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  • Author: Jan Werner

METRO's Position to the „NON PAPER”: Better Functioning of the Food Supply Chain

presented by Bulgaria, the Czech Republic, Hungary, Latvia, Lithuania, Slovakia and Slovenia


This article includes several parts:

Following METROs approach for a transparent and responsible lobbying of our interests and clearly stating our arguments and positions in a public debate, we wish to explain our arguments to some of the proposals mentioned by the ministers of Agriculture of seven EU- member states Bulgaria, the Czech Republic, Hungary, Latvia, Lithuania, Slovakia and Slovenia. We invite you to a dialogue and look forward to your comments.

METRO's Position on the recommendations in the “Non paper” Better Functioning of the Food Supply Chain:

Overregulation of the food sector will penalize Consumers and breaches competition law

The paper of the seven member states from CEE countries shows once again that the underlying rationale of the discussion is not about fair dealing, but about the expectation that farmers should earn more money for their goods. This is understandable, but to the detriment of European consumers. Competition can be difficult for market participants, but competition has been the driver for innovation, efficiency and better products for European Consumers. All measures taken together the EU would be approaching a total overregulation of the food sector

A regulation must be fair to all stakeholders in the supply chain

The alleged problem of UTP has NOT been noticed by “all” Stakeholders in the supply chain. It is mostly an allegation of the suppliers who would like to increase their prices. Food processors and retailers, who are main participants in the food supply chain, do not agree to this view of the Suppliers. End consumers who benefit from lower prices in the end also do not agree to price increases which are the result of inefficient structures.

Existing regulation and the SCI are sufficient to address potential “black sheep” behavior

EU regulatory framework has no impact on the Single Market. Contracts are subject to local law which can be chosen by the Parties. And there are in all member states trade laws and competition regulation in place which determine a compliant contractual behavior among parties. Existing regulation and market authorities are sufficient to address some “black sheep” who might discredit millions of fair, compliant and non-disputable contracts. In addition the Supply Chain Initiative offers a fair and open platform in every member state and on EU-level to settle any disputes among contractors.

Sale of products is of joint interest of the Supplier and the Retailer

The list of alleged UTP shows that this is not an easy judgment. The definition speaks of practices that deviate “grossly from a good commercial conduct”. However, in the relationship between a Supplier and a Buyer, who shall judge about the fair division of risks? Retailers spend Millions in setting up new stores and logistic infrastructures; they offer jobs for millions of people in the EU and pay taxes as well as social fees. They have sometimes up to 1000 Suppliers. Some suppliers have higher market shares than the retailers and thus can “dictate” their conditions rather than the other way around. The suppliers do not need to set up their own stores, engage regularly less employees and - in the agricultural sector – pay less taxes due to exemptions in the tax systems, but they keep in the end an interest in the turnover of their products through the retailers. Sale of products is of joint interest of the Supplier and the Retailer.

The risk of a supplier does not end at the door of the retailer.

Agreeing on maximum payment terms shifts the need for pre-financing of goods unilaterally to the retailers. Products with low turnover rates are a burden to retailers where they have to pre-finance them. The retailer is already burdened with high investments into “bricks and mortar”. Why would he have to pre-finance his 1000 Suppliers?

The idea prohibiting an agreement about joint “Bearing of operational risks” or “risks related to financial settlements” between contractors, shows that farmers believe only the retailers should bear any risk. Retailers will as a consequence have to negotiate for even lower prices as they cannot agree on a reasonable risk sharing but have to price their risks into the purchasing price in advance.

Price transparency does not improve the position of farmers

The paper calls for increase or transparency in the food supply chain. Again, this shows the interest of the farmers in increased prices. Apart from that, there is nearly no reason for showing the full cost development in the supply chain. Only for goods, which undergo nearly no processing this has any value, for most products the information is useless and leads only to distribution of confidential information. In 2015 the ife Informations- und Forschungszentrum für Ernährungswirtschaft e.V., Kiel, checked the whole value development for milk along the supply chain. The sales price for milk producers was about 23 Cent. 1 cent for transport to the dairy, 8 cents for production costs of the dairy factory, 8,5 cent for packaging, , 6,3 cents for the retailers, 3,6 cents for VAT etc. The end price was 55 Cent. How does the knowledge of these details improve the position of farmers?

Prohibition of contractual provision can be to the detriment of the environment and suppliers

The call for prohibition of conditions negotiated and agreed between suppliers and retailers ignores that there is a business background to such conditions. In some countries conditions like “logistics fees” have been prohibited. In such a case a retailer agrees with a supplier that the supplier will not deliver the goods to all outlets of the retailer, but the retailer picks them up and distributes the goods himself. This saves the supplier transport costs and allows for an efficient distribution process which reduces the CO2 footprint. The logistic fee is agreed as a consequence of this different supply chain setup which saves the supplier cost. Prohibiting such fee distorts the business relationship and is to the detriment of the environment. Similarly, suppliers agree usually to pay an advertising contribution to a retailer. With such contribution they can control when their products are run in the advertisement of the supplier. Prohibiting such fees requires the retailer to recover his costs through a lower purchase price from the supplier, without the supplier retaining any influence on the marketing campaign of the retailer.

In a free market there cannot be an exemption from competition law

Horizontal price fixing has been prohibited for ages since it increases the prices for consumers to the benefit of producers. The call for exemption from competition law underlines that the underlying idea of the “Non paper” is to increase only income for farmers but not to strengthen innovation and effectiveness in the supply chain for the good of the consumers at the end of the supply chain.

We invite you to discuss with us on this and other topics you find in our DIGITAL OFFICE. You can either use the commentary function at the end of this page or addressing us via Twitter or sending us an E-Mail: brussels@metro.de 

Further information:

METRO 2016: Report of the European Parliament on unfair trading practices

METRO 2016: Strengthening farmers' position int the Food Supply Chain 

EuroCommerce press release,

ERRT-Position June 2016

Jan Werner

Information about the author

Jan Werner works as Head of Legal International at METRO AG jan.werner@metro.de

This article includes several parts: