In July 2017 the Act on Counteracting the Unfair Use of Contractual Advantage in Trade of Agricultural and Food Products entered into force. The act aims to protect small farmers and grocery suppliers against the abuse of power by large supermarkets and chain stores.
Almost eight months after the act came into effect, the Office of Competition and Consumer Protection (OCCP) issued a decision regarding the abusive practices that Cykoria SA engaged in against its carrot suppliers. The OCCP imposed commitments which Cykoria must fulfil to remedy the infringement.
Cykoria produces food concentrates, dried fruits and vegetables, spices and dried chicory. The proceedings in the case were initiated following complaints over Cykoria's commercial practices concerning its purchase of carrots.
The OCCP explained that the Act on Counteracting the Unfair Use of Contractual Advantage in Trade of Agricultural and Food Products was applicable to this case as the turnover thresholds were met. Cykoria's revenues exceeded PLN100 million (approximately €23.7 million) in 2017 and the sales volume between Cykoria and the 14 carrot suppliers mentioned in the decision exceeded PLN50,000 (approximately €12,000).
Further, according to the OCCP, the legal premise of Cykoria's contractual advantage over the other parties was fulfilled. The authority explained that there was a significant imbalance of economic potential between Cykoria and its suppliers. As previously mentioned, Cykoria's turnover exceeded PLN100 million and was generated thorough various business activities (ie, diversified revenue sources). At the same time, the turnover of its carrot suppliers (13 out of 14 were farmers) was significantly smaller. Moreover, the OCCP said that the suppliers had no sufficient or real possibility of selling their carrots to alternative purchasers. According to the authority, purchasers like Cykoria prefer long-term suppliers that offer a type of carrot preferred by the purchaser and a potential change of purchaser would lead to significant costs for small suppliers.
According to the OCCP, three clauses included in Cykoria's contracts with its carrot suppliers which were examined could have breached the act.
First, the carrot suppliers had been informed of the date and place of supply with three days' notice and the whole supply process had lasted from mid-August until the end of March the following year. As the OCCP explained, due to this arrangement, suppliers had been unable to plan their production and delivery process. Moreover, there had been no guarantee of equal shipments from all suppliers throughout the purchasing season.
Second, the carrot suppliers had had to agree to pay 0.5% of their fee to a trade organisation. The OCCP stated that the suppliers should have been able to decide independently whether they wanted to make this contribution.
Third, Cykoria had made payments within 60 days, as all deliveries had been realised in the respective month or from when an invoice for deliveries in the respective month was issued. The OCCP explained that due to this clause, suppliers had sometimes received their remuneration 90 days after a delivery had been made. This was contrary to the Act on Payment Dates in Commercial Transactions, under which the maximum payment term cannot exceed 60 days.
Shortly after proceedings started, Cykoria offered commitments which the OCCP accepted. As a result, Cykoria was obliged to amend its contracts with the carrot suppliers as follows:
- The carrot suppliers must be informed of the date and place of each delivery with seven days' notice. Further, 85% of supplies must be realised by December 31 of any given year and the remaining 15% must be realised by January 31 of the next year.
- The clause regarding the suppliers' contribution to the trade organisation must be removed.
- The payment term must be shortened to 45 days from the date of delivery or from the date on which the invoice for a single delivery is submitted.
Cykoria had to fulfil these commitments within one month from the date on which the decision became final and must use the amended template contracts thereafter.
As the case was closed with a commitment decision, no fine was imposed on Cykoria. The remedies imposed on Cykoria were offered voluntarily and the decision is unlikely to be appealed. Therefore, the courts will not provide their assessment of the OCCP's interpretation of some of the vaguer terms used in the act (eg, 'public interest', 'contractual advantage' and 'significant disproportion in the economic potential').
The first entity against which a decision under the act was issued was a food producer and not a supermarket or chain, which were indicated as potential abusers during the act's preparation. Further, the OCCP announced that explanatory proceedings regarding the price of butter had been closed with no indication of any breach of the act. As a result, there were no grounds to initiate proceedings against Lidl Polska, Jeronimo Martins, Tesco Polska, Auchan Polska or Carrefour Polska.
For further information on this topic please contact Katarzyna Terlecka or Pawel Kulak at Schoenherr Attorneys at Law by telephone (+48 22 223 09 00) or email ([email protected] or [email protected]). The Schoenherr Attorneys at Law website can be accessed at www.schoenherr.eu.
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