EN Official Journal of the European Union C 48/145

Opinion of the European Economic and Social Committee on the ‘Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions — A better functioning food supply chain in Europe’

COM(2009) 591

2011/C 48/25

Rapporteur: Mr NARRO

Co-rapporteur: Mr KAPUVÁRI

On 28 October 2009 the Commission decided to consult the European Economic and Social Committee, under Article 262 of the Treaty establishing the European Community, on the

‘Communication from the Commission to the European Parliament, the European Economic and Social Committee and the Committee of the Regions - A better functioning food supply chain in Europe’

COM(2009) 591 final.

The Section for Agriculture, Rural Development and the Environment, which was responsible for preparing the Committee's work on the subject, adopted its opinion on 31 August 2010.

At its 465th plenary session, held on 15. and 16 September 2010 (sitting of 15 September), the European Economic and Social Committee adopted the following opinion by 121 votes to none, with 5 abstentions.

1. Conclusions and recommendations

1.1 The reports and communications drawn up by the European Commission over the last few years offer a revealing analysis of the weaknesses and dysfunctions within the functioning of the value chain. Price volatility, speculation, sales below cost, lack of transparency, the spread of unfair and anticompetitive practices and disparities in the negotiating power of parties are problems affecting the future of the entire food sector, and threatening the survival of what is known as the ‘European agricultural model’.

1.2 In its Communication on A better functioning food supply chain in Europe, the Commission rightly identifies areas for priority action. However, the EESC regrets the slowness in adopting proposals, and urges the European Commission to speed up its decision-making in an area that requires urgent, practical and tangible action. The renewed High Level Group on the Competitiveness of the Agro-Food Industry should resume its work as quickly as possible and become the lynchpin for new and nascent agro-food policies.

1.3 Success will very largely depend on the degree of involvement of the European Commission, the Member States and all actors in the food chain. It is essential for them to work together in a coordinated way in a field where differences between the various national markets and products are considerable. The European Union must provide determined leadership in efforts in this regard, and encourage both adjustment of available instruments and new measures to facilitate more balanced development of the chain and enhance competitiveness.

1.4 An analysis of initiatives concerning the food chain which have been pursued to date reveals the limited effectiveness of self-regulation and voluntary agreements. The EESC supports the development of voluntary mechanisms but notes that, without supervisory bodies and effective sanctions, it will not be possible to end the systematic non-compliance with these mechanisms by the more powerful links in the chain.

1.5 Changes in economic players' behaviour must be accompanied by market regulation that lays the foundation for a new approach for the agro-food sector. To make the system more transparent, contractual practices must be strengthened, and the possibility of introducing binding clauses or an obligation to draw up written contracts should be examined on a sectoral basis. Many of the goals mentioned by the Commission in the Communication can only be attained with fair and appropriate legislation.

1.6 With regard to codes of good practice, the EU should take national initiatives as a model and devise an effective control and penalty mechanism by establishing a European ombudsman. As well as the content of these codes of good practice, their efficiency and the level of compliance with them are crucial.

1.7 National and Community competition law must be adjusted significantly in order to foster robust organisation of the sector, ensure that supply chains operate flexibly, and provide legal certainty for operators, to the benefit of consumers. The conclusions of the High Level Group on the Milk Sector (1) and the Spanish Presidency Conclusions concerning the communication on the food supply chain (2) tally with the EESC's views on applying competition law in a flexible way to reflect the specific characteristics of the farm sector.

1.8 In contrast to the fragmentation of supply, the EESC takes note of the strong concentration of demand, especially in the large retail sector, which is affecting the proper functioning of the value chain. Developing and strengthening the role of the interprofessional organisations can help to mitigate the lack of organisation in the production sector. This challenge should prompt some serious thinking, not about the size of producers' organisations, but about how to turn them into effective marketing tools in farmers' hands. Producers' organisations should not be the only effective channel for improving the economic organisation of agricultural supply.

1.9 The EESC urges the European Commission not only to focus its attention on how to concentrate supply but act decisively in the demand sector, checking abuses of a dominant position and various unfair and anti-competitive practices that frequently escape effective monitoring by national and community authorities.

1.10 European consumers need prices and appropriate prices structures that are predictable and stable. The measures set out in the communication could operate more effectively if widely publicised and if consumer choice is not distorted. Price monitoring centres will only be of use if, instead of being restricted to recording prices, they can react swiftly to possible distortions in price movements.

2. Summary of the Commission's communication

2.1 The European Commission acknowledges the important role played by the food supply chain – comprised of farmers, industry and distributors – in the European economy (3). In fact, supervising the workings of the food chain has become a political priority for the Community agenda. The publication of the Communication on A better functioning food supply chain is a consequence of this legitimate concern of the European legislator and arises from the idea of establishing practical measures at the national and Community levels that help to improve the situation of the food supply chain.

2.2 The Communication puts forward a set of practical proposals for each of the three challenges facing the food supply chain described in the document. To promote sustainable relations, the Commission aims to combat unfair practices and oversee competition-related issues. An attempt is made to address one issue that is always a priority, that of greater transparency in the supply chain, through combating speculation and establishing a European food price monitoring mechanism. Lastly, with a view to boosting competitiveness, the Commission is keen to review labelling and environmental legislation, limit regional supply practices and strengthen farmers' negotiating position through instruments such as producers' organisations.

2.3 In November 2010, the Commission is due to publish a follow-up report on the degree of implementation of the main measures proposed, which will be complemented by a new communication on supervision of the retail market. The Commission has also decided to extend the term and membership of the High Level Group on the Competitiveness of the Agro-food Industry and make it a genuine forum for discussion on the food supply chain.

3. General comments

3.1 With this Communication and other initiatives, the EU has in recent years shown that the situation facing the food supply chain has become one of the key issues on its policy agenda. Price volatility and power imbalances within the supply chain have had a detrimental effect on consumers and on the production sector. Despite the numerous analyses and proposals that have been made in recent years, the situation still contains a number of distortions that seriously question the much sought-after sustainability of the European agro-food model.

3.2 As well as ensuring proper supply of food, quality is an issue of strategic importance: for this reason, it is essential to give adequate protection to products covered by quality marks. Efficiency problems in the food supply chain can narrow the choice of products on the single market, which would threaten the European agricultural model. The Commission has, in numerous documents, discussed the contradictions raised by the way the food supply chain functions in the European Union, but the communication fails to reflect this fact.

3.3 Imbalances in the European food supply chain also represent a serious threat to the interests of European citizens. Due to the discrepancies between the prices of raw materials and of consumer goods, unrealistic price structures have developed, jeopardising the long-term prospects of the links in the value chain, together with the entire economic and social order of the EU. The retail sector is highly concentrated and organised, and keeps consumer food prices under constant pressure. The major food supply chains can do this because, thanks to certain commercial practices, their profit margins are generated not only by consumers but also by suppliers, as shown by the farm prices explosion in 2007 and 2008. Commercial policies based on the ‘double profit margin’ technique are causing serious problems for consumers and suppliers.

3.4 The increasing tension in relations between the players in the food supply chain is leading to different economic dynamics, which are particularly damaging for a sector of farming that is suffering an unprecedented crisis against the backdrop of a deep general economic crisis.

3.5 The EESC and the Commission also agree on the priority areas for action and on the need to present as a matter of urgency new measures and practical tools to improve the operation of the food supply chain in Europe. Substantial changes are required to bring about a new direction. In order to successfully address the main challenges facing the agro-food sector, the EESC is would like to see the development of diversified production, lower costs by increasing farm size, and better marketing strategies.

3.6 The EESC agrees with the main conclusions of the High Level Group on the Competitiveness of the Agro-Food Industry, which tally with the Committee's recent work on agricultural issues (4):

‘In line with free-market thinking, the market alone currently determines the key issue of who gets what share of the value chain. This works to the detriment particularly of those farmers who, even though unit costs are in many cases on the increase, often still face ever-decreasing producer prices and are often forced to respond with measures that run counter to the aims of the European agricultural model. Since 77 % of the EU-27 food market is already controlled by just fifteen commercial chains, the Committee feels that, as is currently happening in the USA, consideration should be given to whether competition law is enough to prevent the emergence of market dominance and questionable contractual practices. It is important that all stakeholder groups be involved in this exercise’.

3.7 The success of all of these initiatives will depend to a large extent on the involvement of the European Commission, the Member States and all players in the food supply chain. Coordinated efforts between the different bodies and a revision of the application of competition law are essential. Most of the measures proposed by the European Commission have previously been implemented at the national level (5). A study should therefore be made of the different national approaches to the same set of problems and the often insignificant final result of many of the initiatives implemented by the Member States. This is true, for example, of the setting-up of price monitoring centres or establishing codes of good practice which, due to the lack of effective tools for control and application, have failed to limit abuses.

3.8 The Communication broadly addresses some aspects of the food supply chain that have been the subject of detailed study at the national level or within the industry. France's efforts to bring balance to the food supply chain have provided a benchmark for other EU Member States. The French law on modernising farming goes further than the Communication: it defines a mandatory contractual framework for volumes and prices, requires mandatory clauses, extends the duties of industry interprofessional bodies and provides for a system of mediation and sanctions to resolve potential disputes.

3.9 At the sectoral level, the milk sector has been recognised by the Commission as ‘requiring urgent action’. For this reason, the High Level Group on the Milk Sector set up in October 2009 has broadened its remit beyond that of the Communication and has focused on establishing a standard contractual framework, the development possibilities for those in interprofessional and producers' organisations and the implementation of the futures market in the milk sector. Given this profusion of Community, national and sector-specific initiatives, the EESC, which is aware of the complexity and range of these issues, wishes to emphasise the need to establish a solid basic Community framework, encourages the exchange of experience and calls for greater coordination of the competent authorities.

3.10 The EESC has highlighted on a number of occasions the importance of adapting legislation to the current situation facing the food supply chain. The far-reaching changes that must be made to national and Community legislation should be accompanied by the creation of a new framework for relations within the supply chain that favour cooperation, transparency and a fair distribution of profits throughout the value chain. Self-regulation in the sector should be encouraged at the same time as the introduction of binding instruments. For the system to be implemented effectively a decided commitment to transparency is needed, and this will require control mechanisms guaranteeing compliance with the voluntary agreements that might be concluded between the various links in the chain.

3.11 In the Communication and the accompanying working documents, the Commission gives an accurate assessment of price volatility. A critical examination is needed, however, of how the recent changes to the CAP, set out in the ‘health check’, have affected the balance of the food supply chain. Abolishing the market regulation instruments for farming (quotas, intervention, storage) have had a detrimental effect on price volatility and market management, which should be taken into account in the Community executive's analysis.

4. Specific comments

4.1 Promoting sustainable market relations

4.1.1 In its analysis, the Commission notes the ‘asymmetry’ between the different links in the supply chain. These imbalances lead to unfair commercial and anti-competitive practices. Such imbalances are spreading rapidly in the case of perishable goods, where there is less room for negotiation. The EESC agrees with the Commission's intention to strengthen contractual practices with common rules defined at European level. Although contracts could be drawn up on a voluntary basis, a number of cases should be looked at where it could be made legally binding to present a contract and certain specific contractual clauses.

4.1.2 In any case, the Commission should prevent farm produce transactions from taking place without any documentary record, in order to stamp out such widespread and insidious practices as ‘open prices’, where the price paid to the farmer is only determined in the light of the sale price subsequently obtained by the intermediary. In addition to the contractual arrangements, the EESC believes there is a need to introduce a code of practice (6) and a monitoring committee to ensure that the code is adhered to. This code of commercial practice should ensure the quality of negotiations between all the links in the value chain, for the benefit of consumers. The European legislator must put an end to the practice of selling at a loss as a normal strategy to attract consumers, and should analyse the impact of the increasing use of distributors' labels on competition, consumer choice and the promotion of quality EU produce.

4.1.3 There are significant differences in the way competition rules are applied at national level. The same conduct by an interprofessional association is treated very differently depending on the national competition authority in each country. There is a tendency in many countries to penalise any initiatives by the production sector to improve the management of supply. This is nothing new: in spite of efforts to step up cooperation with the European Competition Network, the steps taken by the competition authorities have not been successfully coordinated.

4.1.4 The EESC advocates a new model for consumer-producer relations that favours local markets (possibly imposing obligatory minimum local sourcing quotas) and cuts out intermediaries by means of shorter circuits or ‘zero food miles’ products. The European Commission should encourage initiatives on the part of producers to join consumers in seeking greater added value for their produce and safeguarding the cultural and regional identity aspects of food.

4.1.5 The revision of the Late Payments Directive has triggered an interesting Europe-wide debate on whether the payment period for agro-food products should be reduced. It would be helpful to set a 30-day limit for perishable products, starting from the date of delivery of goods to the client rather than the date of issue of the invoice. In addition to greater control over late payments, a clear definition of unfair practices and clauses should be included, together with efficient tools for eradicating them from trade relations.

4.2 Transparency of the food supply chain

4.2.1 In the EESC's view, there is a real need for price transparency (7). Setting up a new Community food prices monitoring tool must go hand-in-hand with new powers of surveillance and sanction. The EESC considers that there must be a shift from monitoring to action, so that the appropriate bodies can react rapidly and effectively to distortions in price trends.

4.2.2 The EESC does not agree with the idea that providing consumers with more price comparisons can by itself bring greater transparency to the food supply chain. Greater price transparency and predictability is only one of the many factors influencing price formation processes and trends.

4.2.3 The European Commission's laudable efforts to harmonise and coordinate the different national price monitoring instruments are bound to fail if there is no uniformisation of the reference bases for price transmission. Is the same reference used when data are compiled? Are there common guidelines on how price observatories should be set up and function? Does the EU have bodies able to intervene when unjustified price mismatches, anomalies and fluctuations are detected? The data forwarded to the Commission by the Member States often do not apply the same criteria. It has been noted, for example, that in the case of citrus fruit the prices published by the Commission under the heading of producer prices are in fact warehouse-door prices, which do not include marketing costs. These data differences can give a distorted picture of the situation, making transparency difficult to achieve.

4.2.4 The measures proposed by the communication will only work if properly publicised. This is crucial, given the need to provide consumers with accurate information. Because of the increased concentration in both the agro-food industry and the distribution sector, brand reputations have become more vulnerable, with all the risks this entails for businesses.

4.3 Improving competitiveness and integration in the food supply chain

4.3.1 The Commission is doing very important work to develop a single market for food products. However, widely diverging prices between countries are directly connected to differing levels of purchasing power. Not only are the new Member States (EU-12) failing to catch up with the other countries, but the differences are getting bigger. The European Commission must therefore support the new Member States in order to narrow the gap and optimise the functioning of the single market. If the trend is not reversed, the market share of products from the EU-15 in the new Member States will gradually be eroded.

4.3.2 The food supply chain is marked by a high level of fragmentation in the production sector and strong concentration in the retail sector, leading to serious imbalances in their relations. The EESC considers that many of the problems jeopardising the smooth functioning of the food supply chain stem from the fact that businesses at the end of the chain have developed faster, more evenly and in a more concentrated way. The European Commission, aware of this issue, wants to develop producers' organisations (along the lines of the fruit and vegetable CMO) with a view to reducing supply-side fragmentation; the EESC however emphasises that what is important is not to set up more and bigger producers' organisations, but to enhance their management and marketing abilities so that they become a useful tool in farmers' hands. The EESC urges the European Commission to introduce new anti-crisis and stabilisation measures, such as an income insurance instrument. The positive experiences of Canada and the USA in this field argue in favour of applying this measure, that has been confirmed as legitimate by the WTO, in Europe.

4.3.3 Interprofessional associations must be reinforced and reinvigorated through a joint framework for action. European legislation is required to harmonise and develop the interprofessional associations in each Member State and ensure that they operate under the same rules, so that they are not merely sector round tables responsible for promoting the sector in general. It is essential to remove legislative obstacles that undermine the legal certainty of interprofessional associations in performing their task of market stabilisation, and ensure that these associations have more extensive rights when cross-sector agreements are adopted so that they are not exposed to arbitrary decisions taken by the national competition authorities.

Brussels, 15 September 2010. The President of the European Economic and Social Committee Mario SEPI

(1) Conclusions of the High Level Group on the Milk Sector, adopted on 15 June 2010.

(2) Presidency Conclusions, adopted by a majority at the meeting of the Agriculture Council of 29 March 2010.

(3) The agro-food sector accounts for 7 % of employment in the EU and for 5 % of its added value.

(4) Reform of the Common Agricultural Policy in 2013, OJ C 354, 28.12.2010, p. 35.

(5) Spain has been a pioneer in this regard, setting up a price monitoring centre, France has taken a very close look at compulsory contracts, and the United Kingdom has opted for a watchdog to monitor compliance with codes of practice.

(6) OJ C 175, 28.7.2009.

(7) OJ C 128, 18.5.2010, p. 111.