relationships in the Agricultural and Food Supply Chain and integrate the Unfair Retail Trade Practices Prohibition Law, which was in force till November 1, into one legal act. Until now the law did not apply to all companies in the agricultural and food supply chain, but only to the relationship between retailers and suppliers. The new law also contains provisions for the retail sale of non-food products, however these provisions had not been changed significantly from the Unfair Retail Trade Practices Prohibition Law and will not be discussed in detail in this article.
The provisions of the new law apply to the relations of all buyers with all suppliers, regardless of their turnover observing the principle of equality. Namely, all suppliers will be protected against unfair trading practices by the buyer. It should be noted that the provisions of the new law must be observed by all its subjects – buyers and retailers of non-food products – in relation to suppliers who are established outside Latvia, including outside the EU.
Prohibition of unfair trading practices
With the adoption of the directive, the EU has set common standards, or minimum lists of prohibited trading practices in relations between suppliers and buyers in the agricultural and food supply chain, which must be observed in all the Member States. Some practices are so called “black-list” practices, which are prohibited in all situations, and some are “gray-list” practices, which are prohibited unless the relevant terms are clearly and unambiguously stated in advance in a written agreement between the supplier of agricultural and food products and the buyer. Furthermore, in addition to the above-mentioned unfair trade practices, the law lists prohibited practices regarding payment terms for delivered agricultural and food products.
“Black-list” – always prohibited trading practices:
- make unilateral changes to the agreement;
- require payments not related to the sale of the agricultural and food products (e.g. pay for entering into a contract, reimburse administrative costs, pay for the goods being present at the selling point, compensate for lost profits, reimburse the costs of setting up new sales locations and restoring old sales locations );
- require the supplier to pay for deterioration and loss of agricultural and food products at the buyer's premises;
- request compensation for the costs of handling customer complaints;
- return unsold products (exception - low-quality goods, new and unknown to consumers);
- impose unfair and unjustified sanctions for the violation of contractual provisions;
- refuse to confirm in writing the provisions of a supply contract;
- misuse of a trade secret;
- threats or use of commercial retaliation against the supplier;
- cancellation or change the order at the last minute;
- not accepting products from the supplier with a 2/3 long shelf-life;
- demand the lowest prices;
- to claim the costs of employing staff for fitting-out premises used for the sale of products;
- require a payment for stocking , listing or making agricultural and food products available on the market;
- demand unfair, unreasonable, or non-contractual payments (discounts).
“Gray-list” – prohibited trading practices, unless the written agreement explicitly states otherwise:
- require direct or indirect payment for advertising;
- require direct or indirect payment for the marketing of products;
- require direct or indirect payment for logistical service;
- require the purchase of goods, services or property from third party specified by the buyer;
- apply promotional discounts to products not sold during the promotion.
The buyer shall provide the supplier of agricultural and food products with a clear and traceable written justification for the total payment or payment per unit in the case of requesting payment for the goods being present at the selling point, in the case of requesting a bulk or campaign discount, and in the case of requesting payments for advertising, marketing and logistical service. In addition, upon the request of the supplier of agricultural and food products, in situations where payments are imposed for advertising, marketing and logistical service, the buyer shall also provide an estimate with objective and traceable costs and their justification.
Payment periods for delivered agricultural and food products may not exceed 30 days after their delivery for perishable products, i.e. products which, because of their nature or at the appropriate stage of processing, are to become unfit for sale within 30 days of their harvesting, preparation or processing and 60 days after their delivery to non-perishable products. In the case of fresh vegetables and berries the retailer of agricultural and food products shall pay the producer or producer cooperative society no later than 20 days after their delivery.
Suppliers protected by the law
The new law protects a wider range of operators in the food supply chain or expands the range of agricultural and food suppliers protected from unfair trade practices. This is because the Prohibition of Unfair Trading Practices Law applies to all operators of the agricultural and food supply chain – retailers, food processors, wholesalers, cooperatives, producer organizations and individual producers, as well as to public buyers of agricultural and food products.
At the same time, the terms “buyer” and “supplier” used in the new law will apply to both physical and legal persons. Therefore, it is important to emphasize that the same operator in the agricultural and food supply chain can be both the buyer and the supplier. When an operator in the agricultural and food supply chain acts as a buyer, it must comply with the new law.
It should be noted that only the practices of direct buyers in relation to the supplier from whom they purchase products are to be assessed under the new law. Whether such a direct relationship exists between the supplier and the buyer, where intermediaries also conclude contracts with buyers on behalf of the supplier or vice versa, must be assessed on a case-by-case basis in the light of the actual circumstances. For example, regarding co-operation / procurement groups, the CC has explained that their activities are to be considered as those as of retailers.
Imposition of effective sanctions
The new law allows the CC to decide on imposition of a legal obligation, imposition a fine and issuing warnings, if it finds violations in the cooperation of market participants. In addition, an upgrade of the new law that was not included in the previous law is a warning procedure. Thus, when assessing the circumstances of the violation, it’s nature and other circumstances, the CC is entitled to replace the decision on the fine with a warning.
Regarding the imposition of a fine, the Prohibition of Unfair Trading Practices Law does not differ from that specified in the previous regulation Unfair Retail Trade Practices Prohibition Law, namely, the CC is entitled to impose a fine a buyer and a retailer of non-food products of up to 0.2% from its net turnover in the last reporting year, but not less than 70 euros.