Even though the start of this year was marked by Minister of Economics Viktors Valainis’ grand plans to “put in their place” the large food retail chains, by late summer the plan has fizzled out – the minister has yielded to pressure from retailers and is in fact not intending to increase penalties for unfair commercial practices.
At the end of last year, when presenting the plan to cap food retail prices, one of the action points in Minister of Economics Viktors Valainis’ plan was to increase penalties for retailers implementing unfair commercial practices from the current 0.2% to 4% of turnover, as is the case in some European countries. Such changes were needed because local food producers pointed to unfair treatment – retailers imposed different requirements on local businesses than on import product suppliers. This affected both payment terms for deliveries and other issues for which retailers tend to penalize producers by applying sanctions (mainly by reducing payments).
Any reasonable resident might think that the size of the penalties essentially does not matter, because if a retailer behaves fairly and respects equal treatment, it should not care what the penalty level is. Conversely, if the commercial practice is unfair, it would be only normal to apply a penalty so that such practice is not continued in the future.
In practice, however, this is not what happens. After the Cabinet of Ministers approved, in February this year, the amendments to the Prohibition of Unfair Trading Practices Law proposed by the Minister of Economics and they reached the Saeima Committee on National Economy, Agricultural, Environmental and Regional Policy, they did not proceed any further in the legislative process.
Minister Valainis found the signing of a memorandum on food retail trade more acceptable, as he said it was a better and more cooperation-oriented solution. The memorandum was signed and the first “low-price food baskets” appeared. At the end of May, the minister sent a letter to the Saeima committee with a request not to consider the bill and to instruct the Ministry of Economics to draft and submit to the Saeima committee an alternative bill coordinated with the parties that signed the memorandum – the retail chains, LTRK, the Latvian Food Retailers Association and others. Such a bill was supposed to reach the Saeima committee by 1 September; however, it is still neither ready nor agreed upon.
However, the existence of the memorandum has not lowered food prices. For example, in July prices fell only for certain groups of food products, and, as the Central Statistical Bureau points out, this has been due to promotions.
Given that the minister has asked the Saeima committee not to continue examining the law amendments because a memorandum has been concluded, a situation has emerged in which food prices are not decreasing, while penalties for unfair commercial practices, which could to some extent protect local food producers from unjustifiably drastic demands, will, contrary to Valainis’ promises, remain consistently low; at least for now, higher penalties have been removed from the bill.
Increasing penalties is also not the only aspect of protecting local food producers. The bill has also had removed the initial proposal to stipulate that the forecast for product deliveries must be mutually agreed. What does this mean?
Until now, retailers forecast how many goods they would need (for example, 100 thousand eggs), but when this forecast amount was produced, the retailer could announce that it would in fact not need that many goods, and there were no sanctions for such conduct. The producer then had to figure out on their own what to do with the produced goods – sell them with a big discount, process them further, or throw them away. In drafting the initial law amendments, it was envisaged that retailers would no longer be allowed to act in this way and that the forecast amount of goods would have to be specifically agreed upon with food producers. However, after the memorandum was signed, this provision on mutual agreement on the volume of goods to be supplied has also disappeared. Instead, the law amendments state that sanctions cannot be applied to the supplier (i.e., the food producer) if, within three working days from the trader’s request, the supplier informs the trader that it cannot deliver the required quantity.
The Ministry of Economics believes that the initial amendments and the new ones are one and the same, but they are not. For example, in a situation where a trader requests a ton of dill from a local grower, but the grower cannot supply that amount and notifies the trader within three days, the retailer can no longer impose sanctions, but can instead refuse this product altogether, removing the local producer from the assortment. Such a situation would be possible under the new bill, but would not have been possible under the original wording of the amendments, in which the quantity had to be “mutually agreed”.
It should be added that both the Competition Council and the Consumer Rights Protection Centre have opened cases regarding the practices implemented by retailers, and it is not excluded that the minister wants to sit on two chairs at once. Namely, the minister could be waiting for the moment when the Competition Council and the Consumer Rights Protection Centre come out with their verdicts, impose small fines on retailers, and then the minister can increase the penalties. Food producers do not rule out such a scenario either. “It seems that in recent months Minister Valainis has been ‘worked on’ by representatives of retailers, in every sense of the word,” says one of the representatives of the organizations that signed the memorandum, who did not wish to be quoted by name, although the conversation is recorded.
Originally published at https://inc-baltics.com/valainis-piekapjas-tirdzniecibas-tikliem-sodus-par-negodigu-komercpraksi-nepalielinas-vietejos-razotajus-neaizstaves/
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