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Prohibited practices
Unfair trading practices are contractual clauses and practices that are considered unfair and unacceptable in business relationships between large buyers of agricultural, fishery and food products and suppliers smaller in terms of turnover.
Legal basis
Directive (EU) 2019/633 of 17 April 2019 ("UTP Directive") has for the first time introduced a uniform minimum standard of protection across the EU to combat unfair trading practices. The goal of the UTP Directive is to curb practices that are “highly likely to have a negative impact on the standard of living of the agricultural community”.
In Germany, the UTP Directive has been implemented by the Agricultural Organisations and Supply Chains Act ("Agrarorganisationen-und-Lieferketten-Gesetz, AgrarOLkG"). The Act is supplemented by the Agricultural Organisations and Supply Chains Ordinance ("Agrarorganisationen-und-Lieferketten-Verordnung, AgrarOLkV“). In its Part 3, the AgrarOLkG prohibits the exploitation of the economic imbalance between the buyer and the supplier through unfair trading practices.
Prohibited practices
The AgrarOLkG contains an exhaustive catalogue of prohibited trading practices which are always considered unfair in the relationship between large commercial and government buyers and suppliers smaller in terms of turnover.
| Always prohobited |
|---|
| Section 11 AgrarOLkG: excessive payment periods (more than 30 or 60 days) |
| Section 12 AgrarOLkG: returning of unsold goods |
| Section 13 AgrarOLkG: termination of the contract at short notice by the buyer, in the case of perishable goods |
| Section 14 AgrarOLkG: making the supplier participate in the storage costs of the buyer |
| Section 15 AgrarOLkG: certain unilateral amendments to the contract by the buyer |
| Section 16 AgrarOLkG: passing on to the supplier of unspecific costs or costs for quality reduction after transfer of risk or customer complaints to the buyer |
| Section 17 AgrarOLkG: listing fees (except when launching a product) |
| Section 18 AgrarOLkG: retaliation |
| Section 19 AgrarOLkG: refusal of the buyer to confirm the content of the contract in text form |
| Section 23 no. 9 AgrarOLkG: misuse of trade secrets by the buyer |
The AgrarOLkG also prohibits contractual conditions of a buyer that circumvent the expressly mentioned prohibited contractual clauses (with the exception of contractual conditions that stipulate an obligation for the supplier to bear costs, which cannot be effectively agreed according to Section 16 AgrarOLkG).
In addition to these trading practices, which are always deemed unfair, there are trading practices that are only permissible in the relationship between large commercial and government buyers and suppliers smaller in terms of turnover if they have been previously “clearly and unambiguously” agreed between the parties.
| Only permissible if agreed “clearly and unambiguously” |
|---|
| Section 20 (1) no. 1 AgrarOLkG: returning products, which have not been resold, if those products are still saleable 12 months after being returned |
Section 20 (1) no. 2 AgrarOLkG: payment or price deductions for:
|
| Section 20 (1) no. 3 AgrarOLkG: payment or price deductions for setting up the premises where the supplier's products will be sold |
| Section 21 AgrarOLkG: obligation to submit a payment and cost estimate in text form for all payments or price deductions in the scope of Section 20 (1) No. 2 |
Scope of application of the prohibition of unfair trading practices
The AgrarOLkG prohibits large commercial and government buyers of agricultural, fishery and food products from exploiting the economic imbalance in their relationship with suppliers smaller in terms of turnover through unfair trading practices.
The prohibition of unfair trading practices shall protect not only farmers, but all suppliers of agricultural, fishery and food products, i.e. in particular also suppliers of the food processing industry. However, only suppliers with an annual turnover of no more than 350 million euros are subject to the protection of the AgrarOLkG.
Buyers who are subject to the prohibition of unfair trading practices include, in addition to food retailers, in principle all buyers of agricultural, fishery and food products, insofar as they are not consumers, i.e. also the food processing industry when obtaining supplies. However, only buyers with an annual turnover of more than 2 million euros are subject to the prohibitions of the AgrarOLkG.
For details on the calculation of annual turnover, please refer to Point 7 and following of the FAQs.
Furthermore, the prohibition of unfair trading practices only applies if, at the time of the conclusion of the contract, the annual turnover of the buyer is higher than the annual turnover of the respective supplier, whereby the following lump sums apply.
| Level | Annual turnover of the supplier | Annual turnover of the buyer |
|---|---|---|
| 1 | up to 2 million euros | more than 2 million euros |
| 2 | over 2 million up to 10 million euros | more than 10 million euros |
| 3 | over 10 million up to 50 million euros | more than 50 million euros |
| 4 | over 50 million up to 150 million euros | more than 150 million euros |
| 5 | 150 million up to 350 million euros | more than 350 million euros |
In the calculation of turnover, the annual turnover of the entire group of companies of the supplier or the buyer is to be included, and specifically not only the turnover created by agricultural, fishery and food products. In order to determine the level of turnover of the respective business partner, suppliers and buyers are obliged to provide each other with truthful, complete and timely information.
The prohibition of unfair trading practices also applies to government buyers.
Furthermore, the prohibition of unfair trading practices also protects larger, e.g. producer-owned, companies from the dairy and meat sectors as well as from the fruit, vegetable and horticultural sectors. This includes suppliers of dairy and meat products as well as fruit, vegetable and horticultural products, including potatoes, whose global annual turnover does not exceed 15 Billion Euros and at the same time does not exceed 20 per cent of the global annual turnover of the buyer. However, this only applies if the suppliers of the aforementioned products do not achieve an annual turnover of more than 4 billion euros in the respective sales segment in Germany (for more information, please refer to Point 16 of our FAQ). When trading dairy and meat as well as fruit, vegetables and horticultural products, the contracting parties must provide each other with truthful, complete and timely information on their turnover in the respective segment as well as the total annual turnover.
The prohibition of unfair trading practices is applicable if either the supplier, the buyer or both are based in Germany.
