The CEOs of 22 leading retailers and wholesalers across Europe have written to the Chair of the EU Agriculture Council, Mrs Elisabeth Köstinger to express their intense concern at the idea currently being promoted by powerful multinational food processors that they need protection against retailers, in the UTPs directive currently under consideration by the European Parliament and the Council of Ministers.
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They question both the legality and the economic consequences for consumers, farmers, and small-and-medium enterprises, of giving one powerful set of players even more power. They ask Mrs Köstinger to seek a formal opinion from the Council Legal Service on the legality of such extended protection.
The directive, as originally proposed by the Commission, aimed to protect farmers and small-and-medium enterprises in their dealings with bigger buyers, whether manufacturers or traders, by limiting payment terms on perishable products, banning a few practices such as unilateral & retroactive changes to contracts or last minute order cancellations and allowing certain practices such as joint contribution to marketing and promotion campaigns provided that they have been agreed by the parties. Amendments pushed by big multinational manufacturers, under the false pretence of “fairness for all”, proposes to have those large companies covered as well, and to extend the list of prohibited trading practices. If adopted, those amendments would considerably reduce the scope for practices that can benefit both parties and limit freedom of contracts. This will not benefit farmers.
The letter states that “extending protection to large manufacturers, and covering service providers that do not buy or sell food products, will have a number of unintended consequences”. It also expressed concerns that this extension to big multinationals “raises fundamental questions of its compatibility with the legal base”, as an agriculture legal base needs to demonstrate a benefit to farmers.
In this regard, the letter points to a number of salient facts being ignored in the headlong rush to adopt amendments promoted by large multinationals to the directive:
- even the largest European retailers have a market capitalisation of less than one-tenth the size of large industrial food processors, who operate across the world, and enjoy 15-30% net profit (EBIT) compared with the EBIT of large retailers of 2-4%;
- no European retailer makes up more than 2% of the global turnover of these multinationals
- the danger of this extension of scope has been clearly set out by the Commission, who warn that neutralising the ability of retailers to negotiate with large manufacturers will create significant market disruption, increased profits for manufacturers and higher prices for consumers.
- the Commission has also stated that the benefit from these higher prices on highly processed industrial food products is unlikely to be shared with farmers or the l other suppliers of these multinational manufacturers.
The CEOs reaffirm their “very clear interest in treating suppliers, large and small, fairly”. This is reflected in their commitment to the Supply Chain Initiative and their “strong support for agriculture policies aimed at helping farmers organise, become more innovative and competitive, and create sustainable supplies of attractive products that meet consumer demand”.
The CEOs further point to the consequences on the future of retail and their ability to stay relevant in a rapidly changing sector arising from digitalisation: “Retailers are a key contributor to employment in Europe (?). Our sector is also characterised by high costs and low margins. The rapid growth of online sales is squeezing those low margins even further. Retailers are making huge investments to stay relevant in this digital age: new infrastructure and technology, new services, new business models. (?) Handing more profit to large multinational suppliers in this directive will intensify these pressures and further exacerbate risks in terms of employment.”
