The Saeima’s Economic, Agricultural, Environmental and Regional Policy Committee has come forward with amendments to the Unfair Commercial Practices Prohibition Law. The committee intends to prohibit retailers from unilaterally imposing sanctions on suppliers and to stipulate that the payment term for fresh vegetables and eggs may not exceed 20 days.
The law amendments were drafted after the Competition Council, for violations of the Unfair Commercial Practices Prohibition Law last autumn, imposed a fine of 1.87 million euros on Maxima Latvija. Among other things, the fine was imposed because the retailer boosted its own competitiveness at the expense of agricultural and food product suppliers.
At the beginning of this year, the Competition Council completed market supervision on the practice of applying payment terms in the supply chain of fresh fruit, vegetables and berries in Latvia, concluding that buyers use their economic market power and apply unjustifiably long payment terms, shifting the financial burden onto suppliers. The payment term delays identified by the Council range from a few days up to almost 300 days after delivery of the goods.
To improve suppliers’ positions in dealing with retailers, members of parliament have included in the law amendments provisions to clarify the existing form of unfair commercial practice regarding unilateral contract amendments, define the concept of agricultural and food product supply forecasts, prohibit the unilateral imposition of sanctions and specify cases in which they are not applied at all, as well as to set payment terms for fresh vegetables and berries at no longer than 20 days.
The authors of the draft law point out that the current version of the law does not define what is meant by the concept of “agricultural and food product supply forecast”, while interpretation of the concept is essential for understanding agricultural and food product orders in order to clearly apply the prohibition of certain unfair commercial practices. Food producers have indicated that each contracting party often interprets this concept differently, which hampers cooperation between agricultural and food product suppliers and buyers, especially in cases of non‑delivery or non‑ordering of agricultural and food products.
As a result, the retailer makes a long‑term supply forecast that is binding on the supplier but not binding on the retailer. Accordingly, the supplier ensures production of the goods; however, the actual delivery often involves a significantly smaller quantity. This means that the supplier ends up with a large volume of produced goods that cannot be sold within a reasonable period and also cannot demand that the other contracting party fulfil its commitment. This creates the need to define agricultural and food product supply forecasts in order to regulate the sanction conditions mutually applicable between the supplier and the retailer.
At the same time, the law currently stipulates that the buyer, i.e. the retailer, is prohibited from imposing unfair and unjustified sanctions for breach of contract terms. However, food producers indicate that sanctions are imposed unilaterally – they are provided for the agricultural and food product supplier, while for the retailer, in the event of breaches of contract terms, sanctions are either not imposed at all or are imposed in a much smaller amount.
At present, the law also prohibits a retailer of agricultural and food products, when cooperating with a producer or a producers’ cooperative society, from applying unfair and unjustifiably long payment terms for fresh vegetables and berries, that is, longer than 20 days after their delivery. An exception is provided if the retailer and the producer have not agreed in writing on a different payment term. Information provided by agricultural and food product suppliers shows that concluding an agreement on longer payment terms is often a mandatory requirement for starting cooperation.
Originally published at https://inc-baltics.com/mazinas-mazumtirgotaju-varu-par-piegadatajiem/
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