EUROPEAN COMMISSION Brussels, 12.4.2018 SWD(2018) 92 final COMMISSION STAFF WORKING DOCUMENT



IMPACT ASSESSMENT

Initiative to improve the food supply chain (unfair trading practices) Accompanying the document Proposal for a



DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on unfair trading practices in business-to-business relationships in the food supply chain {COM(2018) 173 final}

{SWD(2018) 91 final}

{SWD(2018) 93 final}



1 Introduction 7 1.1 General 7 1.2 Political context 8 1.3 Unfair trading practices and their relevance in the agricultural sector 9 2 Problem definition 11 2.1 Overview of the problem definition 11 2.2 Introduction 11 2.3 Occurrence of unfair trading practices in the food supply chain 12 2.4 Under-protection against UTPs in Member States 13 2.5 Harm caused by unfair trading practices 15 2.5.1.1 Operators 15 2.5.1.2 Consumers 18 2.6 What are the problem drivers? 20 2.6.1 Imbalance of bargaining power 20 2.6.2 Divergence of UTP rules at the national level 21 2.6.3 Lack of coordination among enforcement authorities 22 2.7 How will the problem evolve? 22 2.8 Prior evaluations 26 3 Why should the EU act? 26

3.1 Legal basis for EU action 26 3.2 Subsidiarity: Necessity of EU action 28 3.3 Subsidiarity: Added value of EU action 28 4 Objectives: What is to be achieved? 34 4.1 General objectives 34 4.2 Specific objectives 35 4.3 Consistency with other EU policies 35 5 What are the available policy options? 37 5.1 Introduction 37 5.2 Degree of harmonisation of substantive UTP rules 37 5.2.1 Baseline 37 5.2.2 Options discarded at an early stage: detailed harmonisation of substantive UTP rules 37 5.2.3 Partial harmonisation of substantive UTP rules 38 5.3 Scope of UTP prohibition 38 5.3.1 Baseline 38 5.3.2 UTPs subject to generally formulated prohibition (based on fairness) 38 5.3.3 Prohibiting specific UTPs 39 5.3.3.1 Unilateral and retroactive changes to contracts 41 5.3.3.2 Last-minute order cancellations‎ concerning perishable products 42 5.3.3.3 Claims for wasted or unsold products 42

5.3.3.4 Payments for perishable products later than 30 days 42 5.3.3.5 Claims for contributions to promotional or marketing costs of buyer 43 5.3.3.6 Requests for upfront payments to secure or retain contracts without consideration 44 5.3.3.7 Criteria concerning the assessment of unfairness of the practices 44 5.4 Operationally, an EU approach based on the options set out in section 5 should incorporate the said considerations and be shaped accordingly. Coverage of products 44 5.4.1 Baseline 44 5.4.2 Agricultural and processed agricultural products covered 45 5.4.3 Agricultural products covered 45 5.5 Operators covered by UTP rules 45 5.5.1 Baseline 45 5.5.2 UTP rules apply in situations characterised by weak bargaining power 45 5.5.3 UTP rules apply to all operators 46 5.5.4 UTP rules ‘benefit’ 3rd country suppliers 46 5.5.5 UTP rules ‘benefit’ suppliers situated in the EU 46 5.6 Enforcement 47 5.6.1 Baseline 47 5.6.2 Options discarded at an early stage 47 5.6.3 Minimum enforcement requirements “plus” 47 5.6.4 Minimum enforcement requirements 49 5.7 Coordination of enforcement authorities 49

5.7.1 Baseline 49 5.7.2 Coordination 50 5.8 Legal instrument to be used 50 5.8.1 Recommendation 50 5.8.2 Legally binding instrument 51 6 What are the impacts of the policy options? 51 6.1 Introduction 51 6.2 Impact on operators, consumers and Member States 52 6.2.1 Impact on economic operators 52 6.2.1.1 Benefits 52 6.2.1.2 Harm 54 6.2.1.3 Costs 56 6.2.2 Impact on consumers including impact on innovation 57 6.2.3 Impact on Member States 58 6.2.4 Social and environmental impacts 61 6.3 Impact of the specific option components 61 6.3.1 Scope of UTP rules: Specific list of prohibited UTPs or general (‘principles-based’) prohibition 62 6.3.2 Coverage of products: agricultural products or agricultural and processed agricultural products 63 6.3.3 Scope in terms of operators: (i) all operators in the food supply chain protected or protection restricted to weaker operators; (ii) question of coverage of third-country suppliers 64 6.3.4 Enforcement: minimum requirements or minimum requirements "plus" 65

6.3.5 Coordination: network of dedicated authorities or baseline (High Level Forum) 65 6.3.6 Legal instrument: soft law (recommendations) or legally binding instrument 65 6.4 Option packages 66 7 How do the options compare? 67 8 Preferred option 68 9 Monitoring and evaluation 69 List of Annexes 71 Annex 1: Procedural information 74 1 Lead DG, Decide Planning/Commission Work Programme references 74 2 Organisation and timing 74 3 External expertise and evidence base 75 3.1 Joint Research Centre academic workshop on UTPs in the food supply chain 75 3.2 Study on UTPs at Member State level 76 4 Regulatory Scrutiny Board 77 Annex 2: Stakeholder consultation 82 1 Stakeholder consultation process 82 2 Summary of stakeholder consultation results 82 2.1 Inception impact assessment 82 2.2 Open public consultation 83 2.3 Targeted questionnaire to undertakings 86

2.4 Targeted questionnaire to consumer organisations 86 2.5 Questionnaire to Member State public authorities 87 2.6 Joint Research Centre academic workshop on UTPs in the food supply chain 87 2.7 Ad hoc meetings with food supply chain stakeholders 87 2.8 Civil Society Dialogue groups 87 Annex 3: Who is affected and how? 88 1 Practical implications of the initiative 88 2 Effect on food supply chain operators 88 3 Summary of costs and benefits 91 Annex 4: Analytical methods 93 Annex A: Relevant EU documents concerning unfair trading practices 94 Annex B: The “fear factor” and different enforcement approaches to unfair trading practices 95 1 Fear factor 95 2 Judicial redress 95 3 Administrative redress 96 4 The voluntary Supply Chain Initiative 97 Annex C: UTPs, agriculture and the agri-food sector: quantitative evidence 98 1 The food supply chain 98 2 Economics of agriculture 101 3 Agriculture specifics 102

4 Structure of the different stages of the food chain 105 5 Price transmission 109 6 Rules on UTPs and price evolution 111 7 Intra-EU Trade 113 8 Share of cooperative products in retail sales 121 9 Share of agricultural products (in the meaning of the Treaty) in retail sales 121 Annex D: Table on transposition of Late Payment Directive in Member States in terms of payment terms 124 Annex E: Comparison of policy options 132 1 Degree of harmonisation of substantive UTP rules 132 2 Scope of UTP definition 133 3 Coverage of products 134 4 Operators covered 134 5 Enforcement 135 6 Coordination of enforcement 136 7 Legal instrument 137 8 Comparison of option packages 137 Annex F: Study - Overview on “Specific regulations on Unfair Trading Practices in Member State in the Business-to-Business Retail Supply Chain” 140 Annex G: Study annexes - Overview on “Specific regulations on Unfair Trading Practices in Member State in the Business-to-Business Retail Supply Chain” 196 Annex H: Economic impact of unfair trading practices regulations in the food supply chain (DG Competition) 260

Glossary

Term or acronym Meaning or definition AUSD Australian Dollar B2B Business-to-business B2C Business-to-consumer CAP Common Agricultural Policy CF Charter of Fundamental Rights of the European Union CMO Common Market Organisation CR5 Concentration ratio of the five largest firms ECB European Central Bank EP European Parliament EU European Union EUR Euro GBP British Pound GCA Grocery Code Adjudicator (UK) MTK The Finnish Farmers' Association OECD Organisation for Economic Co-operation and Development SCI Supply Chain Initiative SME Small and medium-sized enterprises TFEU Treaty on the Functioning of the European Union UK United Kingdom UTP Unfair trading practice



1Introduction 1.1General The present impact assessment report examines the case for introducing EU rules governing unfair trading practices (UTPs) in the agri-food chain including their enforcement. It addresses questions such as the nature and scope of the problem as well as the added value of EU measures over existing Member States’ measures and self-regulatory initiatives. The options discussed in sections 6 and 7 of this report would aim to complement existing rules in Member States and the existing self-regulatory initiatives (EU-wide or national) rather than replace them. Possible measures enhancing transparency in the food supply chain, which constituted a second component of the inception impact assessment of July 2017, will be subject to a separate work strand. The third component of the said inception impact assessment concerning producer cooperation was covered by recent changes to basic acts decided in the framework of the so-called Omnibus regulation. It is therefore not subject of this impact assessment. UTPs can be broadly defined as practices which grossly deviate from good commercial conduct, are contrary to good faith and fair dealing and are unilaterally imposed by one trading partner on another (business-to-business). The European Commission identified four key categories of UTPs that “an effective regulatory framework should cover”: - one party should not unduly or unfairly shift its own costs or entrepreneurial risks to the other party; - one party should not ask the other party for advantages or benefits of any kind without performing a service related to the advantage or benefit asked; - one party should not make unilateral and/or retroactive changes to a contract, unless the contract specifically allows for it under fair conditions; - there should be no unfair termination of a contractual relationship or unjustified threat of termination of a contractual relationship. There are strong indications that UTPs occur frequently in the EU food supply chain and that they can be detrimental mainly to otherwise viable smaller operators such as agricultural producers and SME processors of food products. Twenty EU Member States’ have laws, regulations and administrative provisions specifically on UTPs. While different in shape and form, these provisions generally prohibit certain unfair behaviour between businesses, often with a view to protecting the position of weaker parties. Together with self-regulation, such as the voluntary Supply Chain Initiative, they aim to ensure the good functioning of the food supply chain. There are, as of yet, no EU horizontal rules on unfair trading practices between businesses. EU rules on unfair commercial practices apply to business-to-consumer (B2C) situations. They do, as such, not cover business-to-business (B2B) situations although Member States may choose to extend their scope. 1.2Political context The discussion about UTP measures at the EU level dates back to 2009 (see Annex A for a selection of relevant documents). The European Commission’s “Communication on a better functioning food supply chain” of 28 October 2009 and its Communication “Tackling unfair trading practises in the business-to-business food supply chain” of 15 July 2014 are important documents in this regard. In 2013, the Commission carried out a public consultation on the basis of questions in a “Green Paper on unfair trading practices in the business-to-business food and non-food supply chain in Europe”. A European Commission report from January 2016 concluded that at that juncture a harmonised regulatory approach under EU law would not add value. Nonetheless, it committed the Commission to re-assessing the need and added value of EU action before the end of its mandate. In June 2016, a European Parliament resolution, which garnered exceptionally strong support, invited the European Commission to submit a proposal for an EU-level framework concerning UTPs.

In September 2016, the European Economic and Social Committee published a report calling upon the Commission and the Member States to take swift action to prevent UTPs by establishing an EU harmonised network of enforcement authorities, so as to create a level playing field within the single market. In November 2016, an independent high-level group of experts nominated by the European Commission presented its findings in a report entitled ‘Improving Market Outcomes – Enhancing the Position of Farmers in the Supply Chain’ (Report of the Agricultural Markets Task Force). It recommended EU legislation in the areas of unfair trading practices for agricultural products, producer cooperation and market transparency, among others. The Council Conclusions of December 2016 invited the Commission to undertake, in a timely manner, an impact assessment with a view to proposing an EU legislative framework or other non-legislative measures to address UTPs. In the recent Omnibus context, the EP proposed an amendment which meant to commit the Commission to submit a legislative proposal on UTPs by mid-2018. The amendment was not retained due to the European Commission’s institutional prerogative but the European Commission made a declaration on the topic of unfair trading practices. The Commission Work Programme for 2018 states that the Commission "will propose measures to improve the functioning of the food supply chain to help farmers strengthen their position in the market place and help protect them from future shocks" (new initiative). 1.3Unfair trading practices and their relevance in the agricultural sector The integration of EU agriculture and food supply chains in global markets presents opportunities but also risks. Successive reforms of the common agricultural policy (CAP) since 1992 have led to a paradigm shift from price to income support. Accordingly, primary producers do no longer enjoy systematic price support via market measures. Support through the CAP rather is granted through decoupled income support (direct payments). Trade barriers have been removed through more liberal trade agreements. This has resulted in EU prices of agriculture products being largely aligned with world market prices. EU farming and EU agriculture have become competitive in this new global context and have made an important contribution to the annual trade surpluses the EU has achieved in food products since 2009. But the removal of price support and the insertion into global markets have exposed the EU agri-food sector to global market instabilities and their corollary, price volatility and higher income variability. 20% of farmers experience income drops of more than 30% each year. The CAP’s rationale roots in the socio-economic specificities of the sector. While business risk is inherent in all economic activity, agriculture is particularly fraught with uncertainty, in particular due to weather which has a direct impact on the variability of the quantity and the quality supplied. Everyone needs food for survival, but demand for food is relatively inelastic: it does not change significantly if prices fall or increase. This means that farmers cannot rely on simply selling more of their output to compensate for lower prices. Over-supply therefore has a significant impact on the price levels as well as on the volatility of prices. Moreover, there are long production lags due to the biological processes on which agricultural production depends. For example, it takes two years for a dairy cow to reach the stage where it produces milk. Production decisions have to be taken in advance with limited knowledge of final outcomes and against possibly changing market situations. These factors can have a significant impact on farmers’ incomes, and yet they have virtually no control over them. Agricultural producers are particularly vulnerable to UTPs as they often lack bargaining power that would be equal to that of their downstream partners. Their alternatives in terms of getting their products to consumers are limited (this vulnerability is exacerbated where so called hold-up situations occur which may make alternatives virtually non-existing due to the perishability of a product). In an agricultural policy environment which is distinctly more market oriented than before and which aims at harnessing free trade opportunities, the good governance of the food supply chain has become more important for operators including farmers. Such good governance should ensure that they are able to develop their business and compete on fair terms, thereby contributing to the overall efficiency of the chain. Unfair business conduct by operators wielding significant bargaining power that is not prohibited or respective redress possibilities that lack in effectiveness are liable to undermine the economic viability of victims of UTPs as well as their trust in the overall fairness of the food supply chain. The second highest priority for citizens concerning the common agricultural policy (CAP) is strengthening the farmer’s role in the food chain (45%). The EU’s Common Agricultural Policy (CAP) does provide for measures which aim to strengthen farmers’ position in the food supply chain. These include start-up funding (rural development regulation) for producer groups and regulatory exemptions from competition law for farmers´ organisations. However, these policies have not fundamentally changed the fragmentation of agricultural producers. What is more, producer organisations, even where they do exist, can often not compensate for the lack of bargaining power of farmers in relation to their larger and more concentrated partners in the supply chain. The CAP does not currently cover UTPs. 2Problem definition 2.1Overview of the problem definition 2.2Introduction Operators with significant bargaining power can impose pressure on other weaker operators in the food supply chain. At times, this pressure occurs in the form of a party being subjected to unfair trading practices (UTPs). UTPs put companies’ profits and margins under pressure, which can result in a misallocation of resources and even drive otherwise viable and competitive players out of business. In such situations, a well-targeted regulation of certain trading practices aiming at ensuring fairness between actors in the food supply chain can help to resolve specific issues. For illustration, being faced with a retroactive unilateral reduction of the contracted quantity for perishable goods means income foregone for an operator who may not easily find alternatives. Being paid for perishable products only months after they are delivered and sold by the purchaser in a store constitutes extra financial cost for the supplier. Obliging suppliers to take back products not sold by the purchaser may constitute an undue transfer of risk to a supplier that has repercussions on his security of planning and investment. Being asked to contribute to generic in-store promotional activities of distributors without drawing a commensurate benefit unduly reduces a supplier’s margin. According to the OECD, “there are concerns with ‘fairness’ and that the increased bargaining power of downstream food processors and retailers, has a potentially negative impact on the farm sector”. Fairness considerations also inform the reactions to surveys undertaken in relation to the occurrence and impact of UTPs on the functioning of the food supply chain.

2.3Occurrence of unfair trading practices in the food supply chain There is a wide-spread consensus that UTPs occur throughout the food supply chain. Their frequency distinguishes the food supply chain from other supply chains in terms of the magnitude of the problem. Three European Commission communications since 2009 have focused on the food supply chain including unfair trading practices. Specific UTP rules in 20 Member States bear witness to the significant concern about UTPs at the national level. Of the 20 Member States which have UTP rules, 12 Member States have adopted legislative instruments specifically applicable to the food supply chain. 8 Member States have adopted legislation applicable horizontally; some of these include specific provisions for the food and groceries trade. The open public consultation of 2017 confirms the perception that UTPs are an issue in the food supply chain: 90% of respondents agreed or partially agreed that such practices existed. Confirmation rates ranged between 80% for trade organisations to 98% for civil society respondents, 93% for organisations in the farming sector and 86% for organisations in the agri-food sector. A 2016 study also concluded that UTPs occurred across all Member States and at all stages of the food supply chain and that they were perceived as serious by most stakeholders. While there may be questions about some of the reported practices’ meeting the UTP definition, the outcome confirms the reactions to the European Commission’s Green Paper of 2013. 94% of farmers and 95% of agri-food cooperatives report having been exposed to at least one UTP according to a survey by Dedicated Research in 2013. Another survey conducted by Dedicated Research in 2011 had a similar result (96% of respondents {manufacturers of food products} reported to have been subject to at least one UTP). The exception as regards the question about the occurrence of UTPs is retail sector organisations: in the open public consultation, only 12% of them agreed or partially agreed that UTPs existed in the food chain. UTPs manifest themselves not only in the guise of unfair contractual terms such as for example specific contract clauses but also occur "behaviourally" after contracts have been established. A survey of milk producers carried out in four Member States in 2016 (Germany, France, Spain, Poland) indicated they are likely to occur before, during and after the contractual phase (respectively 25%, 87% and 4% of the cases). 2.4Under-protection against UTPs in Member States The heterogeneity in the treatment of UTPs in Member States is significant. In certain Member States, there is no or only very little specific protection against UTPs meaning that operators cannot rely on UTP rules to seek redress. No UTP legislation: Estonia, Luxembourg, Malta, Netherlands Limited scope legislation (mainly consumer-type UTP approach): Belgium, Denmark, Finland, Sweden Specific legislation on UTP: Austria, Bulgaria, Croatia, Cyprus, Czech Republic, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, United Kingdom Table 1: Member States by UTP legislation The fact that a Member State has opted to not introduce legislation does not mean that stakeholders consider the problem as non-existing. The link between perceptions by operators to what extent UTPs occur and the efforts made by the Member States to tackle them by legislative measures is relatively weak. Member States have different rules as regards UTP enforcement. General (contract) law may prohibit certain practices and victims have the option to seek redress before a court of civil law. But general contract law, to the extent it covers the practice at issue, may de facto be difficult to enforce: a weaker party to a commercial transaction is often unwilling to lodge a complaint for fear of compromising an existing commercial relationship with the stronger party (“one may win the case, but lose the business”). Fear of retaliation is an important driver for lack of effective enforcement and the limited amount of UTP cases coming to the fore; enforcement modalities which take this fear factor into account can improve protection. Fear of retaliation is consistently being pointed out as a significant concern in consultations that were carried out among stakeholders and also informs the design of certain Member States’ regimes. The fear factor and its importance in relation to specific forms of enforcement regimes are discussed in greater detail in Annex B. Under-protection is therefore also be related to the quality of enforcement modalities. Some Member States entrust competition authorities with ensuring respect of unfair trading rules (Germany), or provide redress possibilities through administrative bodies other than competition authorities, for instance by having recourse to ombudsman-type systems (UK) or dedicated UTP authorities (France). A 2018 study shows that in as many as 18 Member States’ administrative authorities other than ordinary courts have powers to enforce rules addressing selected UTPs. In 17 Member States, administrative authorities can conduct own initiative investigations concerning UTPs. In 14 Member States, administrative authorities can receive confidential complaints. But in less than half of EU Member States (13) do administrative authorities have the power to do both. 2.5Harm caused by unfair trading practices 2.5.1.1Operators Farmers, processors, traders, wholesalers, retailers and consumers are all actors in the food supply chain. Smaller operators in the food supply chain are particularly prone to be the victims of UTPs due to their, in general, weak bargaining power in comparison to the significant bargaining power wielded by large operators at other levels of the chain. UTPs are less likely to occur when the parties to a transaction have symmetric bargaining power. In the 2017 open public consultation, respondents identified farmers as being most exposed to negative effects from UTPs in the food supply chain although such effects can occur at all levels of the chain. Having said this, there is little empirical data going beyond a few case studies which makes it difficult to establish the overall harm caused by UTPs. The so-called fear factor (see Annex B), plays a significant role in this absence of empirical evidence at EU level, as does the lack of a precise definition of UTPs. Agricultural producers, including their associations, can be direct victims of UTPs. But UTPs affect producers even if they are not directly exposed to them, by virtue of the pressure to pass on UTP-induced costs until the weakest party is reached. This is congruous with a view of the food supply chain as a continuum of vertically inter-related markets. The negative effect of a UTP which occurs downstream, for instance between a processor and a retailer, often cascades backward in the chain to ultimately reach farmers. A series of surveys undertaken during the last few years shows that UTPs occurring in the food supply chain are seen as detrimental by a large majority of operators, in particular smaller ones. They perceive UTPs to endanger their profitability and ability to compete fairly and to affect their capacity to invest. They decrease the part of the added value generated that these operators would otherwise be able to appropriate. Qualitative research demonstrates suggests for instance that ex post unilateral changes to supply cause farmers and their organisations harm. Literature also identifies negative welfare impacts, competition issues, investment and productivity effects, network effects and market failure. Concerning welfare effects, UTPs decrease the part of the added value generated that these operators would otherwise be able to appropriate with possible lower returns to suppliers and/or financial gains not necessarily passed on to the final consumer. Farmers, often already experiencing downward pressure on their incomes and a historically diminishing share of the added value accruing to them in the food supply chain, can ill afford being the subject of UTPs. UTPs are liable to have significant consequences in times of decreasing income support, increased price volatility and long-term trends of low commodity prices.

In the 2017 open public consultation, 94% of respondents agreed or partially agreed that such appreciably negative effects occurred in relation to farmers. 83% agreed they occur in relation to processors, 38% in relation to retail organisations, 35% in relation to retailers, 39% in relation to traders and 60% in relation to consumers. According to a 2013 survey of farmers and agricultural cooperatives, the estimated damage from UTPs amounted to EUR 10.9 billion per year. The cost effect on manufacturers of food products was estimated to amount to 0.5% of the turnover of the manufacturers participating in a survey in 2011, which would be equivalent to EUR 4.4 billion if extrapolated to the overall food industry turnover in that year. A specific consultation of undertakings in the food chain carried out in 2017 showed that 60% of the respondents considering themselves suppliers (farmers and processors mainly) stated that the commercial significance of UTPs represent more than 0.5% of the annual turnover. The weighted average of the modest number of suppliers who accepted to answer despite the “fear factor” to such consultation, can indicatively be estimated at 1.5 to 1.8% of their turnover, roughly in the same order of magnitude of previous surveys. While these numbers are based on perceptions, they are indicative of the magnitude of the problem. The divergence of Member States’ regulatory approaches to UTPs results furthermore in dissimilar conditions of competition for operators. Under the current piecemeal approach, the extent of protection from UTPs that operators are granted depends on the Member State. Divergence of rules is liable to lead to differences in the conditions of competition and the business conduct of operators, for example large manufacturers or retailers, which may be detrimental to operators subject to the rules of countries with low UTP protection. For illustration, in the context of one practice discussed later (payment delays), the preamble of the Late Payment Directive states that "distortions of competition would ensue if substantially different rules applied to domestic and trans-border operations". Late payments’ having a negative impact on operators’ bottom line is confirmed by EuroCommerce which states that the reduction in payment terms due to the Late Payment Directive had, in a number of countries, generated significant cash transfers. The problem perception concerning the divergence of rules in Member States is however of a lesser order of magnitude than that relating to not being afforded effective protection against UTPs in Member States. And yet, competition between suppliers is an important characteristic of the EU food supply chain. Last but not least, the absence of common rules also entails uncertainty for operators who engage in trade in the EU. The uncertainty concerning the identification of applicable UTP rules is likely to increase the risk and costs linked to possible cross-border disputes, which is a problem in particular for SMEs with limited resources. While UTPs may involve mainly domestic suppliers and buyers they also occur in transnational supply chains. The results of the open public consultation in 2017 show that 84% of respondents who believed EU action on UTPs should be taken thought it would have positive or very positive effects in allowing smoother commercial transactions between operators in different Member States. 24% of the respondents stated that they were "often or in a significant number of cases" in a situation where UTPs occurred in connection with cross-border trade, and 19% that this had a negative effect on their ability to seek redress. In a 2011 survey among operators in the agri-food market, 46% of the respondents found that UTPs have a negative effect on access to new markets or cross border activities. More specifically, 40% said that UTPs had negative effects on their EU cross-border trade and 38% said that the risk of UTPs discouraged them from taking up activities outside their Member State of origin. 2.5.1.2Consumers The lack of rules governing UTPs and poor application of these rules have also been identified as being liable to undermine operators’ ability to invest and innovate with regard to the quality of products and services offered. UTPs can therefore eventually have negative effects on consumers in terms of product quality and choice. However, evidence concerning the overall net impact of UTPs on consumers and innovation is inconclusive. The relation between UTPs and innovation is two-fold. They can render innovation more difficult for small operators as they make them more vulnerable to any disruption of their contracts. For example, suppliers covering costs for additional services like upfront payments may end up increasing prices for consumers. On the other hand, it is argued that upfront payments can, if not disproportionate, compensate retailers for the risks taken by making space available to new products and may act as a signalling mechanism for consumers. Several studies and surveys indicate possible consequences of UTPs in terms of lower investment capacity in new technologies and uncertainty regarding costs. In a survey performed among more than 400 professionals in the agri-food sector, 64% of the respondents stated that UTPs created uncertainty regarding costs, 59% that they were leading to a reduction of investments for modernisation of production facilities and 50% that UTPs had a negative impact on investment in new technologies. In a 2011 survey, some of the agri-food suppliers provided an estimate of the effects that UTPs had on investment in new technologies (on average an annual reduction of 3.4%) and employment (on average an annual reduction of 1.6%). Payment delays are reported to have had a negative impact on investments undertaken at the farm level, particularly in the context of countries in transition. Some national competition authorities have also "alerted against the risks of certain commercial practices that even if in the short term may not entail an immediate anti-competitive effect, may however in the long term undermine the competitive process of the food supply chain or entail negative effects on consumer welfare by decreasing investment and innovation or reducing consumer choice." According to Consumers International, inordinate buying power "fosters abusive buying practices" which in turn may ultimately have negative effects not only for the affected businesses but also for consumers. Both in the case of payments without consideration and retroactive contract changes, there is evidence that the higher the oligopolistic structure on the buyers’ side and the higher the substitutability of the products at stake (commodities), the stronger the likely negative effect on consumer welfare, on the variety of products and the rate of innovation. The studies quoted above identify possible effects on individual suppliers. There are no studies identifying and quantifying effects on a whole sector or a whole market. It is not obvious that a given sector may be affected negatively overall because some operators in that sector are negatively affected by the practices of some larger operators. The evidence about the effects of concentration of suppliers and retailers is mixed. A 2014 study indicated that increased concentration of suppliers had a negative effect on innovation while a strong bargaining position of retailers (no reference to UTPs) appears to have a positive overall impact on innovation in the chain. ECB studies show that higher concentration of retailers (including through buying alliances) at national level and the related increase in bargaining power can be beneficial for consumers as lower prices would be passed on (the study was not concerned with UTPs). UTPs may even offer short-term benefits to consumers where they lead to lower producer prices being passed on to consumers, thereby increasing consumer welfare. However the longer term impacts, in terms of market concentration and reduced choice, and their potential negative impacts on consumers, are not known. Some theoretical studies examine under which circumstances lower purchase prices induced by UTPs are likely to be passed on to consumers. 2.6What are the problem drivers? 2.6.1Imbalance of bargaining power A significant enabling factor for the occurrence of UTPs is that the food supply chain is characterised by considerable differences of bargaining power of its operators (although the existence of significant bargaining power does not in itself indicate the abuse of this power, rather it is undertakings’ actual conduct that matters). This, in turn, can lead to the unfair exercise of bargaining power to the detriment of weaker operators. Farmers, small processors, small traders or small retailers often have little bargaining power and few alternative options for selling (or buying), while certain of their business partners, such as large food processors and increasingly concentrated retailers are in a position of using considerable power to shape a commercial relationship. An indication and result of existing imbalances are, for example, farm-retail spreads over time (see Annex C) and the stickiness of upward moving retail prices when producer prices fall (price transmission). While agricultural production is generally highly fragmented and largely comprised of small units in physical terms, there are high concentration levels in both the food processing and food distribution sectors. This concentration has generally been increasing over the last few decades through consolidation in the food processing and retailing companies through natural growth and mergers, particularly in the case of retailers in the 1990s. Having said this, the food processing sector is also characterised by a significant share of SMEs. The food distribution tier is highly concentrated with the retail sector standing out. Food products are mostly distributed through supermarkets, hypermarkets and discounters, which account on average for 71% of total packaged food sales in the EU Member States. In 2016, based on Euromonitor data (not covering on-line and other non-store sales), the CR5 (concentration ratio of the five largest firms) in the grocery retail sector is above 60% in half of Member States (above 80% in Sweden and Finland) and below 40% only in Italy, Bulgaria and Greece. The food retailing sector is also characterised by the existence of numerous SMEs (over 99% of the enterprises representing 54% of the turn-over and 56% of total employment). More detailed data and trends concerning the food supply chain and the balance between its operators can be found in Annex C. 2.6.2Divergence of UTP rules at the national level UTPs have been subject to a variety of heterogeneous legislative measures in Member States over the years. Annex F and Annex G provide an overview of Member States' instruments addressing UTPs including enforcement aspects and show their heterogeneity. Enforcement modalities in Member States include, inter alia, judicial redress (in most Member States), actions by competition authorities under national rules on unilateral conduct (e.g. Spain, Germany), administrative redress (e.g. France), extension of competition rules (e.g. Germany) and adjudicator systems (e.g. the UK). UTPs are not tackled equally in all Member States by means of mandatory rules, both as regards the substance of protection and enforcement. In some Member States or regions there are voluntary initiatives which are the only governance tools, in others there is no specific governance at all. In the absence of a common framework, there is no required minimum level of protection in Member States. 2.6.3Lack of coordination among enforcement authorities With no common framework in place, there is also very little coordination among enforcement authorities. The High Level Forum on the Better Functioning of the Food Supply Chain provides a political platform wherein to discuss ideas but cannot replace a coordination mechanism of technically competent authorities such as, for example, the European Competition Network does in the field of competition rules. Such a forum facilitates exchanges of views on the regulatory approaches but also enable the gathering and comparing of data that allows adopting a perspective which transcends national boundaries. The voluntary Supply Chain Initiative does have a centralised governing body and encourages national platforms. Although it has promoted cultural change concerning UTPs in the food supply chain and offers amicable dispute resolution options certain of its shortcomings make that it cannot effectively replace public enforcement (see sections 3.2 and 3.3).

2.7How will the problem evolve? The incentives for operators with significant bargaining power to apply UTPs are not likely to abate in view of the continued disparity of bargaining power of operators in the chain. Reductions in concentration levels downstream of primary production are not expected on current trends. At current trends, the degree of concentration of business downstream of primary production, in particular in retail, processing and manufacturing, will continue to increase, subject to competition law constraints (merger control). However, also in the retail and processing sectors there are still many SMEs. By the same token, consolidation of agricultural production 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. Reasons inherent in agriculture and the food manufacturing basis in the EU make it unlikely that a consolidation process of agricultural producers will obviate the imbalance of bargaining power. In agriculture, scale economies exist but tend to be more limited than in other economic sectors: costs decrease over a certain size range, but then they become flat. This is true notwithstanding CAP measures which aim to help farmers organise in producer organisations so as to strengthen their bargaining power vis-à-vis large operators in the food supply chain. Regulatory exemptions from competition law for farmers´ organisations are one tool provided for in the common market organisation regulation. In the fruits and vegetables sector, EU support is linked to operational programmes of producer organisations and this has improved the degree of organisation. Important considerations related to food security and safety, environmental sustainability of an activity with a strong territorial dimension and the maintenance of the rural social fabric tend to further limit the pace of structural change and increase in size of economic units in agriculture in the EU. Member States’ approaches, which are not subject to any binding UTP common framework, will continue to diverge. It is unlikely that they will – short of such a framework – start to converge. So far, this has not happened. The degree of dissimilarity of conditions of competition to which they give rise is therefore likely to continue to exist. The voluntary Supply Chain Initiative (SCI) is unlikely to develop into a comprehensive governance framework that would make public governance measures including enforcement superfluous. As of today, it exists alongside national mandatory measures of Member States. The SCI constitutes an agreement among associations of operators of the food supply chain to promote fair business practices in the food supply chain as a basis for commercial dealings. It was developed within the framework of the Commission’s High Level Forum on the Better Functioning of the Food Supply Chain (HLF). Since its creation the SCI has played an important role in Member States in raising awareness about UTPs and fostering fairness of business conduct. It provides a forum for early and non-litigious dispute resolution. Recent advances such as the designation of an independent chair to act as a recipient for aggregate confidential complaints show the SCI’s ability to evolve. Having said this, participation in the SCI is voluntary and the SCI does not, therefore, cover all operators in the food supply chain. Buying alliances of retailers do not participate.What is more, most farmer organisations do not participate in the SCI. They did not join the SCI since, in their view, it did not ensure sufficient confidentiality for complaining parties and did not provide for independent investigations and sanctions. For example, MTK, the Finnish farmers’ association, pulled out of the SCI’s national Finnish platform because of enforcement concerns and in most Member States national farmers’ associations are not participating in the national platforms to the extent they exist, with exception of Belgium (Flanders), Germany and the Netherlands. Certain limitations of a voluntary code may be all but structural. The SCI has no capability of imposing sanctions, nor are decisions published (deterrent effect). One-on-one disputes are not dealt with in a manner that would ensure confidentiality of complaints, if only in the early stages of the procedure, and there is no ability to carry out own initiative investigations. The concerns about effective enforcement account for the continued low level of participation of farmers (and meat processors) in the SCI. A voluntary initiative cannot have of itself an impact on the fragmentation of UTP rules in Member States. A January 2016 survey on the application of the SCI substantiated the perceived shortcomings and a majority of the survey respondents considered that there was a need for a mixed approach to UTPs: “[S]urvey respondents indicated as the most preferred approaches in tackling UTPs the combination of voluntary initiatives and public enforcement (33% of total answers) or a specific legislation at EU level (32%); on the other side, reliance on voluntary initiatives alone at national or EU level resulted to be the less preferred approach, with 4% and 9% of preferences, respectively. [...] the key aspect […] is whether the ‘soft’ (voluntary, self-regulatory) approach of the SCI – basically subject to the goodwill of the stronger parties to cooperate with the weaker ones – can be enough to effectively address, by itself, the issue of UTPs in the food supply chain, also taking into account that the deterrent of potential sanctions applied by the SCI in case of unfair behaviour appears to be limited.” The study concluded that: “elements from the reviewed literature, insights from interviewed stakeholders and independent experts, and the clear preference expressed by survey respondents for ‘specific legislation at EU level’ or for a ‘combination of voluntary/self-regulatory initiatives and public enforcement’, lead the study team to conclude that a mixed system, envisaging self-regulatory schemes enforced by an independent authority with wide powers (e.g. the possibility to promote investigations ex officio and to consider also confidential complaints), within a general regulatory framework provided by EU-level specific guidelines or provisions, would constitute an approach which combines effectiveness with the acceptance of stakeholders.” In the open public consultation, 75% of respondents were of the opinion that the SCI was insufficient in and of itself to address UTPs. Digitalisation presents opportunities (‘smart farming’) and challenges for farmers. It increases transparency and ease of communication, i.e. farmers can more easily find out what prices others are paid or exchange experiences among themselves. Moreover, internet platforms can present additional outlets for fresh and processed food products. Their transformative impact on the marketing of fresh produce is less evident than it has been the case in other sectors of the economy. The longer-term impact of the internet in terms of fostering short supply chains and direct marketing of food products to consumers is difficult to predict. The logistics and costs of home-delivery of fresh produce are challenging. It remains to be seen whether online platforms can alleviate the lack of bargaining power of weaker operators in the chain or whether greater imbalances are looming should even greater concentration of demand and oligopoly power occur through network effects in the platform business. 2.8Prior evaluations As there is no EU legislative framework to address UTPs yet, it is not possible at this stage to present an evidence-based evaluation on how EU measures perform. However, some Member States have performed ex ante or ex-post evaluations with respect to the effectiveness and efficiency of the UTP policies. Information from these evaluations is being referred to in section 6.2.1. 3Why should the EU act? 3.1Legal basis for EU action

A key objective of the CAP is to ensure a fair standard of living for the agricultural community (Article 39 TFEU). Pursuit of the objective of ensuring a fair standard of living for the agricultural community should be balanced with the other objectives listed in Article 39 TFEU and, in particular, with the aim to ensure reasonable prices for consumers. For example higher prices for operators in the food supply chain may ultimately raise prices for consumers. The EU’s constitutional emphasis on producer welfare which co-exists with the objective of reasonable consumer prices is unique to the agricultural sector hinting at the comprehensive responsibility of the CAP for European agriculture. Article 43 TFEU specifies that the common market organisation shall ensure conditions for trade within the Union "similar to those existing in a national market". In a national market one would expect uniform UTP rules. Article 40 TFEU stipulates furthermore that the European common market organisation ought to exclude discrimination between agricultural producers (or consumers) within the Union. The patchwork of UTPs rules or the respective absence of UTP rules in Member States is liable to impair the objective of ensuring a fair standard of living for the agricultural community. UTPs jeopardise the profitability of farmers and lead to downward pressure on their market income. Their governance falls therefore within the CAP’s remit. Based on the general rationale for the CAP as laid down in the Treaty, the absence of a common UTP framework is a consequential gap, marking a distinct contrast to other areas with direct relevance for operators such as competition rules, state aid rules and marketing standards. In the said areas, the common market organisation (Regulation (EU) No 1308/2013) lays down common rules relevant to the competitive conditions of operators in the EU so as to contribute to economic and social cohesion, as well as to a level playing field in the single market. The protection of a well-functioning internal market ensuring a level playing field for all producers across the EU is acknowledged to be a ‘key asset’ of the CAP. According to Article 38(2) and (3) TFEU the CAP primarily covers the agricultural products listed in Annex 1 to the TFEU. However, the European Court of Justice has explicitly confirmed that food products not listed in Annex I TFEU (Annex I products are deemed “agricultural products” under the Treaty) can be covered by acts adopted under Article 43 TFEU if this contributes to the achievement of one or more of the CAP objectives and agricultural products are principally covered. Moreover, an approach which protects agricultural producers and their associations (cooperatives and producer organisations) also must take into account indirect negative effects they may suffer through UTPs occurring downstream in the food supply chain but being passed - in terms of their negative effect - through to them, i.e. normally by operators who are not agricultural producers but whose weak bargaining position in the chain makes them vulnerable to UTPs. SME operators negatively affected in their bottom line by the exercise of UTPs in the food supply chain are unlikely to be able to simply absorb such costs. They will pass them on to their trading partners such as farmers who often are their upstream suppliers and do not normally have sufficient bargaining power to resist such pressure. Protection against UTPs applying also downstream would furthermore prevent unintended consequences on farmers due to trade being diverted to their small investor-owned competitors - e.g. at the processing stage - which would not enjoy protection (e.g. less legal risk for purchasers to be confronted with UTP claims). In light of the foregoing, Article 43 TFEU, which entrusts the Union legislator with the legal powers to establish a common organisation of agricultural markets in the EU, can in principle serve as the legal basis for measures covering UTPs occurring in the food supply chain in relation to the trade of food products which originate with agricultural producers. 3.2Subsidiarity: Necessity of EU action As has been shown, no common EU framework exists which would provide a minimum European standard of protection by approximating or harmonising Member States’ diverging UTP measures. In the absence of a minimum standard, certain Member States have no rules on UTPs. Others do not address important aspects of effective UTP enforcement. This leads to under-protection of vulnerable operators, in particular agricultural producers, against UTPs in the EU. Moreover, in spite of its positive effects in the area of private governance of UTPs, the voluntary codes including the Supply Chain Initiative (SCI) - to the extent it applies in Member States – is not able to effectively replace public governance measures. From this follows the need for EU legislation which would target the problem of under-protection against UTPs by providing for a common minimum standard of protection in the EU. After years of discussion, analysis and recommendations, which have improved the situation on the ground only to a certain extent, EU legislation is a means that can ensure brining about such a minimum protection throughout the EU including the enforcement and coordination aspects. Farther reaching national UTP rules and voluntary codes like the SCI would not be replaced. An EU framework could thus lead to synergies rather than the cancelling out of the advantages of these regimes. Short of EU measures, Member States lack coordinative mechanisms to bring about such approximation, nor do they have obvious incentives to self-align. Measures at the EU level, complementary to Member States regimes and the SCI, could consist in common UTP rules that would aim at improving the governance of the food supply chain and pursue the objective of ensuring fair living standards of the agricultural community (Article 39 TFEU). A circumspect approach could for instance take the form of partial harmonisation to introduce a minimum protection and take the positive effects of market driven contractual arrangements between parties into account. As UTPs occur along the food supply chain and have repercussions that are likely to be passed through to farmers it makes sense to address them in a comprehensive manner, that is to say to conceive of measures which apply along the chain. 3.3Subsidiarity: Added value of EU action The European Commission published a report in January 2016 that concluded that given the positive developments regarding UTPs in parts of the food supply chain there was no need to act at the EU level at that stage. However, this assessment was based on the expectation that the observed positive developments would continue, and in its report the Commission identified a number of areas in Member States’ UTP legislation that needed further improvement. Regarding the voluntary Supply Chain Initiative, the report likewise acknowledged the benefits achieved so far, but also suggested a number of measures to improve the initiative further so that no specific harmonised regulatory approach at EU level becomes necessary. In this context, the European Commission committed to re-assess the need for and added value of EU action to address UTPs in the light of subsequent developments – or a lack of further improvements – before the end of its mandate (see Table below). As regards Member States’ regimes, the report included suggestions in five key areas to enhance Member States’ regulatory frameworks: (1) Member States’ regimes should cover the whole food supply chain as well as operators from non-EU countries; (2) Member States should exchange information and best practices concerning their national legislation and experience of enforcement in a coordinated and systematic way in order to improve the common understanding which specific types of business practice should be considered UTPs; (3) Member States should review their approach to UTPs – those having chosen a general approach should ensure their laws can be applied in practice, impose manageable evidence requirements, and allocate sufficient resources to enforcement activities to ensure comprehensive and effective case-by-case assessments – those with a UTP-specific approach should consider carefully whether their measures are proportionate, and the range and nature of the practices covered by their legislation; (4) Member States’ enforcement authorities should coordinate and exchange information and best practice on a regular basis in order to further improve the enforcement of measures to combat UTPs and to better address potential cross-border UTPs. Member States without any recent enforcement cases should review their national situation; (5) Member States should have sanctions that act as a real deterrent. Penalties should be high enough to outweigh any gain from imposing the UTP (although this can be difficult to quantify) and to influence behaviour at company level. But they should also be proportionate to the gravity of the conduct and its potential harm to the victim(s). A penalty may also be to ‘name and shame’, for example by publishing the name of the company that was found guilty.

Although some progress has been made on these recommendations, there remain significant shortcomings: As regards the first recommendation, although 20 Member States have introduced UTP legislation, 8 Member States have no UTP legislation. Moreover, certain Member States which have legislation do not cover the whole food supply chain (Hungary, Latvia, Lithuania, Romania and the UK). As regards the second and fourth recommendation related to exchanges of information and best practices, the recommendations have been partially followed up by meaningful exchanges between Member States in the High Level Forum for a Better Functioning Food Supply Chain in 2016 and 2017, often at a political level. However, the HLF is no substitute for a specialised network consisting uniquely of national authorities that would more effectively facilitate the exchange of technical information and best practices between the enforcement authorises. In the absence of a common framework for enforcement authorities to discuss UTPs, the Commission lacks a proper legal tool to facilitate such coordination between Member States. As regards the third recommendation on policy reviews, Member States were asked in a recent stakeholder consultation to update information that was collected from them on the basis of a questionnaire sent in 2015 on the existence of UTP legislation, implementation and enforcement and to inform about impact assessments that their authorities may have carried out before deciding on national UTP rules or evaluations. According to the information received, only three Member States had carried out ex ante evaluations and one Member State (UK) an ex-post evaluation thus reviewing its UTP legislation. As regards the fifth recommendation on sanctions, , Member States that regulate UTPs include in their legislation financial penalties in the form of fines; some also add injunctions and declaratory decisions. As regards fines, the variations in the different Member States are noteworthy both as regards thresholds (minimum and/or maximum) and the possible amount of possible fines. As regards fining practices there is no reliable study but anecdotal evidence suggests that strong variations occur across Member States. There is also no clear evidence on the effectiveness of Member States’ approaches to fines and financial penalties in the food supply chain. The possibility to publish outcomes of investigations may have a significant deterrent effect but only 10 Member States provide for such a possibility. Consequently, the indications are that for the time being the situation in respect of important enforcement parameters continues to be heterogeneous in Member States. As regards the recommendation in the report’s conclusions that Member States without UTP legislation could consider following the example of Belgium and the Netherlands that do not have a regulatory framework but have opted for national voluntary platforms, since 2016 two new national platforms were created, namely in Estonia and Poland (farmers are not part of the Polish platform). Estonia is one of the Member States without UTP legislation, Poland recently introduced UTP legislation. At present, there are still Member States that have neither introduced UTP legislation nor created a national voluntary framework (i.e. Denmark, Sweden, Luxembourg and Malta). As regards the Supply Chain Initiative, the Commission concluded that in order to increase the initiative’s credibility and effectiveness in tackling UTPs a discussion with the relevant stakeholders on how to improve the SCI under the High Level Forum for a Better Functioning Food Supply Chain should take place. The objective should be to improve awareness of the SCI, especially among SMEs, ensure the impartiality of the SCI’s governance structure, allow alleged victims of UTPs to complain confidentially and grant investigatory and sanctioning powers to independent bodies. While in the meantime the SCI has introduced an independent chair as well as confidentiality for aggregated complaint procedure, it has failed to grant investigatory and sanctioning powers to independent bodies, which would be of significant importance for effective enforcement. Moreover, it does not seem that the SCI has plans to integrate such powers into its voluntary arrangement as, in its 3rd Annual Report, it refers to civil law and courts in this respect (the disadvantages of which are discussed in section 2.4 and Annex B). Indeed, concerns about the lack of effective enforcement are the reason why EU farmer representative organisations have not joined the SCI. In November 2017, FoodDrinkEurope, a founding member of the SCI, stated in reaction to the public consultation that “it [was] essential for an action at EU level to tackle unfair commercial relations that occur along the entire food chain.” In conclusion, the SCI has been able to only partially followed up on the Commission’s recommendations and the steps that have not been taken are material. It can therefore be concluded that Member States did not follow up on most of the Commission’s recommendations from January 2016. Similarly, also the SCI has only partially followed up on the recommendations. The absence of a satisfactory follow-up of the Commission’s recommendations means that the situation of under-protection, which has been described in section 2, continues to exist. After having tried, through the recommendations made (including in the 2014 Communication), without full success to achieve the said outcomes so as to effectively address UTPs, it follows that at this stage a legislative proposal at the EU level implies clear added value. Such a proposal would aim to address the shortcomings established in section 2 and also alluded to in this section. Situation in 2016 Commission recommendation Expected situation Situation in 2018 Change compared to 2016 Not all MS regimes covered the whole food supply chain, neither operators from non-EU countries. MS’ regimes should cover the whole food supply chain as well as operators from non-EU countries. All MS’ regimes cover the whole food supply chain as well as operators from non-EU countries. Not all MS regimes cover the whole food supply chain, neither operators from non-EU countries. The expectation of continued improvement of MS’ UTP regimes did not materialise. MS did not exchange information and best practices in a coordinated and systematic way. MS should exchange information and best practices in a coordinated and systematic way. All MS exchange information and best practices in a coordinated and systematic way. To some extent, MS exchange information and best practices happens in the High Level Forum on the Better Functioning of the Food Supply Chain. Situation improved but realisation that means to bring about technical coordination of MS enforcement authorities is lacking. MS had not reviewed their approach to UTPs. MS should review their approach to UTPs. All MS have reviewed their approach to UTPs. Only four MS have reviewed their approach to UTPs. The expectation of MS reviewing their approaches to UTPs did not hold. Most MS lacked sanctions that acted as a real deterrent. MS should have sanctions that act as a real deterrent. All MS have sanctions that act as a real deterrent. Not all MS have sanctions that act as a real deterrent; the situation continues to be heterogeneous. The expectation of a convergence of effective sanctions did not hold. Not all MS had UTP legislation in place. MS should put UTP legislation in place or opt for a national voluntary platform. MS have UTP legislation or an effective national voluntary platform in place. Not all MS have UTP legislation in place, or have a national voluntary platform. The expectation that all MS establish effective UTP regimes did not hold. Awareness of the SCI was insufficient, the impartiality of its governance structure was not ensured, alleged victims of UTPs could not complain confidentially and no investigatory and sanctioning powers were granted to independent bodies. The SCI should raise awareness of itself, it should ensure impartiality of its governance structure, it should enable alleged victims of UTPs to complain confidentially, and it should grant investigatory and sanctioning powers to independent bodies. Awareness of the SCI is sufficiently high, especially among SMEs, the SCI has an impartial governance structure, alleged victims of UTPs can complain confidentially, and the SCI has granted investigatory and sanctioning powers to independent bodies. Awareness of the SCI improved, the SCI has introduced an independent chair; victims of UTPs can complain confidentially collectively (if not individually); the SCI has failed to grant investigatory and sanctioning powers to independent bodies. The expectation that the SCI fully follow up on the Commission’s recommendations did not materialise. Last but not least, politically relevant events occurred since January 2016 : -The European Parliament invited the European Commission in a resolution of June 2016 to submit a proposal for an EU-level framework concerning UTPs, welcoming “the steps taken by the Commission to combat UTPs with a view to securing a more balanced market and to overcoming the current fragmented situation resulting from the different national approaches to addressing UTPs in the EU”, but – based on its own analysis and political assessment – pointing out that “these steps are not sufficient to combat UTPs”. -The European Economic and Social Committee published a report in September 2016 calling upon the Commission and the Member States to take swift action to prevent UTPs by establishing an EU harmonised network of enforcement authorities, so as to create a level playing field within the single market. -The report of the Agricultural Markets Task Force of November 2016 recommended EU legislation in the areas of UTPs for agricultural products. -The Council invited the Commission in December 2016 to undertake, in a timely manner, an impact assessment with a view to proposing an EU legislative framework or other non-legislative measures to address UTPs, underlining “the importance of a level-playing field for all actors in the food supply chain across the EU that could be achieved by a common legislative framework on UTPs”. In the light of the foregoing, the added value of EU action consists in being able to provide for a mandatory minimum protection standard against UTPs throughout the EU including enforcement, a standard which the voluntary initiatives and national measures have not or only to a limited extent been able to bring about. This would address the problem of under-protection against UTPs and have a deterrent effect on their occurrence. The complementary character of EU measures in relation to existing voluntary and Member States rules would respect subsidiarity and may have a reinforcing impact. 96% of the respondents to the 2017 public consultation on the modernisation of the CAP agreed with the proposition that improving farmers’ position in the value chain including addressing UTPs should be an objective of the EU’s Common Agricultural Policy. 4Objectives: What is to be achieved?

4.1General objectives EU UTP rules would – as do UTP rules in Member States and those of voluntary initiatives – aim at deterring and sanctioning unfair behaviour rather than remedying the structural imbalance of bargaining power between operators in the food supply chain. The latter is beyond this initiative’s remit. Having said this, encouraging agricultural producers to self-organise and thus strengthen their bargaining power in relation to downstream operators is part of the CAP and the 2013 reform has introduced enhanced policy measures in that regard. One would hope that farmers make increasing use of these possibilities. The present initiative aims to reduce the occurrence of unfair trading practices in the food supply chain by introducing a common framework ensuring a (minimum) standard of protection across the EU. This framework would apply alongside existing rules in Member States, including those of voluntary character. Prohibitions would aim to influence behaviour of operators by outlawing unfair practices and providing for effective redress possibilities in case they occur nonetheless (deterrent effect). Operators could expect a common set of minimum rules regardless of the Member State they happen to be based in or trade into. While according to a 2017 study a correlation between the stringency of national UTP regulation and its effectiveness cannot be shown, surveys and the results of the open public consultation suggest that operators expect EU UTP regulation to have positive effects. UTP rules would also reduce the degree of regulatory dissimilarity shaping commercial conditions and thus make a contribution to levelling the competitive playing field. By the same token, EU measures should increase legal security for operators engaging in cross-border trade. They would also contribute to reducing transaction costs, although in the absence of full harmonisation undertakings would still have to take regulatory differences into account. Introducing minimum and effective enforcement requirements that address the fear factor would contribute to ensuring effective redress possibilities for operators against infringements of UTP rules. The absence of coordination among Member States’ enforcement authorities would be addressed by introducing coordination of enforcement authorities. 4.2Specific objectives Achieving the specific objectives would contribute to one or several of the general objectives. All specific objectives relate to the general objective of improving the functioning of the food chain, based on the understanding that unfair trading practices are not part of but an impediment to an efficiently functioning food supply chain. Pursuing the special objectives of reducing the occurrence of UTPs and enabling effective redress would help strengthen the resilience of weaker operators in the chain, in particular of agricultural producers. UTP rules would enable addressing one element which exacerbates price and income variability in agriculture. This would therefore contribute to maintaining a fair standard of living of farmers, a general objective of this initiative and one of the five CAP objectives listed in Article 39 TFEU (ensuring reasonable consumer prices is another of the CAP objectives). Last but not least, achieving a more level playing field would aim to contribute to ensuring similar conditions for trade for operators in the EU. 4.3Consistency with other EU policies It has been shown before how UTP rules would be a logical part of the overall orientation of the Union’s Common Agricultural Policy which pursues producer welfare and would provide for a common set of minimum rules for operators who produce and trade agricultural products. UTP rules are compatible with and complementary to the EU’s competition rules. Competition law has a scope which is different from rules on unfair trading practices. Article 102 TFEU (abuse of dominance) is concerned with exclusionary or exploitative practices by dominant companies. Article 101 TFEU targets agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the internal market. UTPs do not normally imply an infringement of competition rules but involve unequal bargaining power and prohibit undertakings from imposing on their trading partners, obtaining or attempting to obtain from them terms and conditions that are unjustified, disproportionate or without consideration. The initiative would take into account the interests of consumers alongside those of producers as provided for in Article 39 TFEU (see section 9). The focus on effective enforcement is shared with other policy fields. A recent Commission proposal suggests empowering the national competition authorities to improve enforcement, thereby contributing to a better application of the EU competition rules. In its 2016 Communication “Better results through better application”, the Commission also emphasises the importance of effective enforcement systems in Member States. Fairness in market activities in the business-to-business context is the specific objective of Directive 2006/114/EC, which deals with misleading practices and the requirements of comparative advertising. The provisions set forth in the Directive are limited to advertising practices and do not generally address the business-to-business trading practices identified in this impact assessment report. Regulatory divergence of a kind similar to UTPs has given rise to EU initiatives in the area of business-to-consumers protection. Some Member States have extended such rules to national business-to-business situations. The so-called injunctions directive ensures the defence and enforcement of collective interests of consumers in the internal market. The conceptual approach under the EU’s business-to-consumer rules indeed shares relevant characteristics with Member States’ existing UTP rules governing business-to-business transactions, namely the focus on relatively weaker parties of a commercial transaction. In certain Member States the same enforcement authority is mandated to pursue both types of cases. The EU is committed to high standards of fundamental rights. A fair and effective system of protection against UTPs will contribute to stakeholders’ ability to conduct a business (see Article 16 Charter of Fundamental Rights of the European Union {CFR}). Union legislation will respect the rights enshrined in the Charter (Articles 51, 52 CFR). Enforcement powers therefore have to be shaped in a manner compatible with the rights of defence (Article 48 CFR), e.g. by providing an effective remedy against the decision of an enforcement authority imposing penalties. In particular for the confidential treatment of complaints a balance must be struck in relation to the rights of defence. Rules on professional secrecy, which is a right protected by the Charter, have been developed in other areas of EU legislation, namely competition law and would apply here as well. 5What are the available policy options? 5.1Introduction Any regulation of UTPs will cover legal and practical issues that can be addressed very differently and that can have different impacts on the food supply chain and the related policy objectives. This section presents and explains plausible alternatives for how these issues can be addressed in the legislation. The elaboration of the policy options helps to understand the consequences of the choices for the food supply chain and, in particular for the occurrence of UTPs, the levelling of the playing field and the possibility of seeking effective redress.

First, there is the question whether UTPs should be addressed at the EU-level at all and, if so, to what extent (section 5.2). Second, the question arises if a possible regulation of UTPs at EU level should be based on general principles or focus on specific practices (5.3). UTP rules can cover only agricultural products or all food products, that is to say also processed products (5.4). UTP rules can apply in situations of imbalance of bargaining power or they can apply to all operators. They can apply to EU operators only or also to operators from third countries (5.5). Enforcement can be ensured at the national level following a set of given standards (more or less detailed), or it can be centralised at the EU-level (5.6). In the case of enforcement at the national level, national authorities can coordinate or not (5.7). And, finally, different legal instruments can be used to put the measures in place, ranging from "soft law" to a EU Directive or Regulation (5.8). 5.2Degree of harmonisation of substantive UTP rules 5.2.1Baseline Under the baseline option, common measures would not be introduced at the EU level. Member States would remain free as regards their choices about the scope of UTP rules. The majority of Member States’ regimes, albeit to varying degrees, contain rules that prohibit unfair trading practices. Member States would continue to operate these regimes. Operators in Member States which have no such rules would continue to rely on contract law or, where existing, voluntary codes or platforms. The suggestions made by the European Commission in its Report of January 2016 and in its Communication of July 2014 would remain valid. The High Level Forum on the Better Functioning of the Food Supply Chain would continue to provide a forum for stakeholders and Member States’ authorities to discuss UTPs in a political framework. 5.2.2Options discarded at an early stage: detailed harmonisation of substantive UTP rules A complete harmonisation of UTP rules applying in Member States at the EU level would be one possible option how to pursue the policy objective of combating UTPs in the food supply chain. Member States would no longer be able to regulate UTPs differently from the common approach. Detailed harmonisation of UTP rules in the EU food supply chain does, at this stage, not seem warranted. While it could have the effect of de facto - by way of “occupying the legislative ground” - constituting a backstop to national UTP measures that would possibly be incompatible with the internal market, the degree of convergence of national UTP rules is not such as to invite detailed harmonisation. There is too little overall convergence of rules to justify this. What is more, detailed harmonisation would presuppose that a one-size-fits all logic can be applied but this can, at this stage, not be read out of the answers to the different surveys nor would it appear from Member States’ regimes. Detailed harmonisation based on a low(est) common denominator would encounter resistance from Member States which have more stringent rules in place. Conversely, detailed harmonisation mirroring the more stringent national regimes would elicit resistance from Member States which have less stringent or no rules in place. In both cases, subsidiarity considerations would militate in favour of a less intrusive approach. The option of introducing detailed harmonisation is therefore discarded. 5.2.3Partial harmonisation of substantive UTP rules A partial harmonisation approach concerning substantive UTP rules could accommodate Member States’ stricter UTP rules while at the same time introducing a common minimum standard of protection in the EU. The systems, including the voluntary governance approaches, would work in a complementary manner. 5.3Scope of UTP prohibition 5.3.1Baseline Under the baseline option, no common measures would be introduced at the EU level. Member States would remain free as regards their choices about the scope. The SCI would continue as a forum for early and non-litigious dispute resolution. 5.3.2UTPs subject to generally formulated prohibition (based on fairness) UTP rules could operate via a generally formulated prohibition of unfair conduct in B2B relations in the food supply chain. Such a general prohibition could be paired with indicative examples of UTPs which illustrate practices that typically fall under its remit. A majority of Member States uses such a general prohibition in their national context, often paired with examples of prohibited practices. The SCI’s voluntary Principles of Good Practice also contain a general principle of “fair dealing” that is further specified in specific principles and examples of unfair practices. A prohibition of UTPs defined by a general reference to fairness would provide a common standard of protection against UTPs in Member States, including in those who have no such protection as of today. Subject to its application on the ground, the approach would outlaw and deter UTPs and thus contribute to reducing the occurrence of UTPs. A common definition of UTPs, filled with life through application in Member States, could contribute significantly to levelling the playing field between operators in the different Member States. The harmonising effect of such a general prohibition could be strong thanks to a common definition at EU level that would cover UTPs in general and not only those specifically enumerated in a list. By addressing the issue of UTPs at the EU level, the option would be expected to raise awareness and promote fair trading practices in the food supply chain in all Member States. 5.3.3Prohibiting specific UTPs Under this option, EU rules would prohibit specific, relatively concretely formulated and well-defined practices as unfair. A short list of such practices would constitute a mandatory minimum protection standard against UTPs in the EU, prohibiting and deterring these practices and thus contributing to reducing their occurrence (and linking them to a common framework for redress). A minimum standard would contribute to levelling the playing field between operators in different Member States. This approach would not have the vocation of capturing all possible UTPs; it would rather address a limited set of manifestly unfair ones without – pursuant to a minimum harmonisation approach - preventing Member States to go further, for instance in their application of generally formulated national prohibitions. The rules would, due to their specificity, aim to be predictable for operators and workable for authorities entrusted with their enforcement.

Certain prohibitions could override parties’ possible (contractual) agreement covering a given practice. This would be the case for unfair practices which are unlikely to be redeemed by, for example, circumstances that would suggest that the parties’ foreseeing the practice is fair or creates efficiencies. Also in business-to-consumers area certain commercial practices or clauses are regarded as unfair whatever the circumstances and cannot be set aside by contractual agreement. Such an approach would aim to prevent the de facto imposition of unfair contract terms by a party exercising significant bargaining power. The UK Competition Commission concluded in a comprehensive study of 2008 that there were circumstances where in spite of the allocation of risk being agreed up-front the extent of risk transferred to the supplier was excessive. Alternatively, certain practices can be justified (i) if included upfront (ex ante) in an agreement between parties and (ii) if they create efficiencies by increasing the total gains from the transaction to be shared by the parties. Such practices would not constitute UTPs and should not be prohibited as they create win-win situations for the parties. If the same practices occurred retrospectively and without upfront agreement they would, however, lack in predictability and therefore be, in general, unjustified and inefficient. Moreover, commercial agreements leaving key elements of a transaction to one party’s later unilateral decision would not necessarily justify otherwise unfair practices, especially when it is possible to define such key elements or the triggering factors for their activation in the agreement. In fact, the party with significant bargaining power could impose and take advantage of this vagueness by unilaterally determining these elements after the transaction has started. In such a case, the stronger party is indeed likely to create inefficiencies by, e.g. capturing the gains of the transaction that were originally allocated to the other partner or by transferring losses. Last but not least, certain contractual provisions or trading conditions agreed ex ante can still be unfair where it is generally accepted that they do not lead to efficiencies for both parties in the transaction. In some Member States, a mere provision in the contract as to the possibility of the practice is sufficient to shield it from considerations concerning unfairness. In other Member States, such practices are prohibited and are not subject to parties’ contractual freedom. In yet other Member States, the exclusion from UTP rules depends on a sufficient specification of the practice in the contract, so that it is predictable for parties, referring to procedural elements of reasonableness and transparency in relation to the expected sharing in the total gains. For example, reasonable notice must be given in case of unilateral short term changes foreseen in a contract or cost estimates are to be made available if contributions are asked which are not further specified in the initial agreement. The voluntary Supply Chain Initiative’s consensus on fair unfair practices (“Principles of Good Practice”) can serve as a useful point of reference for a short list of specific UTPs. The respective examples referred to therein give an idea of what operators in the chain agree to be types of (fair and) manifestly unfair behaviour. It is underpinned by the rationale of a fair allocation of risk, “agreed by the parties to obtain a win-win situation”. The SCI’s code states that all contracting parties in the supply chain should bear their own appropriate entrepreneurial risks. Unilateral changes to contract terms shall not take place unless this possibility and its circumstances and conditions have been agreed in advance. Practices listed in the SCI code are matched by the results of the open public consultation. Of the top eight practices identified as UTPs, the majority are also listed in the SCI code of conduct (and can also be subsumed under the more general concepts of the list in the Commission 2016 report): a.Unilateral changes of contracts b.Last minute order cancellations c.Claims for wasted or unsold products d.Payments for perishable products later than 30 days (not in SCI) e.Claims for contribution to marketing campaigns (of retailers) f.Upfront payments to secure contracts As already indicated above, the legal landscape is diverse across Member States concerning content and scope of UTP rules. A 2018 study shows, however, that a significant number of Member States covers the practices identified above. 5.3.3.1Unilateral and retroactive changes to contracts A sales contract is a synallagmatic arrangement which by definition can only be changed by mutual agreement. In that sense, unilateral changes are breaches of contract and actionable under contract law. However, redress for small parties in the food supply chain may in practice be ineffective. Moreover, operators with significant bargaining power may be able to effectively coerce suppliers into signing contracts containing terms that allow for unilateral retroactive changes without further specification. Unreasonably short notice periods and the absence of objectively justified reason for such changes would be parameters to take into account (see SCI on ‘Termination’). For example, the UK Groceries Supply Code of Practice focuses on the transparency of the contract terms that allow such changes. The SCI considers retroactive unilateral changes in the cost or price of products or services to constitute unfair business conduct but specifies that a contract may contain legitimate circumstances and conditions under which subsequent unilateral action may be permitted. 5.3.3.2Last-minute order cancellations‎ concerning perishable products Last-minute order cancellations‎ of perishable products are a variant of the practice that consists in unilateral and retroactive changes to contracts. Such changes tend to leave suppliers of perishable products without alternative marketing opportunities and are incompatible with the principle that there should not be an excessive transfer of one’s own entrepreneurial risk to one’s (weaker) business partner. Last-minute order cancellations should not become a possibility due to contractual arrangements. 5.3.3.3Claims for wasted or unsold products Claims for wasted or unsold products from suppliers can constitute an (often retroactive) practice which stands ill against the specific principle of the SCI that “all contracting parties in the supply chain should bear their own appropriate entrepreneurial risks”. Once purchased, the risk of not selling the product or an impairment that renders it unmarketable (and wasted) could be expected to lie with the buyer, maintaining therefore his incentives to efficiently plan and manage his business. Such claims would be unfair.

This would be different if the wastage is caused by the negligence or default of the supplier. Moreover, there can be cases where the conditions for a return of unsold products are predictably laid down in the agreement and in line with a fair mutual allocation of the financial risk. Claims on such a basis would not constitute unfair conduct. 5.3.3.4Payments for perishable products later than 30 days Payments delays are subject to a horizontal Directive (Late Payment Directive). The Directive stipulates inter alia that businesses have to pay their invoices within 60 days, but can choose a longer payment term as long as it is expressly agreed in the contract and provided that it is not grossly unfair to the creditor. In the directive the concept of "grossly unfair" is applied to contractual terms and practices and is further specified to relate to any "gross deviation from good commercial practice, contrary to good faith and fair dealing" (Article 7). The Directive has been transposed in Member States. When implementing the directive, a number of Member States have introduced provisions limiting payment terms for perishable foods, in certain cases, to less than 60 days (see Annex D). Currently, 24 Member States stipulate shorter payments periods (than 60 days) for all sectors of the economy or, alternatively, for food products. While 11 of these Member States provide for a 30 days without derogation possibility, 13 Member States provide for 30 days, but allow parties to extend the 30 days by way of agreement. Fresh agricultural products (fruits and vegetables, meat, dairy products) are sold relatively quickly in grocery stores to consumers lest their perishability makes them unmarketable. Literature unanimously point to the fact that delayed payments from farmers’ contractors have a negative impact on investments undertaken at the farm and farm output. In light of this, payment delays for perishable products of longer than 30 days would not seem justified. In the interest of fairness and so as to create a level playing field at EU level concerning fresh agricultural products a maximum payment delay of 30 days could be rendered mandatory. Allowance could be made for specific cases such as value-sharing contracts for which the value to be split between trading parties is realised only at a later stage. 5.3.3.5Claims for contributions to promotional or marketing costs of buyer Under the heading of “entrepreneurial risk allocation” the SCI gives examples of transfers of unjustified or disproportionate risk to a contracting party. Imposing a requirement to fund a contracting party’s proprietary business activities or to fund the cost of a promotion are listed as specific examples. It is explained that different operators face specific risks at each stage of the supply chain linked to the potential rewards for conducting business in that field. Having said this, parties’ ex ante agreements about the possibility of such contributions can suggest mutual efficiencies (win-win situations) and would not imply an unfair practice. Such contributions would therefore be deemed lawful if exercised in accordance with the defined terms of the up-front agreement, even if they are implemented after the transaction has started. A case in point would for instance be the participation by suppliers in retail promotion covering their branded products in accordance with the expected allocation of risks and rewards. The same rationale would not apply to commercial arrangements which include vague and unpredictable provisions concerning contributions and leave these provisions to be unilaterally and ex post determined by one party. 5.3.3.6Requests for upfront payments to secure or retain contracts without consideration Where parties’ agreement about upfront payments implies mutual efficiencies (win-win) they would suggest the lawfulness of such contributions. Moreover, parties should have the ability to enter into business relationships and leave them as they see fit, account being taken of reasonable termination modalities. Indications in a commercial agreement to the effect that, for instance, marketable business resources are being made available or that risks for referencing new products are allocated should be taken into account. However, certain requests for payments without any consideration (sometimes referred to as “hello money”) would not appear to be in line with fair cost and risk allocation as for instance referred to in the SCI code of good practices. 5.3.3.7Criteria concerning the assessment of unfairness of the practices A categorisation of the above practices as unfair depends on the circumstances in which they occur (see also discussion in section 6.3.1 on the impact of the options). Unilateral and retroactive changes of contracts, last minute order cancellations of perishable products, claims for wasted products and payments for perishable products later than 30 days would typically be unfair whatever the circumstances. For example, even if a contractual clause specifically enabled such practices this would not redeem them. Certain conditions may however apply, for example in the case of claims for wasted products, the condition that such waste should not be the consequence of negligence attributable to the supplier. As regards other practices such as claims for contribution to marketing campaigns or promotions and upfront payments to secure contracts, their inclusion in clear terms in a supply agreement between parties can suggest efficiencies and mutual benefits for the parties and corresponding practices and arrangements would, therefore, not be deemed unfair. 5.4Operationally, an EU approach based on the options set out in section 5 should incorporate the said considerations and be shaped accordingly. Coverage of products 5.4.1Baseline The baseline scenario implies that there are no EU rules addressing UTPs. The question concerning coverage in terms of products does not arise. 5.4.2Agricultural and processed agricultural products covered UTP rules would focus on agricultural products and processed agricultural products traded along the food supply chain, thus covering all food products traded in the food supply chain. Sales of such products in the chain would be subject to respect of the EU’s UTP rules. This comprehensive scope would be consistent with the SCI’s approach and UTP measures in Member States. 5.4.3Agricultural products covered

Alternatively, UTP rules could target agricultural products (Annex I TFEU) traded in the food supply chain. In retailers’ shelves they account for about 60% of food products sold to consumers, a sizeable share. UTP rules applying to agricultural products may in practice have positive spill-over effects where buyers source both agricultural and processed agricultural products from the same supplier. 5.5Operators covered by UTP rules 5.5.1Baseline Under the baseline option, no common measures would be introduced at the EU level. The question concerning the scope of UTPs rules would not arise. Member States would remain free as regards their choices about the scope of UTP rules. 5.5.2UTP rules apply in situations characterised by weak bargaining power UTP rules could target situations which are characterised by an imbalance of bargaining power or a relationship of economic dependency, these being generally drivers of UTPs. Accordingly, UTP rules would protect operators finding themselves in such a weak position. Certain national UTP rules apply in situation of dependence of an operator on the counter-party to the transaction or in situations where an operator has market power/superior bargaining power. Small agricultural producers including their associations would be covered by the protection. Due to the backward cascading effects UTPs have in the chain (see section 2.5.1.1), the protection could be extended to protect also other such operators in the chain. This would in addition prevent unintended effects such as trade diversion away from farmers due to a buyer’s possible incentive to rather deal with an independent processor than a, say, farmers’ processing cooperative which is protected by UTP rules. Verification of the existence of the existence of weak bargaining power or an imbalance of bargaining power could be left to the case-by-case assessment of a competent authority. Alternatively, a proxy for such an imbalance could for example be found in the size of the undertakings thereby increasing predictability. The status as an SME including a micro-enterprise in the food supply chain could trigger the protection of the UTP rules and thus defines their scope of application. In some Member States the size of potential operators is considered a proxy of bargaining power. Some Member States have limited the scope of legislation to businesses exceeding a certain size or to relations in which one of the parties is a small or micro-enterprise. UTP rules could for instance be formulated in such a way as to prohibit the use of the UTPs concerned for all operators in the food supply chain which trade food products with SME operators. In other words, under this option only SME operators, i.e. micro, small and medium-sized enterprises with less than 250 staff headcounts and either a turnover below EUR 50 million or a balance sheet total below EUR 43 million, would enjoy protection. Commercial relationships between large operators would not be governed by such an approach. Sales of food products by a SME supplier to a non-SME buyer would be covered. 5.5.3UTP rules apply to all operators Under this option, UTP rules would protect all operators in the food supply chain regardless of their size. This approach is adopted by the voluntary code agreed by the SCI. UTP rules applying to all operators also reflect the