The Competition Council (KP) has completed market supervision of the practice of applying payment terms in the supply chain for fresh fruit, vegetables and berries in Latvia, concluding that buyers use their economic market power and apply unjustifiably long payment deadlines, shifting the financial burden onto suppliers. Several infringement cases have been initiated.
The main objective of the market supervision was to carry out an in-depth analysis of the practice of applying payment terms in the perishable goods supply chain, assessing whether the payment deadlines laid down in the Unfair Trading Practices Prohibition Law (NTPAL) are observed in cooperation between suppliers and buyers.
Cooperation among small farms is developing slowly
In the course of the market supervision, the KP found that most growers in Latvia are small farms, whose share is among the highest in the European Union, and that changes in the number of farms occur mainly at the expense of the closure of small farms. The market supervision concluded that these farms often lack suitable cellars and cold stores for storing products for export, while the establishment of new cooperatives in the fruit, berry and vegetable sector is progressing slowly.
Therefore, the KP has invited growers to explore opportunities for cooperation by becoming members of existing agricultural service cooperatives or forming new ones, taking into account that such cooperation can promote more efficient use of resources, increase the volume of products sold, optimize logistics and achieve higher added value, as well as ensure better conditions in negotiations with buyers.
Inaccurate payment term criteria in contracts
The market supervision found that contracts on payment terms do not always use the day of delivery of the goods as the reference point, as required by the NTPAL.
The KP has drawn attention to the fact that inaccurately specified payment term criteria may create risks in cooperation between buyers and suppliers, calling on both buyers and contracting authorities, when preparing procurements, to comply with the requirements of the NTPAL and the Public Procurement Law and to ensure correct calculation of payment deadlines.
Payment delays in retail and wholesale
The KP has also observed indications that, although payment terms in contracts formally comply with the NTPAL, in practice payments are made late. For example, in the retail chain segment, prima facie non‑compliance with payment deadlines can be seen in 8.5% (n=736) of all transactions analysed, while in the wholesale chain segment the figure is 10.4% (n=125). Similarly, cases have been observed where the payment terms set out in the NTPAL are respected, but the shorter deadlines laid down in contracts are not, even though they are shorter than those in the law. The payment delays identified by the KP range from a few days to almost 300 days after delivery of the goods.
Therefore, in the market supervision the KP has called on buyers to ensure regular payments to agricultural and food product suppliers both in accordance with the requirements of the NTPAL and with the deadlines laid down in contracts. At the same time, in view of the payment delays identified, the KP has initiated several infringement cases against buyers.
Different treatment of Latvian and foreign suppliers
In some buyers’ cooperation agreements with Latvian suppliers, the KP found that they are subject to higher contractual penalties and insurance requirements than foreign suppliers. Therefore, the KP has invited buyers to review the amount of contractual penalties, ensuring equal treatment of all suppliers, since the application of different sanctions in equivalent circumstances is not in line with the principles of good faith and fairness.
Director of the KP Market Surveillance and Investigation Department, Sanita Uljane: “Unfair trading practices have a negative impact on the market environment, creating economic consequences for suppliers and encouraging dishonest behaviour in transactions. Therefore, in order to improve the situation in the market, the KP calls on all supply chain participants to ensure payments in accordance with the NTPAL provisions, as well as to comply with the deadlines laid down in contracts.”
In its market supervision, the KP has invited the associations of potato, fruit, berry and vegetable growers to actively represent the interests of their members, collect information on cooperation problems with buyers of agricultural and food products and report violations of the NTPAL. Taking into account that the results of the annual anonymous supplier survey carried out at the beginning of 2023 indicated delays in payment deadlines, the KP has recommended that associations regularly collect data on compliance with payment deadlines by retailers and other buyers, for example, every quarter or once every six months by inviting members to provide structured information, which is then compiled to identify specific product groups where problems are observed.
The KP has also encouraged industry associations and state institutions (including the Ministry of Agriculture, the Ministry of Smart Administration and Regional Development, the Rural Support Service, and the Central Statistical Bureau) to set up a working group to improve coordination, data collection, education and communication, as well as to define support and development strategies for growers and producers.
Originally published at https://inc-baltics.com/finansu-slogu-darzenu-auglu-un-ogu-uzpircej-parliek-uz-piegadatajiem/
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