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"There is so far no proof whatsoever that unfair trading practices constitute a widespread problem across national borders"

HDE and five German CEOs appealing to EU Agriculture Commissioner Phil Hogan

Picture METRO AG Staff in vegetable department

On December 12, 2017 the president of the German Trade association HDE and the CEOs of five retailers and wholesaler in Germany EDEKA, Kaufland, LIDL, METRO AG, REWE Group wrote a joint letter to EU Commissioner Phil Hogan, emphasizing that neither regulation acting only at producer level nor regulation of business relations between all stages of the supply chain would improve the position of farmers.

December 12, 2017: Letter to EU Commissioner Phil Hogan

Dear Commissioner,

The consultations on trading practices in the food supply chain have closed. German retailers have been intensively involved in this debate. We, too, see major challenges for players in the supply chain, in particular for the farm sector which increasingly has to come to grips with the opportunities and risks of a free market economy. We therefore invite you to take the following arguments into account in your deliberations:

Cooperation between the various sectors and stages in the food supply chain is broadly functional. Businesses compete intensively with each other – at least at the retail level – hence optimising the benefit for the consumer and constantly improving the efficiency of cooperation with the upstream stages. In the few cases where a retailer sources its products directly from the producer, there are numerous positive examples of close interaction with farmers, with advantages for both sides. Among other things, these also include regional brands for which many farmers have concluded long-term contracts specifying guaranteed delivery and minimum off-take volumes and thus creating planning certainty for both sides.

Not least, a food supply chain which functions seamlessly in competition is in our own self-evident interest, not only in Germany but also in the other European countries where we are active. In this regard, the functionality of the supply chain and wide-ranging contractual freedom is safeguarded in our home market, Germany, by a comprehensive and well-functioning legislative framework, in particular by antitrust and civil law provisions. In the event of infringements, recourse to legal action is open and accessible to each party. Furthermore, we engage through a large number of self-commitments, associations and individual firms alike, at both national and European level, with a view to promoting dialogue among all stakeholders and a mutual understanding of the perspectives of all sides.

For instance, the national dialogue platform – in which all market participants including the farm sector are actively involved – has existed in Germany since 2013. In the meantime, this platform has developed into an instrument which is useful and effective for all players in the food supply chain as a tool for implementing the Supply Chain Initiative’s (SCI) principles of good practice in the food supply chain. These include mediation, adjudication procedures and expert opinions on anonymised disputes.

At the European level, around 380 European businesses with more than 1,160 subsidiaries have now signed up to the SCI. The basis for the SCI’s work are the principles of good practice which were drawn up jointly with the farm sector. In 2016 alone, 37,000 people in Europe were given training in the SCI principles and made aware of the backgrounds. The resonance was positive: purchasers welcome and are fully supportive of the principles of a fair negotiating culture. With its central aim of preserving existing business relations, the dispute resolution system is perceived to be particularly practical and results-oriented.

This notwithstanding, it is the farm sector which has so far held back from any participation in the SCI. We therefore find it difficult to understand why you describe the SCI as ineffective in your public speeches and adhere to the arguments of the only player that is not involved in the SCI, whose effectiveness it is consciously restricting to its own disadvantage.

The EU Supply Chain Initiatve - SCI
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The popular assertion that the food retail sector has disproportionate negotiating power and therefore needs European regulation does not reflect the reality:  the size of a retail business seen in isolation should not be equated automatically with market power and certainly not unfair conduct. The supplier side that food retailers have to deal with is characterised by predominantly large food-processing groups which are active internationally. The food retail trade across the EU has direct contractual relations with farmers in only in rare cases, if at all.

Neither regulation acting only at producer level nor regulation of business relations between all stages of the supply chain would improve the position of farmers.

The fundamental challenges on the income side result primarily from the competition situation, all the more so where overproduction meets insufficient demand. Conversely, it can be predicted with some certainty that disproportionate regulation based on dubious policy assumptions in the interest of a single sector – producers – would lead to a considerable disadvantage for consumers in the European Union. Current developments in milk and butter prices underline how an increase in producer prices can feed through into consumer prices.

Moreover, the debate hitherto has largely disregarded the fact that the regulatory measures under discussion would encroach markedly on companies’ contractual freedom and free competition.

We trust that a substantiated impact assessment based on valid scientific data and facts will be carried out for an objective evaluation of the situation in the food supply chain before the Commission comes out in favour of concrete measures and presents them to the legislator for consideration. There is so far no proof whatsoever that unfair trading practices constitute a widespread problem across national borders. The particular complexity of the food supply chain and the diverse national market structures prompt us to have serious doubts about the added value of European regulation. The impact assessment should also take into account that intervention in conditions which govern a sensible balance of interests and risks between the various trade stages and have evolved over many decades, or intervention in price formation mechanisms, runs counter to a free economic order and hence poses a threat to competition and consumer prosperity.

We would like to assure you that the retail trade sector also has a fundamental interest in improving the framework conditions for farmers, whether it be through improved forms of cooperation or promotion of their entrepreneurial spirit. Lastly, we need high-quality farm products to a marked degree. However, instead of proposing one-sided regulation, it would be a better idea if the Commission were to urge the farm sector to work actively in the SCI in future so that all economic stages of the food supply chain can work together to ensure even greater effectiveness of the SCI.

Commissioner, we would be happy to engage in dialogue with you and hope that we can arrive at a fair balance of interests in this way.

Yours sincerely,

Signatures: HDE, EDEKA, Kaufland, LIDL, METRO, REWE GROUP
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Learn more about the Supply Chain Initiative 

Maria Heider

Information about the author

Maria Heider works as Director EU Affairs for Corporate Communications and Public Policy at METRO AG. maria.heider@metro.de