2014a: 25). Competition policies precisely intend to deal with this issue, which throws
doubts about the need for specific considerations and regulatory measures regarding supply
chain.

An interesting point made by Bruno Buffaria in his introduction to the symposium is that although this imbalance is a frequent component of commercial practices, generating uncertainties among traders that would not exist otherwise, some of these uncertainties might be specific to, or more consequential in supply chain (see also EC, 2016b: 12). Beside uncertainties endogenous to all transactions ('commercial practices'), other sources of uncertainties may indeed play a particular role in the development of asymmetries among transactors in supply chain. Some are embedded in the very nature of these organizational arrangements. In one of its most extensive document about unfair trading practices in supply chain, the European Commission noted that 'Recent studies show that contractual practices in the retail sector strongly depend on the governance of the supply chain.' (EC, 2014a: 42). Indeed, a key issue in supply chain is that governance is spread over different partners located at different nodes in the chain, partners that must cooperate while being simultaneously competitors (Ménard, 2013). Moreover, exogenous sources of uncertainties can amplify imbalance among parties to a supply chain as well as among supply chains that operate and compete in the same sector. For example, imbalance can be accentuated by institutional factors, as when disparities among regulation across Member States introduce biases in B2B parties (EU, 2005, 2016a; Swinnen and Vandevelde). Other sources of imbalance can be rooted in technological (e.g., diffusion of innovations) or environmental factors (weather, climate, soil), aspects that are barely mentioned in official documents (but see EC, 2014a, Chapter 1 for a reference to the role of technology) and, unfortunately, were almost totally absent from our discussion.

In sum, a first lesson from the symposium is that there are many different sources of
‘imbalance of bargaining power’, with a resulting diversity of outcome (Gorton et al.). There
is the need to better understand this diversity and to take it into consideration in order to
draw adequate policies, avoiding the ‘one-size-fits-all’ syndrome (EC, 2014a).

Unfair practices

The key question for the purpose of the symposium was of course to determine whether
such sources of asymmetries are generating unfair practices. Unfairness is a difficult concept
to define. As already mentioned, in the economic context under review the European
Commission refers to UTPs as 'practices that grossly deviate from good commercial conduct,
are contrary to good faith and fair dealing and are unilaterally imposed by one trading
partner on another.' (EC, 2014b: 2). The relative vagueness of the concept may explain the
paucity of economic literature on B2B unfair trading practices (Sexton). Using a set of
keywords (unfair, fairness, justice, power, among others), Gorton et al. (2017) were able to
identify only 45 papers that significantly relate to the topic. As we will see below, none is
very conclusive about the existence and actual impact of UTPs.
Numerous examples provided by contributors and participants fall in one or the other
categories of unfair practices introduced in the Green Paper (EC, 2013) and refined or
commented in several documents that followed. In its 'Communication' on *Tackling unfair
trading practices in the business-to-business food supply chain*, the European Commission
summarized 'the main categories of UTPs' as follows (EC, 2014b: 5):

- a trading partner's retroactive misuse of unspecified, ambiguous or incomplete contract terms;

- a trading partner's excessive and unpredictable transfer of costs or risks to its counterparty;

- a trading partner's use of confidential information;

- the unfair termination or disruption of a commercial relationship.

An additional item is introduced in the same document, 'Territorial supply constraints,' as when suppliers are dependent on local markets and the dominant retailers operating in their area, which is often the case with fresh products. Variations or complements have also been introduced in official documents (see particularly EC, 2014a, chap. 1; EC, 2016b) with interesting interpretations, for example the idea that many of these misconducts and their impact on one partner can be understood as imposing 'switching costs', equivalent to creating barriers to entry, particularly if transaction-specific investments have been made on one side of the relationship (Williamson, 1985; Gorton et al.), or if one party depends on technology or know-how of the other, or if substantial part of its sales depends on one buyer, or if the holder of a reputed brand impose sunk costs on the party that intend to use this brand (EC, 2014a, chap. 1). There is also some emphasis in many documents on the so-called 'fear factor', coming out of repeated transactions with the same partner and the fear to damage the relationship, which leads to non-action from the victim of the abuse, making this mischief particularly difficult to reveal and assess.

In the symposium, several contributors illustrated these different categories with examples (Sexton; Gorton et al.; Russo et al.) and some added complements, e.g. Gorton et al. who emphasized the potential role of crisis that may push a powerful partner towards unfair practices to compensate 'sudden loss in profitability' or the possible transfer on one partner of risks associated to specific investments à la Williamson; or Dries who explored the possible role of asymmetric price transmission. A very interesting reinterpretation was submitted by Cafaggi and lamiceli (2017a) who listed unfair practices according to the time at which they interfere in a commercial relation. They propose to look at the unfair practices at: (1) the time of access to the relation (equivalent to entry fees and barriers); (2) the pre-contractual phase, for example when one party provides misleading information during the negotiation; (3) the time when clauses are determined, with the introduction of unfair clauses; (4) the moment of execution of the contract, as when payments are unduly delayed; (5) the possibility of unfair termination or disruption; and (6) the post-contractual
phase, as when one party unduly uses confidential information. What is interesting in that 'timing' of unfair practices is that they may command different policies and may require to be monitored through different institutional arrangements.

However, as pointed out upfront by Sexton in his opening contribution, all examples listed tend to remain relatively descriptive, without providing a well-defined path towards a much needed theory that would allow dealing with two unanswered questions:

(1) How much do these unfair practices differ from the usual strategic behaviour in B2B businesses (an issue also mentioned by Fałkowski)? Surprisingly, few contributors emphasised or discussed the possible role of 'concentration' and 'consolidation', which are measurable factors and potentially the main sources of this 'imbalance of bargaining power' that would encourage behavioural practices leading to inefficiencies and negative impact on operators, typically small farmers, who would otherwise be commercially viable (EC, 2016b).

(2) And what about the very idea of 'unfairness'? How far can we go in restricting ourselves to a purely economic approach to a phenomenon that clearly refers also to other dimensions?

## Unfairness

Indeed, all of the above presume that UTPs matter because they distort 'economic practices', therefore impacting essentially the efficiency of market arrangements and the resulting allocation of resources. But there is more to 'unfairness'. As emphasised by Fałkowski, 'unfair' is also about **perception**, which refers to social norms and values. This point of view is in contrast with the position of Sexton who recommends sticking to an economic approach according to which there are only 'two goals in any commercial relationship: (i) maximise the total value (surplus) from the relationship; (ii) obtain as large of a share of that surplus as you can.'

However, focusing exclusively on these goals raises two questions: (1) Can we really analyse adequately UTPs if we limit ourselves to this approach? (2) Can we ignore the socioeconomic impact UTPs can have through their effect on redistribution? Most contributors to the symposium, as well as participants, more or less explicitly agreed that beside efficiency issues strictly speaking, there is also the effectiveness dimension to take on board, which exceeds the pure allocation effect and introduces the political economy of UTPs. In that respect, the debates were consistent with a position developed in a report to European Commission by the *Agricultural Markets Task Force*, which stated that: 'The future of the CAP and the farming sector depend on societal support. Today's consumers are interested in safe and sustainable agricultural production which also does justice to local traditions. Classical market mechanisms do not provide adequate incentives to ensure sustainable production' (EC-2016b: 11). Although the statement focuses on the end point of
the supply chain (consumers), it could easily be extended to the 'societal support' needed
from and for other links in the supply chain.

There are sound economic motives to take redistribution effects and their perception on board, whether this perception is right or wrong. The very small 'farm share in the food dollar' noted by Dries is a typical example of a source of such perception. Perception of unfairness can have significant impact on costs. We know since the pioneering study of cash posters in the 1930s and the lessons that Akerlof (1982) drawn from this experiment that perception of market conditions has an impact on behaviour and performance, what Fałkowski calls 'network effects' and that I would prefer to identify as 'spillover effects'. But political transaction costs are also involved, that is: the costs of building sustainable political coalitions to support effective public policies by creating a perception of 'fairness'.

Indeed, beside their role in guaranteeing or trying to restore ‘the right conditions’ for markets to run smoothly (Sexton), economic policies are also about keeping or restoring socioeconomic cohesion, which may facilitate coordination and improve performance along the supply chain.

**A second important lesson** of the symposium is therefore that ‘perception’, rooted in social norms, values and beliefs must be taken into account if a policy is to be effective.

*What are supply chains?*

Part of the difficulties in defining and implementing such policies may come from our deficient knowledge of what a supply chain is and how it works. As noted in the introduction, the definition of supply chain as a sequence of relatively autonomous and well-delineated markets is misleading. Supply chains exist precisely because coordinating exclusively (or even primarily) through the price mechanism is not satisfying. And symmetrically, consolidation, typically vertical integration, is not always the appropriate answer to the efficient organization of transactions, as we have learned from transaction costs economics (Gorton et al.; Swinnen and Vandervelde). For example, are concentration and consolidation the most efficient solutions for dealing with situations that are multi-dimensional, as with the role of multi-function in agriculture?

One important lesson from transaction cost economics is that there are organizational alternative to integration within a firm and to pure market arrangements, organizational solutions that recent literature often identifies as ‘hybrids’ (for surveys see Ménard, 2004, 2013). Supply chain in the vertical sequence bringing food from producers to consumers, or franchising in the horizontal arrangements developed in distribution are epitomized illustrations of such alternative arrangements.

Most participants to the symposium, with the possible exception of a few, apparently assumed the existence and legitimacy (from an economic point of view) of such non-standard organisational arrangements. However, beside a few references to transaction cost economics, there were few analyses of the nature and diversity of these arrangements.
**A third lesson** here is that beside the acknowledgement of the 'heterogeneity in what is considered as a UTP' (Swinnen and Vandevelde), we need to know much more about the logic and heterogeneity of supply chain systems in which such unfair practices are embedded and that could be curbed if adequate policies are drawn and implemented.

## 6.4. What consequences of UTPs thus understood?

Notwithstanding these gaps and flaws in our knowledge of supply chain, the symposium provided numerous useful insights on the room these arrangements open to UTPs as well as on the various institutional modalities through which UTPs can be dealt with. I hereafter summarise these two aspects, the impact of UTPs and their regulation and/or monitoring, thus paving the way to indications on policy challenges and lessons that can be derived from the different angles chosen by our contributors or raised in the discussions.

### What effect on whom?

Through the variety of contributions to the symposium, different facets of UTPs were pointed out with their potential impact on actors, namely: farmers, consumers, and other stakeholders; but also on market structures, on different segments of supply chains and other organisational arrangements, and on the society as a whole. **A fourth lesson from the symposium** is that we need to look at these different categories through different lenses since the impact varies and the methodology to analyse it may require different tools, as the short survey of various methodological approaches by Gorton et al. suggested.

Most presentations focused on the impact of UTPs on farmers, a major concern in Europe (but apparently not that much in the US, according to Sexton). Indeed, many contributions relied explicitly or implicitly on a two players' game approach, with retailers on one side and farmers on the other. However, the attention mostly went one way, looking at the impact on farmers of concentration on the retailing side. There is of course much concern about the 'crowding-out effect' (Fałkowski), that is: the dramatic reduction in the number of farmers in the EU, although it was argued in the discussions that this evolution would have happened even under fair trade, due to productivity gains and technological changes. Whether or not UTPs played a role in this evolution, eliminating farmers that would have otherwise been able to pursue normal activities remains an issue. Beside this potential impact, other effects were mentioned, on investments, incentives, and productivity, with the argument that unfair practices have a negative impact on each of these variables (EC, 2014b). For example, in their fierce competition among each other, retailers might introduce incentives that push farmers towards unfair practices, e.g. diluting milk with water if price is based on volume or artificially increasing fat in pork if price is based on fat content.

However, a supply chain involves more than two players, and the impact of UTPs exceeds that on farmers. Cafaggi and Iamiceli (2017a) accurately argued that we want to understand
the possible distortions and biases in the entire chain of transactions linking interdependent
actors, which is the central characteristic of supply chain. In the same vein, Fałkowski noted
that UTPs can also affect the relationships between retailers and processors, or may have
their origin in farmers' behaviour as well.

In that respect, it is important to consider the potential impact of UTPs downward (on markets) and upward (on the general organisation of activities in agriculture). Downward, different contributors and participants mentioned the consequences of UTPs on competition, with the combination of accelerated exit of suppliers (see above) and the development of barriers at entry for potential competitors, the high concentration among retailers benefiting the dominant strategies of those in place. Other consequences have been suggested on the quality of information and products, although empirical studies on these aspects are far from conclusive (Russo et al.).

Indeed, one of the most challenging contributions with respect to downward effects might have been that of Russo et al. on the impact of UTPs on consumers. They examined several papers that intended to measure the effect of UTP on consumers through numerous variables (on consumers' welfare through effects on prices and quantity; on quality; on food safety). In all cases there were at best ambiguous results: the studies diverged significantly in their theoretical predictions as well as in their empirical content, because the results depend so much on assumptions made about market structure, industry conduct, and model parameters. This is confirmed by Dries who examined price transmission in supply chain systems. However, there was some consensus in the discussions that overall, competition among retailers play a positive role, that is, a role favourable to consumers, so that high concentration should be a concern (but this was challenged by Sexton who argued that it is loose oligopsonies that cause problems).

Another interesting aspect discussed in the symposium was about the potential effect of
UTPs on the organization of the sector. First, it was mentioned that UTPs can have a
‘network’ (or spillover) effect (Fałkowski), due to the very nature of this mode of
organization, diffusing good or bad practices through one specific chain as well as among
other supply chains. Second, UTPs might play a role in dramatically influencing the balance
of power and the modalities of organization in the sector. There was an underlying and
vigorous debate here, between those considering that concentration and consolidation
among retailers is a ‘natural’ movement in the context of technological change and
globalization (Sexton) and those who emphasized lessons from recent developments in
organization theory according to which there is not one single way to efficiently organize
transactions (Ménard, 2004; 2013). If similar transactions can be organised in alternative
arrangements that perform similarly well, then there might be value in policies that
maintain competition among these alternatives, e.g., securing the role of producers’
organisations, cooperatives, etc. It was also argued in the discussion that competition
among alternative organizational solutions may be a good thing for economic growth, so
that it might be important for policy-makers to maintain conditions of a levelled field in that
respect.

This seems to have been part of the argument behind the reform of common agricultural
policy (CAP) from 2013, with the acceptance and even encouragement for farmers to get
organized so as to restore symmetry among parties in the supply chain (EC, 2013b; 2016b:
6). There was agreement among participants that there is an increasing interdependence
among the different ‘nodes’ in supply chains, that is: between buyers (retailers), suppliers
(farmers), as well as processors, but that this movement has been accompanied by a shift
towards the dominance of retailers. Hence the question raised in this context of the debate
mentioned above: is consolidation, ultimately leading to quasi-integration and allowing
retailers to impose their own conditions to all other nodes, the best way to organize
activities in agriculture? If so, a provocative argument would be that this evolution may end
in a ‘privately planned economy’, with a tiny group of retailers planning the entire chain
and, in last resort, the entire agricultural activity at least in some sub-sectors? Is there not
some economic as well as social value, in the long run, in the coexistence of alternative
organizational arrangements to such concentration (e.g., cooperatives)? And if so is there a
need for regulation to provide institutional support in this direction? Or are the ‘Rules of
Reason in anti-trust law’ — US style — enough to handle this situation, as argued by Sexton?

Behind this discussion about the appropriate organisation of agriculture and agricultural
markets, there is the issue of the impact of UTPs on all stakeholders and the society as a
whole. Economists capture this aspect through welfare effects. Unfortunately, as already
mentioned concerning the contribution from Russo et al., the effects of concentration and
consolidation of retailers on the development of UTPs and on welfare are not obvious at all.
This lack of conclusive results leaves room for diverging positions. For example, Sexton
challenged the existence of these effects. The point he made is that when retailers are a few
and are involved in tough competition against each other, they become very dependent on
the reliability of their suppliers, so that they have incentives to implement fair contracts
with farmers. In a similar vein, he challenged the idea of a negative effect of concentration
and consolidation on exit of small farmers. He argued that it is not so since the renunciation
of so many small farmers means that only those with good performance survive, which
should be socially beneficial.

Clearly most of these issues remain open. It is so partially because of the many
methodological problems that researchers face when it comes to identifying UTPs and
measuring their impact (Gorton et al.). We need more robust economic results. A fifth
lesson of the symposium is therefore that on the one hand a better characterization of
supply chain systems and of their diversity is required; and on the other hand, that there is
the need for rigorous comparative assessment of the differences and respective
performance of alternative modalities of governance (for example, comparing supply chain
led by retailers with those led by cooperatives or by producers’ organisations).
## How to deal with these issues?

Because of our limited knowledge about supply chains and their impact, the usual question about the role of regulation becomes even more acute. Following the tradition developed in industrial organisation, which is largely based on the standard representation of integrated firms competing against each other, Sexton questioned the need for a regulation of supply chain. In his view the so-called ‘rule of reason in US antitrust law,’ relying upon general laws and courts in charge of their implementation should do the job (¹⁴). He also argues that the need to integrate asymmetries of information among parties to a supply chain can be done through the development of contracts (a position also shared by some European Commission reports — e.g. EC, 2014a, 2016a), with conflicts handled under existing contract/commercial law.

However, this position does not fully solve two main issues raised by unfair trading practices (and not only in supply chains). First, if the different nodes of supply chain correspond to relatively autonomous markets, as it has been argued (EC, 2016b), how can (incomplete) contracts overcome asymmetries in market power better than the standard price mechanism? How come that the price mechanism does not do the job? Second, what about the transaction costs of establishing contracts detailed enough to face these asymmetries and to prevent or solve conflicts among parties without introducing rigidities that would hamper the much needed adaptation in a rapidly changing world?

Moreover, if it is acknowledged that most contracts are incomplete (EC, 2013b:6), a position increasingly shared among economists after the path breaking contributions of Williamson (1985, Chapter 3) and Hart and Moore (1988), what mechanisms (¹⁵) of governance can fill the blanks? The task force on markets in agriculture submitted a distinction ‘between contracts between individual primary producers and their respective trading partners and contracts which are negotiated by producers collectively with their downstream partner(s)’ (EC, 2016b: 34). This distinction might be useful in other aspects (e.g. to better understand the role of collective organisations), but it can hardly provide an answer to the problems of incompleteness and its connection to the asymmetries between retailers and farmers, particularly when it comes to ‘individual contracts,’ notwithstanding the possible exception of some very large corporate farms to which Sexton seems to refer in support of his arguments against regulation.

These issues of asymmetries in information and bargaining power and the door they open to UTPs remind us that economic activities are social constructs (Fałkowski). There is no such a thing as a ‘natural market’. All markets and all organisations result from social choices, embedded in guiding rules that require institutional devices to be implemented.

<footnote n="14">¹⁴) For a critical view, see Joskow (2002).</footnote>

<footnote n="15">¹⁵) In this paper, ‘mechanisms’ are understood as the procedures through which coordination and monitoring are processed, and ‘devices’ as the organisms through which mechanisms operate. For example, a regulation is a mechanism; a regulatory agency is a device.</footnote>
This is why, notwithstanding the variety of forms they take, there are regulatory authorities
monitoring agriculture everywhere in the world, whatever the political regime.

What regulation, under what form?

Indeed, with a few exceptions (e.g., Sexton), there was a general agreement in the symposium, synthesized by Cafaggi and Iamiceli (2017a) that regulatory authorities and other monitoring devices are needed to enforce rules concerning UTPs, preventing their harmful consequences, following-up complaints etc., and that this requires most of the time such devices to be external to the direct players of the game. Some 'regulatory' tools might be provided from inside, through the governance of supply chains, for example product safety control systems operated by the chain 'leader' or through the instalment of forms of audit internal to the chain. However, the need for regulation and arbitration external to the parties remain quite universal in agriculture because of its impact on health and, in last resort, on the survival of human beings. As a result, we find most of the time what Cafaggi and Iamiceli call 'contamination' between public monitoring ('enforcement' in their vocabulary) and private one ('governance').

Several ‘regulatory’ alternatives were considered in different contributions, among which competition laws and the role of courts emphasized by Sexton are only one form and one that often imposes too high transaction costs. Other arrangements exist, that range from purely private to entirely public. One form that has received recent attention from the European Commission is purely private (European Commission, 2016b). The Supply Chain Initiative (SCI) is based on entirely voluntary participation. Developed initially in Belgium with some success, it is tentatively implemented in a handful of countries, with mix results so far, particularly because by nature the initiative suffers from the absence of credible enforcement mechanism (¹⁶).

This may explain the evolution in UK from private initiatives to a more formal institution, the
UK Groceries Code Adjudicator, which mainly relies on reputational effect through the
capacity of the Adjudicator to investigate and publicize unfair practices (Gorton et al.), thus
operating in a sense as a semi-public certification device. It is also a formal solution in that it
is backed by a legal framework and the existence of efficient courts. Another and possibly
complementary option that has been recently favoured by the European Commission is
monitoring market failure through contracts, a solution that play an important role
(although often overstated) in the US (MacDonald and Korb, 2011; Ménard, 2018) and that
Sexton seemed to view as a second best. However, as noticed by the European Commission
(2014a: 30), contracts need to be enforced through access to the judiciary at reasonable
cost, a condition not at all obvious and that makes contracts more than a purely private
solution to UTPs. Less formal, at least from a legal point of view, but susceptible of

<footnote>(¹⁶) The SCI was formally initiated in November 2011. Its first significant contribution was a set of 'Principles of good practices' issued in Sept 2013 (see European Commission, 2016b). National platforms are already established (in Belgium) or emerging (as of November 2015: in Finland, Germany and the Netherlands). For a survey of the contrasted results of SCI, see European Commission, 2016b: 9 et seq.</footnote>
disciplining parties is the possible role of community-based management to which Fałkowski alluded, although no specific example has been provided with respect to UTPs in agriculture (but one could argue that the Supply Chain Initiative partially falls into this category). In a similar vein, Dries mentioned the possible role of cooperation as a way to monitor unfair practices and, above all, to improve existing positive practices. She gives the example of powerful retailers cooperating with upstream suppliers to introduce innovation, improve production practices, and better respond to consumers' demand.

**The sixth and fundamental lesson** here is that we must acknowledge that there are alternative modalities of 'regulation' to monitor relationships among the 'nodes' in supply chains. There is a **related lesson** however, which is that each of these modalities involves significant transaction costs, so that valuing one solution rather than another one should be assessed by taking these costs into consideration. Most policy-makers and even economists do not seem to be even aware of this issue. At best, there are vague references to the need to assess costs and benefits of regulatory modalities in a comparative way. It is a pity that this ignorance or 'benign neglect' of an issue clearly deserving in-depth investigation still persists.

*Looking at regulatory devices from a different perspective*

A major difficulty in assessing alternative modalities of regulation in a comparative way comes from their deep institutional embeddedness. Although progress has been made in the analysis of institutions and their impact on regulatory issues (see North, 1990; Levy and Spiller, 1994; Laffont, 2005; and many others), finding ways to compare institutional arrangements, not to speak of evaluating them, remains an important task on the agenda of economists and social scientists. Several contributors and discussants pointed out this issue. One possible step in that respect can be through a better identification of the different institutional layers to which different modalities of monitoring and regulation belong, thus easing the development of rigorous comparative analyses.

Indeed, 'institutions' are a bit like supply chains in that they rely on different 'nodes' or layers. Most discussions on regulation have so far focused on two layers: the macro-institutional level at which rules of the game are decided (e.g., European Parliament–Council–Commission; this is the level on which Sexton's view of regulation focuses), and the micro-level at which actors operate within these rules (typically the level at which parties to supply chains interact). However, as argued by Cafaggi and Iamiceli (2017a, b), most regulatory arrangements are hybrids: they are embedded in legal rules defined at the macro-level, and they involve forms of participation of actors operating at the micro-level.

This reasoning can be push further. It can be argued (and there is some analogy with organisation theory here) that these 'hybrid' institutions form a category of their own, providing the missing link between the general rules (macro-level) and the level of actors who must organize their transactions within these rules. It has been suggested to identify this intermediate institutional layer as that of 'meso-institutions' (Ménard, 2008, 2014). The
British 'Groceries code adjudicator' illustrates: its responsibilities are embedded in the legal
'Grocery supply code of practice' and it monitors possible unfair practices in groceries
supply chains through a reputation mechanism, mainly by identifying and publicising good
and bad practices (Gorton et al.; EC, 2014a). Using reputation as a monitoring instrument
also plays a role in dealing with the so-called 'fear factor', the fear to lose future business
transactions that often prevents farmers (or other victims of UTPs) to complain (Swinnen
and Vandevelde; EC, 2014a,b).

The case of the Adjudicator is only an illustration of the various institutional mechanisms of regulation that correspond to ‘meso-institutions’. Actually, most presentations and discussions in the symposium focused on this intermediate level, the key role of which has been pointed out by the task force on agricultural markets that noted that: ‘Member States have appointed different national enforcement authorities to address UTPs. This is sometimes the national competition authority and in other cases a dedicated body, such as a national ministry, a national food agency, or a national anti-fraud agency.’ (EC, 2016b: 6). The importance of this intermediate layer in translating the general rules into specific ones and in enforcing these rules has been emphasised by Cafaggi and Iamiceli (2017a). It is likely at this level that many sources of efficiency (or inefficiency) originate. A **seventh lesson** from the symposium is that we need to better understand, characterise, and assess the comparative costs and benefits of these alternative meso-institutions.

**6.5. Policy-making: what did we learn?**

This short summary of the contributions to this rich symposium raises the central issue for policy-makers: how can UTPs be monitored at the lowest possible cost so as to reduce, if not eliminate, their impact on the efficiency and effectiveness of agricultural markets? This is clearly the most difficult part to deal with in this synthesis of our discussion.

In his contribution, Sexton mentioned that Europeans seem much more concerned than
Americans by UTPs in supply chain systems. That might be path dependent and not relevant
only for Europeans. Although there remains a very large number of small farms in the US, in
many major subsectors the actual production at the farm level and processing at the
transformation level are highly concentrated (e.g. sugar beets, dairy products, livestock such
as poultry or hogs — See MacDonald and Korb, 2011; and USDA, 2012), so that there is
some symmetry between producers, processors, and retailers. By contrast, in Europe as in
other parts of the world (Africa, Asia), production is much more dispersed while retailing
and distribution is often highly concentrated. This may make supply chains a much more
relevant issue and the risk of unfair practices a much more acute problem in those parts of
the world (¹⁷).

<footnote>(17) However, one could argue that even in the US this may be changing: globalisation means that an increasing part of the products delivered to American consumers through large retailers comes from thousands of small producers dispersed over the world, so that coordination on quality, quantity, and timing of deliveries also becomes a major issue. The Nestlé model implemented to</footnote>
Since the structural characteristics of supply chain in Europe, with high concentration of retailers and dispersed farmers, are likely going to remain quite the same for the foreseeable future, what lessons can be drawn from our discussion that are relevant for policy-makers?

*All tools have their own limitation*

One important lesson from the symposium is that there is no single tool that would provide
the optimal solution to UTPs.

— Giving **access to information cannot do it all**. This solution is repeatedly mentioned in several European Commission reports on UTPs. Sexton's skepticism towards regulation rely on the assumption that 'Under the right market conditions ...' (¹⁸), of which information is a key factor, self-regulation of markets will work. The problem is that appropriate information is scarce, difficult and costly to collect, and that processing the information already available faces the bounded capacity of agents and the distortions coming out of their 'perception'.

— **Contracts cannot do it all.** The increasing attention paid to contracts as a way to overcome UTPs might well have generated too high expectations. We have learned from contract theory as well as from empirical studies that contracts face limitations due to the conditions of negotiation (asymmetry in bargaining power) and the limits and costs of writing detailed contracts (collecting adequate information, establishing detailed clauses that can apply to a variety of situations, etc.). As a result, most contracts are incomplete. Moreover, detailed contracts may improve security for partners, but at the cost of introducing major rigidities, making adaptation to a changing environment particularly difficult (see EC, 2016b: 29).

— **Private codes of conduct cannot do it all,** as illustrated by the initial UK experience of a code of conduct that evolved towards the more formal institutional arrangement impersonated in the creation of an institutional 'Adjudicator'. Similarly, the Supply Chain Initiative faces the reluctance of key stakeholders to participate, particularly because of the lack of adequate mechanisms of enforcement of the rules agreed upon.

— **Formal public regulation cannot do it all** either. Critiques have well substantiated the many distortions and counterproductive biases it can introduce, so that 'countries need to be very cautious when considering regulations that are likely to make their agricultural sector less efficient' (Sexton). This risk is particularly high when goals assigned to regulatory authorities are socially-politically determined, leading to a 'benign neglect' for efficiency considerations, a significant risk in policy-

<footnote>(¹⁸) The exact quote is: ‘Under the right market conditions, more highly concentrated procurement markets perform best and insure farmers a fair or competitive return on investment.’ Based on this principle, Sexton derived several considerations about the occurrence and impact of UTPs.</footnote>

<footnote>accompany the development of Nescafe is illustrative in that respect.</footnote>
making (an illustration could be the debatable recommendation to make collective
negotiation mandatory — EC, 2016b: 39).

A lesson from these limitations could well be that a superior solution requires mixing
different tools.

The need to know more

However, doing that in an appropriate way requires to acknowledge the variety of supply
chain and of regulatory devices and to know their different properties and characteristics.
As already pointed out in this summary of the symposium and in the various contributions
and discussions on which it is built, we still have a very limited knowledge in that respect.
There are important lessons here as well.

— We need to know better the diversity of supply chain systems, their characteristics, and their weight in the different subsectors of agriculture. Building a differentiated approach to capture this diversity and substantiating it with relevant data is central for an adequate regulation. A step in this direction could be *the implementation of an observatory of supply chain systems*.

— We need to better understand the variety of regulatory mechanisms and devices
and to develop criteria to assess their comparative performance in relation to the
type of activities (transactions) and the type of supply chains they intend (or
pretend!) to monitor. Such developments require theoretical progress that might be
encouraged by *creating appropriate research programmes at the EU level*.

— We need to take on board the two dimensions involved in UTPs: efficiency and effectiveness. Efficiency requires looking at alternative regulatory instruments through comparative lenses, for example comparatively assessing the risk that formal regulation raises transaction costs, reduces gains to trade, and prevents mutually beneficial agreements; versus the risk that relying exclusively on private initiatives remain good wishes without adequate tools to effectively enforce codes of conduct, thus opening room to opportunistic behaviour and social conflicts. This is precisely where effectiveness comes into the picture: it requires the implementation of rules favouring fairness and the perception it is so. *Building institutional devices that facilitate the development of consensus*, e.g., public forum involving the different stakeholders and relying on transparency in decision-making process and accountability in the implementation of rules might be important steps in this direction. Notwithstanding its limitation, the Supply Chain Initiative illustrates.

Still, some relevant lessons already

What we have learned already and what is now acknowledged by policy-makers is that
there is a diversity of possible solutions, whether it concerns the organisational
arrangements that can structure a chain of transactions, of which supply chain is a key
component beside other arrangements such as vertical integration; or the institutional
arrangements that can guarantee a level playing field to parties involved. What we have also learned, although our knowledge in that respect remains very limited, is that each solution carries its own costs and limitations.

Finding the right equilibrium between these different solutions is and will remain very challenging. Policing and if possible preventing UTPs in supply chain must meet different goals, among which:

(a) maintaining a competitive agriculture in globalised markets;

(b) facing volatility (in prices, in quantities), sometimes accentuated by this globalisation, with its important socioeconomic consequences, particularly on small farmers;

(c) accepting that in the European context consolidation into huge corporate farms (which could restore some symmetry among parties in supply chains) will remain a very limited option, due to social, geographical, and economical constraints;

(d) keeping in mind the long-term perspective of supplying food to satisfy a growing and increasingly diversified demand, so that there is likely a future for diversified organizational arrangements and strategies in agriculture.

Some contributions to the symposium suggested that a solution could be a **policy-mix**, combining private, administrative, and judicial modalities of monitoring and enforcement (Cafaggi and Iamiceli, 2017b). A recent Communication of the European Commission seems to make a step in this direction when noting that 'The Green Paper consultation, accompanying studies and some of the most recent national initiatives suggest that a 'mixed approach', i.e. voluntary schemes complemented with credible and effective enforcement based on comparable principles, may be appropriate in addressing UTPs.' (EC, 2014b: 13). An alternative could be reactivating the 'Tinbergen principle' according to which different targets command different policy instruments, for example with respect to food supply chain choosing instruments aligned with the specificities of different subsectors, e.g., fresh products vs storable ones; etc.

In all cases, this is to admit that there is no *one-size-fits-all* solution and that some flexibility is in order. However, saying so also carries its own risk, the risk that policies fall into arbitrary measures, tailored according to specific interests.

Bruno Buffaria suggested that a reasonable solution might be a 'test and try' approach. In that respect, the European Union may offer a unique opportunity, thanks to its diversity. Swinnen and Vandevelde provided an interesting typology of the various regulations implemented by the different member-states of the EU. This diversity may allow developing a comparative approach to the costs and benefits of alternative solutions. However, this diversity has also its limits. As noted by Cafaggi and Iamiceli (2017a,b), monitoring UTPs must also take into account the increasingly transnational nature of supply chain systems in
Europe. *Assessing rigorously the existing practices and how they adapt to this evolution should be a priority.*

Many questions remain open which is no surprise. Among them: (1) What diversity is acceptable/manageable among Member States? (2) What status is desirable and implementable for small farmers in the long run? (3) How to maintain competing conditions at the organisational level? (4) What economic standards regarding agricultural practices and products can be compatible with social norms as diversified as those prevailing in the complex configuration of the European Union?

Clearly there is an open debate on these issues that perspire in the difficulty to reach clear-cut conclusions, particularly with respect to policy recommendations. Nevertheless, this symposium has shown that policy-makers do not start from scratch, that they can already benefit from some accumulated knowledge, and that there are relatively well-defined paths to be explored in order to find more suitable answers to the many challenges of unfair trading practices in food supply chain systems.

## 6.6. References

Akerlof, G. (1982). 'Labor Contracts as Partial Gift Exchange.' *The Quarterly Journal of Economics*. 97: 543-569.

Cafaggi, F., P. Iamiceli (2017a). 'Monitoring UTPs for supporting better regulations: what is the information we need? What information do we miss?' Paper presented at the workshop on 'Unfair Trading Practices in the Food Supply Chain', European Commission, Brussels 17-18 July 2017.

Cafaggi, F., P. Iamiceli (2017b). 'Enforcing UTP in agrifood supply chains.' Paper presented at the workshop on 'Unfair Trading Practices in the Food Supply Chain', European Commission, Brussels 17-18 July 2017.

Dries, L. (2017). 'The economic impact of UTPs on upstream suppliers (farmers).' Paper presented at the workshop on 'Unfair Trading Practices in the Food Supply Chain', European Commission, Brussels 17-18 July 2017.

European Commission (2013a). *Final Report on 'Unfair Commercial Practices Directive (UCPD)'*. March 14, 2013. Com (2013) 139 Final.

European Commission (2013b) Green paper *On unfair trading practices in the business-to-business supply chain in Europe*. January 31st 2013. Com (2013) 37.

European Commission (2013c) Undated) *Summary response to the EC green paper*. 28 pages

European Commission (2014a). *Study on the legal framework covering business-to-business unfair trading practices in the retail supply chain*. Final report prepared for the European Commission, DG Internal Market, 26 February 2014. DG MARKT/2012/049/E.

European Commission (2014b). *Tackling unfair trading practices in the business-to-business food supply chain*. Communication of the Commission, July 15. COM(2014) 472 final.
European Commission (2016a). *Report on unfair business-to-business trading practices in the food supply chain*. January 29 Com (2016) 32 Final.

European Commission (2016b). *Improving market outcomes: Enhancing the position of farmers in the supply chain*. Report of the Agricultural Markets Task Force, Brussels, November

European Union (2005). Directive 2005/29/EC of the European Parliament and of the Council of 11 May 2005 ('Unfair Trading Practices'). *Official Journal of the European Union*, June 11, 2005, 149/22

Fałkowski, J. (2017). 'UTPs in the food supply chain: what we still need to know. Paper presented at the workshop on 'Unfair Trading Practices in the Food Supply Chain'', European Commission, Brussels 17-18 July 2017.

Gorton, M., F. Lemke, F. Alfarsi (2017). 'Methodological framework: review of approaches applied in the literature to analyse the occurrence and impact of UTPs.' Paper presented at the workshop on 'Unfair Trading Practices in the Food Supply Chain', European Commission, Brussels 17-18 July 2017.

Hart, O., J. Moore (1988). 'Incomplete Contracts and Renegotiation.' *Econometrica*. 56 (4): 755-785.

Joskow, P. (2002). 'Transaction Costs Economics, Antitrust Rules and Remedies.' *Journal of Law, Economics and Organizations*. 18 (1): 95-116.

Laffont, J.J. (2005). *Regulation and development*. Cambridge (UK): Cambridge University Press.

Levy, B., P. Spiller (1994). 'The Institutional Foundations of Regulatory Commitment.' *Journal of Law, Economics and Organization*, 9 (Fall): 201-246.

MacDonald, J., P. Korb (2011). *Agricultural Contracting Update: Contracts in 2008*. / EIB-72 Economic Research Service / USDA, February 2011.

Ménard, C. (2004). 'The Economics of Hybrid Organizations.' *Journal of Institutional and Theoretical Economics*, 160 (3): 345-376.

Ménard, C. (2008). 'Redesigning Public Utilities: the Key Role of Micro-institutions.' In J. Kornai, L. Mathyas and G. Roland (eds.), *Corruption, Development and Institutional Design*. London: Palgrave-MacMillan, chap. 10: 189-202.

Ménard, C. (2013). 'Hybrid Modes of Organization. Alliances, Joint Ventures, Networks, and Other 'Strange' Animals.' In R. Gibbons and J. Roberts (eds.), *The Handbook of Organizational Economics*, Princeton: Princeton University Press. Chapter 26: 1066-1108.

Ménard, C. (2014). 'Embedding Organizational Arrangements: Towards a General Model.' *Journal of Institutional Economics*, 10 (4): 567-589.

Ménard, C. (2018). 'Organization and governance in the agri-food sector: How can we capture their variety?' *Agribusiness: An International Journal*. 34 (...forthcoming)

North, D.C. (1990). *Institutions, Institutional Change, and Economic Performance*. Cambridge (UK): Cambridge University Press.
Russo, C., A. Sorrentino, L. Menapace (2017). 'The Impact of UTPs on consumers: review of empirical studies.' Paper presented at the workshop on 'Unfair Trading Practices in the Food Supply Chain', European Commission, Brussels 17-18 July 2017.

Sexton, R. (2017). 'Business-to-Business Unfair Trading Practices in the Food Supply Chain: What Are They? How Common Are They? And What Should We Do about Them?' Paper presented at the workshop on 'Unfair Trading Practices in the Food Supply Chain', European Commission, Brussels 17-18 July 2017.

Swinnen, J, S. Vandevelde (2017). 'Regulating UTPs: Diversity vs Harmonization.' Paper presented at the workshop on 'Unfair Trading Practices in the Food Supply Chain', European Commission, Brussels 17-18 July 2017.

USDA (2012). Farms with contracts by farm typology, Economic Research Service, Agricultural Resource Management Survey. https://www.agcensus.usda.gov/Publications/2012/Online/Typology/typology13.pdf

Williamson, O. E. (1985). *The Economic Institutions of Capitalism*. New York: The Free Press-Macmillan.
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