Commercial relationships in the agri-food sector: a revolution in the offing?

Article IT and Data Protection Competition, Retail and Consumer Law Commercial and International Contracts | 04/05/18 | 6 min. | Alexandra Berg-Moussa

Currently in its first reading in the National Assembly, the bill for balanced commercial relationships in the agricultural and food sector and for healthy sustainable food (the “Bill”) was amended by the Commission on Economic Affairs, which published the result of its work on last April 24.

As amended, the Bill will be discussed in a public hearing beginning on next May 22 and could be a true revolution in the legal framework of commercial relationships between actors in the agri-food sector.

It provides for changes in the agri-food sector involving in particular (1) the threshold for reselling at a loss and promotional operations, (2) the formalization of commercial negotiations, and (3) the sanctions applicable to offending companies.The Bill could also already include the seeds for future reforms (4).

1/ Increase in the threshold of resales at a loss and the framework for promotions in the marketing of foodstuffs

In one of its most publicized articles (Article 9), for the marketing of foodstuffs to consumers, the Bill provides for:

(i) an increase in the threshold for resales at a loss that would be equal to 1.1 times the effective purchase price of these products (as defined by the French Commercial Code); and

(ii) a framework in terms of value and volume of promotional operations, the exact terms of which remain to be determined, but which could be a limitation of the percentage of the possible reduction and of the volume of products subject to such promotions.

These two flagship measures remain unchanged after the Commission on Economic Affairs’s examination of the Bill, with the exception of including foodstuffs for pets in the measures’ scope.It is provided that the government will be authorized, within 4 months as of the law’s publication, to take any measure necessary to provide a framework for these measures over a 2-year “test” period.

Does the fact that this period is limited in time and is defined as a “test” period allow these two measures to avoid being possibly challenged on a European Union level?In effect, the practices for which they provide a framework are in principle within the scope of Directive 2005/29/EC concerning unfair business-to-consumer commercial practices (the “Directive”) and, as such, could not be prohibited or subject to a limitation if they are not on the Directive’s black list, but should instead be assessed in concreto to determine if they are unfair given the provisions of the French Consumer Code.To be continued.

2/ Future of the single agreement in the agri-food sector

More unexpectedly, an amendment made by the rapporteur of the Commission on Economic Affairs, Mr. Moreau, provides for excluding agricultural and food products from the obligation to formalize the single agreement (concluded annually or for 2 or 3 years since the Sapin 2 Act, no. 2016-1691, of December 9, 2016 (the “Sapin 2 Act”) (new Article 10 ter).

This obligation, provided for by Articles L. 441-7 and L. 441-7-1 of the French Commercial Code, requires that affected suppliers and distributors formalize their commercial negotiations in a single agreement.Such formalization of the results of negotiation in a single document has had the purpose, since its entry into force in 2008, of transparency of commercial relationships, securing negotiations and facilitating controls performed by authorities and courts.Only certain products are now excluded from the scope of these provisions due to their particularities (including the products listed in Article L. 441-2-1 of the French Commercial Code).

Taking all of the food and agricultural products out of the single agreement system would consequently raise the question of the possible new systems that would replace this framework for commercial relationships in the agri-food sector to provide the necessary transparency and security.

It should be noted that such a desire to restrict the scope of the single agreement was not discussed in the latest General Assembly of Food (as opposed to the measures involving resale at a loss and promotional operations) and this worries actors in the sector.In the past, in the text adopted by the National Assembly in the first reading of Act no. 2015-990 of August 6, 2015 (referred to as the “Macron Act”), an amendment had already been contemplated to limit application of Article L. 441-7 of the French Commercial Code to relationships between suppliers and retail business distributors.At the time, the proposal had not survived the examination of the bill by the Senate, which had excluded the amendment, stressing that, “such a drastic, sudden and uncoordinated measure is not being demanded by any actors (…)”.At the time, the legislature had preferred to adopt a special wholesaler single agreement, today provided in Article L. 441-7-1 of the French Commercial Code.

3/ Sanctions and media coverage

In addition, several amendments adopted by the Commission on Economic Affairs are aimed at increasing pressure on companies in the agri-food sector, including mass distribution stores and their product referencing and purchasing centers.

An amendment, from the Sapin 2 Act, notably considers strengthening the sanctioning system for failure by these companies’ officers to file accounts.New Article 5 quinquies of the Bill effectively provides that, in case of repeated failures to file accounts, the president of the commercial court may directly issue against these companies an injunction to file the accounts, subject to daily penalties that can reach up to 2% of average daily turnover, without the president of the Observatory on the Creation of Prices and Margins of Food Products having previously referred the matter to him, as is the case today.

The Bill also contemplates, based on the “name and shame” principle, to systematically publish all decisions sanctioning professionals for misleading or aggressive commercial practices (new Article 10 quater), creating a heightened risk in terms of image and reputation for the affected professionals.

4/ New reforms to be planned?

The Commission on Economic Affairs has adopted an amendment pursuant to which a report by the Government to the Parliament will be published after the act’s enactment.This report would have a dual objective:to identify the possible circumvention strategies implemented by affected economic actors and to determine possible approaches for relevant reforms.

At this stage, new Article 10 septies of the Bill, as amended, provides that the report will present:

(i) the mechanisms implemented by economic actors to exempt themselves from the new provisions required by the act,

(ii) the recent situations involving the transfer of commercial negotiations to other countries,

(iii) the consequences of French legislative developments on French border regions and départements of other European countries and on developments in the French economy,

(iv) the paths for improving the legislation to avoid creation and perpetuation of practices aimed at deliberately circumventing French law during commercial negotiations.

If this bill survives after the public debates that will be held between May 22 and 24, 2018, it could be a harbinger of additional reforms in coming years.

We also note that last April 12, the European Commission disclosed its proposal for a directive on unfair B2B commercial practices affecting the food supply chain, which is proof that these subjects go beyond a purely national scope and that they will lead to new developments in the future, also on a European level.

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