Fair Trading Practices: It’s All About Balance
Since the 17th century, the scales have symbolized justice: a balanced weighing of interests and arguments. Today, that balance is wavering in the food supply chain. At the European level, important decisions are on the table. Will our policymakers choose real balance, or will they allow the scales to tip toward a few economic interests? The Fevia economist Carole Dembour weighs the challenges and risks.
On the scales: principle above threshold
The European directive on unfair trading practices (the UTP Directive) was intended to protect suppliers from abuses of power within the agri-food chain. But that protection is based on an arbitrary threshold: only companies with a global turnover below 350 million euros* fall under its scope.
Anyone who exceeds that ceiling—even by a single euro—is left out, while the problems remain the same. Justice does not stop at numbers. An unfair practice remains unfair, regardless of a company’s size. Unfair is unfair, no matter the size.
A joint survey by Fevia and BABM, the Belgian brand association, shows that more than 9 out of 10 companies encounter trading practices that are prohibited by the directive, both below and above the threshold. That says it all: the current framework is inadequate and needs adjustment.
The consumer as an argument or an alibi?
In the debate on fair trading practices, the consumer is often put forward by the retail sector as the main argument. But in reality, the consumer stands on both sides of the scale: suppliers and retailers both want to offer affordable, high-quality food.
However, it is misleading to pretend that retailers negotiate “for the consumer.” Those negotiations are not about the shopping basket, but about market share and margins. The power of large European purchasing alliances has grown so significantly that even multinationals can barely counterbalance them.
More than half of the companies in the survey indicate that a large part of their negotiations takes place directly with such alliances. These are structures representing hundreds of billions of euros, often based in countries with minimal protection (such as Belgium or the Netherlands), or even outside the EU.
This is why it is crucial that policymakers take the growing power of these European purchasing alliances** into account. Legislative proposals aiming to better regulate this are currently on the table.
One European market, but not one price
There is increasing pressure to abolish so-called territorial supply constraints (TSCs) altogether. These are arrangements that allow food companies to organize their supplies per country, based on the structure and characteristics of each national market.
According to a — biased — study by the European Commission, abolishing these arrangements could save consumers 14 billion euros. What is not mentioned is that this would only be possible if food products were bought and produced everywhere in Europe at the lowest price level—often in Eastern European countries.
The economic impact would be devastating. Such a scenario would severely affect the Belgian food industry, a sector that, according to the Federal Planning Bureau, is the most deeply rooted in its economy. The consequences are significant: 230,000 jobs and 23 billion euros in added value are at stake.
Existing European competition law already provides the tools needed to tackle abuses of market power. New and hasty rules risk not restoring balance but disturbing it.
True balance: the right prize, not the lowest
A healthy relationship between farmers, food companies and retailers begins by recognizing the value of food. Not only in euros, but also in terms of societal impact and the future of our agriculture and food sector.
The right price is not necessarily the lowest one, but the one that allows companies to invest, innovate and continue producing locally. Only then will our food chain remain fair, resilient and future proof. Beautifully balanced, as it should be.
Maintaining that balance is not a matter of market forces, but of political choices. So, dear policymakers: make the right choices. Choices that reconcile fair trading practices with fair pricing
*Adjusted for inflation in recent years, today that ceiling would amount to 465 million euros.
**4 in 10 brands negotiate more than half of their turnover at the European level. For private-label products the share is slightly lower—but still striking: more than one-third negotiate over 20% of their turnover through these alliances.
Carole Dembour,
Economist,
(The Belgian Food and Drink Federation)