What next for the Agricultural & Food Supply Chain? Update on Grocery Code Adjudicator and the EU Directive on Unfair Trading Practices

What next for the Grocery Code Adjudicator?

The Grocery Code Adjudicator (GCA,) Christine Tacon, has been under pressure, not from disgruntled retailers, her proportionate and collaborative approach aiming to change culture for long term results rather than using the code as a stick to beat them with, means that not only has there been sustained long term results but that the regulated retailers are happy to work with her. Rather politicians have been increasing pressure seeking an easy replica of what she has achieved.  In the latest presentation of annual survey results of the GCA Christine Tacon has now however announced that, after 7 years in the role, she will be stepping down next June 2020. So what next for the GCA?

The GCA will be left with a proper structure, objectives and definable means of measuring these in the infamous nebulous world of murky contract terms with big retailers.

Next Targets

However, going forward for the next year what were the targets for the GCA?

  1. Inaccurate forecasting

By improving forecasting retailers will improve efficiency in their supply chain and reduce waste. This will be a win wine for retailers, the environment and consumers alike. It will also mean that suppliers won’t be left with excess stock or desperately trying to fulfil additional orders.

  1. Invoice discrepancies

The dirge of late payments has been hit on the head, it is up to the negotiation of contract terms, itself an unequal business for payment terms to be hammered out. However, where an invoice discrepancy occurs it should be the responsibility of the retailer to pay that part which is not under dispute according to the terms agreed. This will mean that suppliers are not stretched into capitulation in order to ensure some payment is made.

  1. De-listing / reduction in volume without reasonable notice

The key part here is in the term ‘reasonable’ – there is still freedom to contract however where there is such inequal power imbalance then any changes must be provided under reasonable notice.

How will this be achieved?

In short, by more of the same. Christine Tacon was challenged on her approach to not fining the Coop when it was within her remit to do so and her response? When a retailer is keen to cooperate, correct what has taken place and learn from it there is no value in fining them.  The aim over the coming 12 months is to work with all the retailers to ensure an organisational approach to code compliance from top to bottom via governance structure, legal and audit functions, systems and processes as well as training.

Who else will be governed by the Code?

The pressure to include more of the supply chain and more retailers is constantly present. This is not a decision for the GCA office however but is currently under review.

The GCA believe there should always be freedom to contract; however there needs to be a level-playing field for retailers of a comparable size.  There should be no use of arrangements to allow regulated retailers to work outside the Code and this will include Co-op, the independent societies ordering through it, the retailers’ use of intermediaries and Tesco’s Booker and Franchises.

EU Directive on Unfair Trading Practices in B2B in the Agricultural Food Supply Chain

On 9 April the EU Council formally approved the directive and the legislative act was signed on 17 April 2019.  EU member states will have 24 months to introduce the new rules into national legislation. This will therefore be the next big stage in policing the agricultural and food supply chain; even if Brexit takes place this year then all trade with the EU will be ultimately governed by this for agricultural and food producers.

The Directive 2019/633  highlights the that whilst risk is inherent in all economic activity, agricultural production is particularly fraught with uncertainty due to its reliance on biological processes and that differences in bargaining power means a minimum standard of protection against certain manifestly unfair trading practices should be introduced.  

It was agreed that Unfair Trading Practices (UTPs) occur throughout the food supply chain with smaller operators more vulnerable to these practices due to weaker bargaining power compared to larger operators. The Directive distinguishes between two types of trading practices. Those that may be unfair in nature, but may be acceptable if clearly agreed by the parties, and become unfair only when applied without agreement such as: late payment for perishable foods; short notice cancellation of orders of perishable foods, unilaterally and retroactively changing the terms of the supply agreement and having a supplier pay for the wastage of food products on the buyer’s premises not caused by the negligence or fault of the supplier.  Further additional trading practices would be prohibited unless agreed in clear and unambiguous terms in the supply agreement; such as, returning unsold food products to the supplier, charging the supplier for stocking, displaying or listing their products by the buyer, charging the supplier for the promotion of products sold by the buyer and charging the supplier for the marketing of products by the buyer.

A directive rather than a regulation provides some discretion for member states whilst providing an EU wide framework.  

Member states would be obliged to designate a public authority charged with enforcing the rules. This body would be able to conduct investigations and impose fines in case of proven infringements. The enforcement authorities of member states would have to cooperate with each other and the Commission would facilitate this cooperation and manage a website for the exchange of information. The Directive allows individual Member States to introduce stricter rules designed to combat unfair trading practices than those laid down in the Directive to ensure a higher level of protection.

The Directive will seek to protect the supplier directly and will mean that Europe will look very much to the format, structure and working of the GCA to possibly replicate this model. 

Questions were raised at the GCA event how Brexit might impact on the directive and any trade with Europe should be covered.  

It may well be that this particular piece of European legislation is needed more now more than ever for our UK food producers.

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