Disappointing EC Report into Unfair Trading Practices Ignores Farmers, Businesses and Consumers

A new European Commission (EC) report into unfair trading practices in the food supply chain published on 29/1 falls short in calling for mandatory action to ensure food suppliers such as farmers and small businesses are protected against abusive trade practices. The report comes off the heels of a recent UK Grocery Code Adjudicator (GCA) investigation that found Tesco guilty of of employing unfair trading practices by knowingly delaying payments to suppliers.

The EC report entitled, “Unfair Business-To-Business Trading Practices (UTPs) in the Food Supply Chain” is being described as a ‘missed opportunity’ by trade and food campaigners.  Rather than take the lead in stopping abusive business practices that impact many hardworking farmers, workers and businesses in Europe and beyond, the EC has passed responsibility to a voluntary initiative set up by the private sector and to EU Member States – known as the Supply Chain Initiative (SCI).

Feedback have been campaigning on this issue alongside organisations like TraidCraft and Fair Trade Advocacy Office, who are part of the Make Fruit Fair consortium. Fiona Gooch, Traidcraft Senior Policy Adviser said: “Just earlier this week, UK supermarket watchdog the Groceries Code Adjudicator found Tesco guilty of consistently under-paying suppliers or paying late in order to artificially inflate their profits. Tesco operates across Europe and their early membership of the voluntary Supply Chain Initiative did not deter these outrageous practices. Market information suggests that it is likely that other retailers have acted in a similar way to remain competitive. Inaction by the European Commission leaves suppliers exposed to unfair trading practices that include late payments, unilateral changes to contracts and the unfair shifting of risk onto suppliers.”

“Research shows that when supermarkets dump risk onto their suppliers in the form of delayed payments or additional costs, these risks are often passed on down the supply chain. This can ultimately lead to the exploitation of workers and producers in developing countries. For consumers, the effect of cut corners is less product innovation and a greater risk of things like the horsemeat scandal happening again.”

Feedback’s own investigations in countries like Kenya, Guatemala and Peru have uncovered how unfair trading practices practiced by retailers and their direct suppliers often have significant impacts on farmers in the Global South. When orders are cancelled at the last minute, or supply agreements are varied retrospectively farmers are often left with no market to sell their food to. Instead much of the food is wasted, and the farmers don’t get paid. Unfair trading practices like this are making it increasingly difficult for farmers to invest in their businesses as many are pushed into cycles of debt just so that they can pay their workers.

Rather than simply encouraging some improvements in the SCI, the EC should be taking concrete measures to protect indirect suppliers from gross abuses like last minute order cancellations. In order to effectively reduce UTPs we need a European directive to establish a minimum standard for enforcement bodies like the Groceries Code Adjudicator across Europe. These standards should include:

The ability for enforcers to initiate investigations to identify abuses within the supply chain and setting up anonymous complaints procedures;

Coordinated enforcement across the EU to discourage offenders from moving their purchasing department to low-enforcement countries to continue with UTPs;

The scope of enforcement should cover entire supply chain both inside Europe and overseas, from the sourcing of raw materials, to intermediate goods and the assembling of the final products and retailing. Access to complaint procedures must be made fully available to overseas suppliers, both indirect and direct;

Financial sanctions should be posed in the case of UTPs. Income generated from these sanctions should be ring-fenced to provide compensation to claimants for the financial losses incurred as result of the UTP.

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The GCA currently oversees the relationship between UK retailers and their direct suppliers. Feedback is part of the Groceries Code Action Network in the UK which is campaigning for the remit of this office to be extended to ensure protection for indirect suppliers.

The GCA is a landmark piece of legislation that was established to prevent unfair trading practices in the UK’s grocery sector. Crucially, the GCA and the code it oversees were created as a result of the inefficiency of a preceding voluntary code. The recent investigation by the GCA into Tesco’s mistreatment of its suppliers proves just how important this office is in uncovering and in due course preventing unfair trading practices from occurring.

The European Commission should learn from the UK’s experience with voluntary agreements and should move toward establishing legislative measures to prevent unfair trading practices, rather than solely relying on the SCI.