B2B alert: New illegal terms in the food sector

It is quite normal for everyone to find their favorite products in the supermarket. Unfortunately, this sometimes hides a difficult relationship between suppliers and their customers.

Often the sourcing of these products is the result of tough negotiations between supermarkets and their suppliers. Several recent press articles and documentaries have shown that suppliers are often in a very weak economic position compared to the big players.

To put an end to these sometimes unbalanced relationships, a directive has been published on unfair trading practices between companies active in the agricultural and food supply chain. As this directive must be transposed into Belgian law, despite the recent introduction of B2B legislation, it was necessary to intervene again in the freedom of contract between companies.

1. Why?

When the Belgian legislator adopted the B2B law in April 2019, it was not the only one to interfere in contractual and commercial relations between companies. In the same month, the European Parliament adopted the Directive on unfair trading practices in business-to-business relations in the agricultural and food supply chain.

The food supply chain is characterized by a large number of original producers (farmers and manufacturers) and a large consumer market, with only a handful of buying offices and supermarket chains in between. This is called an hourglass model, which in itself leads to a major imbalance in the economic and legal power relations between the different actors.

This prompted the European legislator to ban a series of commercial practices and specific clauses within this sector.

This directive was to be transposed in the national Member States before May 1, 2021 and enter into force on November 1, 2021. However, it was only recently, on November 18, 2021, that the final transposition law was adopted in Belgium. So for now, we are waiting for its final publication and entry into force.

2. Who is involved?

The directive aims to curb a number of existing business practices within the food supply chain. The scope is very wide.

All B2B agreements between buyers and suppliers of the agricultural and food supply chain will have to comply with them, unless the supplier achieves an annual turnover of more than 350 million euros. The latter are therefore considered to be large suppliers, who need less protection.

In addition, the directive applies to activities concerning all food and agricultural products: perishable and non-perishable, natural or processed, intended for human or animal consumption.

It is therefore clear that this legislation will apply to almost all actors and all food agreements.

In addition, it does not make any territorial distinction. As soon as the supplier or the buyer is established in the European Union, the laws will have to be respected.

3. What does the adopted transposition law provide for?

First of all, Belgian law goes further than the minimum harmonization proposed by the EU in certain areas. Regarding content, both illegal clauses and unfair market practices can be identified in the new B2B regulation.

Regarding these illegal practices, a distinction is also made between blacklist clauses (which are still prohibited) and graylist clauses.

3.1 Blacklist clauses

The following clauses are in any case considered illegal:

  • Payment terms greater than 30 days;
  • Cancellation deadlines too short to find an alternative (less than 30 days before delivery is considered too short);
  • Unilateral modification of the essential clauses of the contract;
  • Payments unrelated to the sale of the products;
  • Payments for damage or loss through no fault of the supplier;
  • Illegal acquisition, use or dissemination of trade secrets;
  • Threaten or use commercial retaliation;
  • Provide fees for handling complaints.

3.2 Gray list clauses

With regard to the clauses of the gray list, there is a presumption of illegality. These clauses all relate to costs that the buyer invoices to the supplier in return for acceptance into his network.

They are:

  • the return of unsold products without payment;
  • costs of storage, display or inclusion in the range;
  • buyer financing of discounts and promotions;
  • payments for advertising and marketing costs;
  • payments for staff setting up sales areas;

The presumption of illegality of these gray list clauses can be rebutted by:

  • agree them clearly and unambiguously in the supply contract;
  • add a written estimate of the amount to be paid;
  • accompanied by an estimate of the costs and the elements on which this calculation was based.

In other words, a clause considered to be a gray list clause could be declared valid if the supplier knows exactly what he is committing to, in principle and in figures.

The choice of these clauses must therefore be clearly justified.

In addition, an estimate of costs and economic impact must be added to these clauses.

The latter is a remarkable fact in itself. The courts will therefore clearly be able to use these calculations to decide whether a clause is illegal or not.

4. Sanctions

As with other regulations on market practices, illegal clauses can be declared null and void and unfair commercial practices can be prohibited. The Economic Inspectorate will also play its role of executing authority with broad investigative powers. It should be noted that the anonymity of the complainant is a possibility.

This can lead to administrative fines as well as the publication of decisions and parties that violate the law (“name and shame”).

5. When to apply?

The transposition law will apply to new agreements concluded immediately after its publication. For existing agreements, a transitional period of 12 months will apply, during which the necessary adjustments can be made.

6. Conclusion

All players in the agricultural and food sector will have to face up to these new regulations in the short term.

They would therefore do well to prepare thoroughly for this new legislation.

First of all, an assessment must be made of the existing agreements to adapt them if necessary. In addition, it is just as essential to scrutinize current business practices and negotiation methods and to adapt them if necessary. In this context, it will also be very important that the companies concerned sufficiently inform their sales or purchasing departments, as this will have a significant impact on their (negotiation) practices and the agreements they conclude.

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