The EU is calling for action to protect small food companies from unfair practices used by some of the bigger manufacturers and supermarkets in the industry.
Large companies have stronger bargaining power when negotiating with other firms, and they use this – legitimately – to their benefit.However, as power in the food industry has become increasingly concentrated, the imbalance has at times led to smaller companies being subjected to unfair trading practices.
These include stronger trading partners:
- refusing to put essential terms & conditions in writing
- making changes to the cost of transactions that have already been agreed
- leaving the weaker parties in a contract with a disproportionate amount of risk
- ending a commercial relationship without notice and without an objectively justifiable reason.
If the minor party in a trading relationship is economically dependent on its stronger counterpart, it may feel unable to defend itself against such practices, for fear of compromising the relationship.
A typical case might go as follows: a large international soft drinks producer supplies a small retailer. It launches a new product and asks the retailer to stock it. When the retailer declines because of limited shelf space, the supplier threatens not to deliver some of its “must-have” products to them. When the retailer points out that the newly launched product was not covered in the annual contract, the supplier threatens to terminate their relationship.
Supporting small businesses
Some European governments have already put measures in place to prevent such practices; others are yet to take action.Since September 2013, the EU has been encouraging businesses to sign up to a voluntary code of conduct – the Supply Chain Initiative – under which they commit to conducting their commercial relationships in a fair and sustainable way.It now intends to build on this by establishing Europe-wide principles of good practice and minimum standards of enforcement.The aim is that more cases could be resolved through voluntary initiatives instead of costly and lengthy legal procedures. Independent enforcement authorities could protect the confidentiality of small companies worried about the potential impact of coming forward. Many different players – producers, processors and retailers – are involved in bringing a food product to the customer. There are more than 47 million people employed in this supply chain in the EU, with more small firms in this sector than almost any other.