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 {SEC(2009) 1445} {SEC(2009) 1446} {SEC(2009) 1447} {SEC(2009) 1448} {SEC(2009) 1449} {SEC(2009) 1450}
Date: 2009-10-28
Institutions: European Commission
Subjects: agri-foodstuffs, competition, consumer price, food price, foodstuff, price fluctuation, price of agricultural produce, restriction on competition, supply

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COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 28.10.2009 
COM(2009) 591 final 

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 

{SEC(2009) 1445} 
{SEC(2009) 1446} 
{SEC(2009) 1447} 
{SEC(2009) 1448} 
{SEC(2009) 1449} 
{SEC(2009) 1450} 

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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 

1. 

INTRODUCTION 

Over  the  past  couple  of  years,  prices  along  the  food  supply  chain  have  fluctuated  widely. 
From  mid-2007  to  mid-2008,  agricultural  commodity  prices  rose  sharply,  which  resulted  in 
increased consumer food prices and higher inflation levels overall. Since then, prices of many 
commodities  have  come  down  to  levels  comparable  to  or  even  lower  than  those  reached 
before the start of the price surge. However, consumer food prices continued to increase and 
only started declining in May 2009 raising concerns about the functioning of the food supply 
chain. These changes have caused considerable hardship for agricultural producers and imply 
that consumers are not getting a fair deal. 

The  food  supply  chain  connects  three  important  sectors  of  the  European  economy  – 
agriculture,  the  food  processing  industry  and  the  distribution  sectors  –  that  together  make 
more than 5% of European value-added and 7% of employment. Moreover, its performance 
has  direct  consequences  for  all  European  citizens,  since  food  represents  16%  of  European 
households'  expenditures.  The  functioning  of  the  food  supply  chain  takes  on  increased 
importance in the path towards recovery from the current economic and financial crisis. High 
food  consumer  prices  are  a  source  of  concern  because  they  put  pressure  on  household 
incomes  in  particular  now  at  a  time  when  an  increase  in  consumption  is  needed.  They  are 
particularly  hard  on  the  most  vulnerable  households  who  spend  a  considerably  greater 
proportion of their income on food. In the longer run, a better functioning food supply chain is 
crucial  for  consumers  and  for  ensuring  a  sustainable  distribution  of  value  added  along  the 
chain, thus contributing towards raising its overall competitiveness. Improvements are needed 
urgently to avoid an escalation of consumer food prices as the recovery sets in. 

The  Commission  has  been  following  developments  in  food  prices  as  part  of  a  market 
monitoring  exercise  launched  within  the  context  of  the  November  2007  Single  Market 
Review1  which  aims  to  provide  policy  remedies  to  identified  causes  of  malfunctioning.  In 
December 2008, the Commission published an interim report on "Food prices in Europe" and 
set  out  a  roadmap  identifying  the  key  directions  for  policy  actions2.  This  Communication 
presents  concrete  policy  initiatives  along  the  lines  of  the  roadmap  and  thus  concludes  the 
market monitoring exercise on the food supply chain3. 

1 

2 

3 

Commission Staff Working Document on "Implementing the new methodology for product market and 
sector  monitoring"  SEC(2007) 1517,  accompanying  the  Communication  from  the  Commission  on  "A 
single market for 21st century in Europe" – COM(2007) 724. 
Communication  from  the  Commission  on  "Food  Prices  in  Europe"  –  COM(2008)  821  and  its 
accompanying Staff Working Documents. 
The  technical  analysis  on  which  this  Communication  is  based  is  published  in  a  series  of  six 
accompanying Staff Working Documents. 

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This Communication is organised as follows. Section 2 describes the link between agricultural 
commodity  prices  and  changes  in  consumer  food  prices.  Section  3  identifies  the  main 
challenges faced by the food supply chain and presents a number of policy initiatives aimed at 
overcoming them. Section 4 presents the next steps the Commission will take to implement 
these initiatives and Section 5 concludes. 

2. 

RECENT PRICE DEVELOPMENTS 

During the second half of 2007 and early 2008, agricultural commodities prices rose rapidly4. 
As a consequence, food producer prices and consumer food prices started to increase as well, 
albeit at a slower rate. This can be explained by the fact that agricultural commodities make 
up only a small proportion of the overall production costs of food5 and the observation that, in 
the  most  competitive  markets,  food  processors  and  distributors  absorbed  part  of  the  price 
increase. 

Since the second quarter of 2008, prices of agricultural commodities have been plummeting. 
Contrary  to  agricultural  commodity  prices,  food  producer  prices  continued  to  rise  until  the 
fourth  quarter  of  2008,  while  consumer  food  prices  did  not  come  down  until  recently. 
Moreover,  the  rates  of  decline  in  producer  and  consumer  food  prices  are  rather  low  when 
compared to the drop in agricultural commodity prices – see Figure 1. The reaction of food 
processors  and  distributors  to  a  decrease  in  agricultural  commodity  prices  has  been  both 
slower and weaker than their reaction to their increase of 2007. This discrepancy has negative 
consequences for the food supply chain as it prevents consumers from benefitting from lower 
prices and curtails the recovery of agricultural commodity prices by reducing the demand for 
food products. 

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Developments  in  agricultural  commodity  prices  have  been  detailed  in  the  2008  Communication  on 
"Food prices in Europe". 
Raw agricultural products represent a declining share in the consumer price of food products. 

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Figure 1: 

Recent price developments along the food supply chain, EU-27 

 January 2007-July 2009; Monthly price indices (nominal); 2007M01=100

FOOD PRICE CRISIS

PRODUCERS’ LAG

RETAILERS’ LAG

STABILISATION

Agricultural 
Commodity Prices*

Food Producer Prices

Food Consumer Prices

Overall inflation 
(HICP)

120

115

110

105

100

95

2007M01

2007M02

2007M03

2007M04

2007M05

2007M06

2007M07

2007M08

2007M09

2007M10

2007M11

2007M12

2008M01

2008M02

2008M03

2008M04

2008M05

2008M06

2008M07

2008M08

2008M09

2008M10

2008M11

2008M12

2009M01

2009M02

2009M03

2009M04

2009M05

2009M06

2009M07

*

Quarterly data for agricultural commodity price index; from January 2009, the index has been extrapolated based on 
price levels of major commodities available in Agriviews database

Source:

EUROSTAT; AGRIVIEWS

The  discrepancies  observed  between  commodity  and  consumer  food  price  developments, 
together with the asymmetric response of food prices to commodity price fluctuations, relate 
in part to structural weaknesses in the system, such as the number of intermediaries operating 
along  the  chain  and  the  competitive  structure  at  certain  steps  of  the  chain.  Moreover, 
pervasive inequalities in the bargaining power between contracting parties contribute towards 
reducing  both  the  speed  and  magnitude  of  price  transmission  along  the  chain  and  offer  an 
explanation  for  its  asymmetry.  In  addition,  the  slow  transmission  of  price  changes  delays 
necessary adjustments and helps prolong market inefficiencies at each step of the chain. Such 
inefficiencies  can  exacerbate  price  volatility  in  agricultural  commodity  markets.  Therefore, 
the Commission considers that the recent price developments should give a sense of urgency 
to  the  implementation  of  concrete  policy  initiatives  along  the  directions  identified  in  the 
December 2008 roadmap. 

3. 

OVERCOMING MAJOR CHALLENGES FACED BY THE EUROPEAN FOOD SUPPLY CHAIN  

The food supply chain connects important and diverse sectors of the European economy that 
are  essential  for  economic,  social  and  environmental  welfare  as  well  as  for  the  health  of 
European  citizens.  On  several  dimensions,  the  chain  performs  well:  it  delivers  high-quality 
food  products  at  affordable  prices  to  European  consumers,  it  ensures  the  safety  and 
traceability of food products and it can pride itself on the ample supply of highly competitive, 
innovative  and  traditional  products,  both  within  and  outside  the  EU.  However,  the  overall 
competitiveness  of  the  chain  and  its  economic  growth  have  underperformed  the  overall  EU 
economy since 19956, sectors of the food supply chain are facing increased competition from 

6 

Average value-added growth of the food supply chain sectors has been 2% lower per year than average 
growth in the EU since 1995. 

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international actors and recent food price developments have pointed out a lack of resilience 
to shocks in agricultural prices. 

The  Commission  has  been  working  with  stakeholders  to  improve  its  understanding  of  the 
major challenges faced by the chain and to define relevant and concrete policy actions in line 
with  the  December  2008  roadmap.  While  the  food  supply  chain  is  very  heterogeneous  and 
challenges faced by stakeholders differ between sub-sectors and Member States, three cross-
cutting priorities relevant to the whole chain have been identified: (1) promote sustainable and 
market-based  relationships  between  stakeholders  in  the  food  supply  chain;  (2)  increase 
transparency  along  the  chain  to  encourage  competition  and  improve  its  resilience  to  price 
volatility;  and  (3)  foster  the  integration  and  competitiveness  of  the  European  food  supply 
chain across Member States. 

3.1. 

Promote  sustainable  and  market-based  relationships  between  stakeholders  in 
the food supply chain 

The  food  supply  chain  is  characterised  by  the  wide  diversity  of  actors  it  connects:  farmers, 
food processors, traders, wholesalers and retailers. Both very large companies and small and 
medium-size  enterprises  are  simultaneously  active,  either  as  competitors,  suppliers  or 
customers.  These  relationships  are  often  fraught  with  difficulties  which  hold  back  the  full 
potential  of  the  chain.  A  key  lesson  stemming  from  analyses  into  this  matter,  carried  out 
involving stakeholders and National Competition Authorities, is the necessity to draw a clear 
distinction  between  concerns  about  potentially  unfair  trading  practices  –  related  to  the 
imbalances in bargaining power of contracting parties – and concerns about anti-competitive 
practices. 

3.1.1.  Bargaining power and potentially unfair trading practices 

Within the food supply chain, significant imbalances in bargaining power between contracting 
parties  are  a  common  occurrence  and  this  issue  was  flagged  as  a  serious  concern  by 
stakeholders.  This  asymmetry  in  bargaining  power  may  lead  to  unfair  trading  practices,  as 
larger and more powerful actors seek to impose contractual arrangements to their advantage, 
either  through  better  prices  or  through  improved  terms  and  conditions.  Such  practices  may 
occur at every link of the chain and include, for example, late payments, unilateral changes in 
contracts,  ad-hoc  changes  to  contractual  terms,  upfront  payments  as  entry  fees  to 
negotiations... Within non-processed food supply chains, small farms and cooperatives often 
deal  with  larger  buyers,  be  they  producers,  wholesalers  or  retailers.  Within  processed  food 
supply  chains,  on  the  one  hand  small  food  processors  are  contracting  with  usually  large 
retailers that are often their only channel for accessing the market. On the other hand, large 
multinational food producers may also have important bargaining power as they offer branded 
products that retailers cannot do without. 

Contractual imbalances associated with unequal bargaining power have a negative impact on 
the competitiveness of the food supply chain as smaller but efficient actors may be obliged to 
operate under reduced profitability, limiting their ability and incentives to invest in improved 
product  quality  and  innovation  of  production  processes.  A  better  awareness  of  contractual 
rights and stronger action against unfair contractual practices could contribute to preventing 
these drawbacks since actors with limited bargaining power suffer from a lack of information 
on their rights. Moreover, they may hesitate to contest contract clauses for fear of losing the 
contract altogether.  

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There is thus a need to better understand, and examine in depth, contractual practices and their 
link  to  asymmetries  in  bargaining  power  within  the  food  supply  chain  since,  depending  on 
each individual situation, they might lead to unfair and inefficient outcomes. 

3.1.2.  Market power and potentially anti-competitive practices 

The ability of suppliers and/or buyers to exercise their market power in a manner that distorts 
competition to the detriment of consumers depends primarily on the type of supply chain and 
on local market conditions. Since food markets are most often national or local in scope, the 
Commission has worked closely with National Competition Authorities on food related issues 
in the framework of the European Competition Network (ECN).  

As  a  result,  National  Competition  Authorities  have  granted  due  priority  to  case  by  case 
investigations,  as  well  as  to  broader  inquiries  regarding  food  markets.  These  actions,  taken 
together,  have  considerably  improved  the  understanding  of  the  functioning  of  this  crucial 
sector  of  the  economy.  In  addition,  certain  investigations  have  led  to  the  finding  of  a 
significant  number  of  serious  infringements,  such  as  cartels  and  resale  price  maintenance 
cases.  These 
through  cease-and-desist  orders, 
accompanied where appropriate by substantial fines.  

infringements  were  swiftly  remedied 

In  accordance  with  its  Communication  of  December  20087,  the  Commission  has  also 
examined  the  relevance  of  certain  commercial  practices  both  in  terms  of  their  likelihood  to 
arise and their ability to raise competition concerns within the relevant food supply chains. In 
addition  to  classic  cartels  and  resale  price  maintenance,  other  practices  were  deemed  to 
deserve  special  attention  by  Competition  Authorities,  such  as  joint  commercialization 
agreements,  tying  and  bundling,  joint  purchasing  agreements  (buying  alliances)  and  the 
increasing use of private labels. For such practices a careful balancing of efficiency enhancing 
and  potentially  anti-competitive  effects  is  needed.  No  sweeping  generalisation  can  be  made 
and  National  Competition  Authorities  concur  that  a  case-by-case  analysis  based  on  the 
specificities  of  local  market  conditions  is  necessary  in  order  to  establish  the  existence  of  a 
possible competitive harm. 

7 

Communication from the Commission on "Food Prices in Europe" – COM(2008) 821. 

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In order to promote sustainable and market-based relationships between stakeholders 
of the food supply chain, the Commission: 

1. 

considers that action is needed to eliminate unfair contractual practices between 
business actors all along the food supply chain.  

1.1.  The Commission will work with Member States to put contractual relations on 
a  more  secure  footing  so  that  contracting  parties  will  be  able  to  reap  the  full 
benefits  from  the  single  market  while  retaining  their  freedom  to  contract.  This 
will entail:  

– 

– 

– 

an  exchange  of  information  on  contractual  practices,  including  a 
clarification  of  contractual  rights  and  of  the  legality  and  fairness  of 
commonly used contract clauses; 

the  launch  of  awareness  campaigns  to  inform  stakeholders  of  their 
contractual rights and potentially illegal or unfair practices; 

an exchange of best practices  on  notification of contractual  practices 
(e.g. Ombudsmen, actions by enforcement authorities, collective actions); 

1.2.  At  the  Community  level,  on  the  basis  of  the  information  gathered  in  this 

context, the Commission will:  

– 

– 

work together with the food supply chain stakeholders to prepare sets 
of standard contracts, whose use would be voluntary, taking into account 
the diversity of the food supply chain; 

assess unfair contractual practices in the Internal Market and propose 
any necessary Community measures to address such practices.  

2.  will work with the European Competition Network (ECN) to develop a common 
approach  to  relevant  competition  issues8  aiming  at  a  sustained  exchange  of 
information,  a  swift  identification  of  problematic  cases  and  an  efficient  allocation  of 
tasks among each member. In this context, the Commission proposes to create, where 
necessary,  joint  working  teams  within  the  ECN  dedicated  to  the  analysis  of  specific 
practices  and  markets  which  may  be  critical  for  the  functioning  of  the  food  supply 
chain.  This  enhanced  cooperation  will  contribute  to  better  detect  endemic  problems 
specific to food markets and promptly coordinate future actions. 

8 

It  must  be  noted  that  impact  of  vertical  relationships  between  operators  in  the  chain  on  competition 
come under the scope of the existing rules applicable to vertical agreements – Commission Regulation 
(EC)  No  2790/1999  of  22  December  1999  and  associated  Commission  Guidelines  on  Vertical 
Restraints, currently under review. 

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3.2. 

Increase  transparency  along  the  food  supply  chain  to  encourage  competition 
and improve its resilience to price volatility 

Markets  along  the  food  supply  chain  suffer  from  a  lack  of  price  transparency  and 
predictability.  Upfront  in  the  chain,  derivatives  are  an  important  tool  to  cope  with  the 
observed volatility of agricultural commodity prices. It is essential to ensure that derivatives 
keep serving their initial purpose of price discovery and hedging. The issue of how to tackle 
"excessive  speculation"  on  commodity  markets  is  debated  globally.  In  this  respect,  it  is 
necessary  to  improve  the  overall  transparency  and  oversight  in  the  EU  for  derivatives  on 
agricultural  commodities  –  including  over  the  counter  markets.  In  particular,  a  better 
overview of the activity of different types of market participants is needed. 

Moreover,  the  roadmap  proposed  the  creation  of  a  European  food  prices  monitoring  tool  to 
increase  price  transparency  in  downstream  markets  of  the  chain.  Today,  the  Commission 
publishes  a  first  version  of  such  a  tool9,  putting  together  data  collected  by  Eurostat  and 
National Statistical Institutes. It is structured along two dimensions: 

•  Tracking  consumer  price  levels  of  comparable  food  products  across  Member  States  to 
assess price dispersion and integration of the retail internal market for food – see Section 
3.3.; 

•  Tracking  price  developments  in  Member  States  at  each  step  of  the  chain  –  agricultural 
commodity, producer and consumer food prices – for a selection of specific products, such 
as milk, cheese or pork. 

The monitoring tool thus provides valuable information on price levels and developments all 
along  the  food  supply  chain  and  shows  the  price  evolution  by  product  and  Member  State, 
taking into account the diversity of the chain. It provides visibility on food price evolution in 
each  country  and  will  contribute  to  increasing  pressure  on  stakeholders  to  speed  up  price 
transmission.  The  tool  will  be  further  developed  in  order  to  improve  the  link  between  food 
consumer,  producer  and  agricultural  commodity  prices  and  to  increase  the  coverage  of 
products monitored. 

While  consumer  surveys  conducted  in  the  framework  of  the  Second  Consumer  Markets 
Scoreboard10 show a general satisfaction with the services offered by food retailers, they also 
reveal  a  relative  lack  of  satisfaction  on  the  comparability  of  food  prices  between  different 
retailers.  It  is  thus  desirable  to  further  develop  price  comparison  tools  (such  as  websites  or 
smart  phones  that  can  be  used  in  store  to  scan  and  compare  products)  for  food  products, 
following  the  examples  of  a  number  of  such  successful  services  across  Europe.  The 
development and use of such websites can send a powerful signal to citizens that governments 
are  taking  concrete  steps  to  help  them  save  on  their  daily  or  weekly  shopping.  It  would 
contribute to increasing the intensity of competition at the retail level in local markets as well 
as upstream along the food supply chain. At the same time the Commission is aware of the 
need  to  ensure  that  any  information  divulged  to  consumers  is  of  high  quality.  The 
identification  of  key  success  factors  for  such  price  comparison  services  based  on  existing 
experience would be of considerable help for the further development of such tools. 

9 
10 

Available at http://epp.eurostat.ec.europa.eu/portal/page/portal/hicp/data/database 
The Consumer Markets Scoreboard, Second Edition, 2009. 

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In order to increase transparency in the food supply chain, the Commission: 

3.  will  make  proposals  to  improve  the  oversight  and  overall  transparency  of 
agricultural  commodity  derivatives  markets  in  the  context  of  the  overall  approach 
on derivatives11 and the review of the Directive for Markets in Financial Instruments 
(MiFID): 

3.1.  appropriate  transparency  and  reporting  requirements  should  be  extended  to  all 
agricultural commodity derivatives, including those traded over-the-counter; 

3.2. 

3.3. 

these  obligations  should  be  complemented  by  the  introduction  of  position 
reporting  obligations  by  categories  of  traders  to  be  defined  at  EU-level.  This 
would  enable  regulators  to  have  an  overview  of  the  positions  taken  by  the 
different types of traders; 

the  possibility  of  enabling  regulators  to  set  position  limits  to  counter 
disproportionate  price  movements  or  concentrations  of  speculative  positions12 
will  be  carefully  assessed,  with  a  view  to  ensuring  the  efficient  functioning  of 
those markets; 

4.  publishes today the first edition of the European Food Prices Monitoring tool and 
commits itself to examining ways of developing it further in order to cover a greater 
number  of  food  products  and  chains,  starting  from  the  Summer  of  2010.  This  would 
require the cooperation of National Statistical Institutes. The Commission consequently 
calls on National Statistical Institutes to collect the necessary data; 

5. 

recommends  that  all  Member  States  have  web-based  and  easily  accessible  food 
retail price comparison services. The Commission will work with Member States to 
ensure an exchange of best practices and experiences in this field. 

3.3. 

Foster  the  integration  and  competitiveness  of  the  European  food  supply  chain 
across Member States 

3.3.1. 

Integration of the food supply chain 

As  already  pointed  out  in  the  Communication  on  "Food  prices  in  Europe",  the  food  supply 
chain  is  highly  fragmented  between  EU  Member  States.  The  information  collected  for  the 
European  food  prices  monitoring  tool  confirms  important  cross-country  differences  both  in 
terms of price levels and price developments. While intra-EU price dispersions for food and 
non-alcoholic  beverages  have  been  declining  overall,  significant  differences  in  price 
dispersion  across  different  products  remain,  as  illustrated  in  Figure  2,  based  on  an 
experimental prices' collection13. The price dispersion of some basic products such as sugar or 

11 

12 

13 

As  outlined  in  COM(2009)  563  on  "Ensuring  efficient,  safe  and  sound  derivatives  markets:  future 
policy actions". 
Speculative  position  limits  are  limits  on  how  many  open  derivatives  contracts  specific  categories  of 
traders can hold. 
Price  collection  conducted  by  Eurostat  for  the  Consumer  Markets  Scoreboard  and  the  European  food 
prices monitoring tool. 

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butter is significantly lower than average; for other consumer products such as mineral water, 
eggs  or  ice  cream,  the  price  variation  is  higher  than  the  average  dispersion  for  the  food 
products analysed. 

Several  national  factors,  such  as  differences  in  average  household  incomes,  preferences  in 
taste, differences in the level of value-added tax or the share of local production, explain some 
of the observed differences in price levels across countries. However, other factors related to 
market dynamics and regulatory framework play a role as well. The Commission is engaged 
in  on-going  food  safety  standards  harmonisation  to  further  boost  cross-border  trade  in  food 
products.  This  is  of  particular  relevance  in  avoiding  problems  arising  from  possible 
emergencies  in  the  food  chain  originating  in  a  Member  State  or  in  a  third  country.  The 
continued enforcement of the Directive on Unfair Commercial Practices as well as a review of 
the labelling directive currently underway14 should also contribute to the increased integration 
of the food supply chain. Finally, the Commission has taken a number of decisions recently to 
stop  the  development  of  national  and  regional  origin  labelling  schemes.  Moreover  it  has 
proposed to develop a new framework for geographical indications, marketing standards and 
certification schemes in its agricultural product quality policy15. 

Figure 2: 

Dispersion of price levels for selected products across Member States 

Coefficient of variation of prices selected food products across Member States; June 2008

Mineral water
Loaf of white bread
Chicken eggs
Ice cream
Minced beef
Tomato Ketchup
Sausage
Natural yoghurt
Potatoes
Pork, cutlet (escalope)
Olive Oil
Coffee
Long-grain, white rice
Black tea
Milk chocolate
Orange juice
Whole chicken
Wheat flour
Jam
Tinned pink tuna
Carrots
Spaghetti
Apples
Fresh milk, unskimmed
Butter
White sugar

70%

58%

49%
48%

44%

42%
42%
41%
41%
40%

A high coefficient of 
variation means that there 
are strong differences in 
price levels of a product 
between Member States

36%
35%
34%

32%

29%
28%
27%
27%
26%
25%
24%

22%
22%
21%

19%

14%

Average for analysed 
food products: 34%

Source:

Based on experimental prices’ collection – see the European food prices monitoring tool

Business  practices  such  as  constraints  on  territorial  supply  or  hindrances  to  parallel  trade 
constitute  another  key  barrier  to  the  integration  of  EU  markets.  Stakeholders  have  reported 
indications of these practices which are inconsistent with Internal Market principles. A case in 
point relates to retailers from a given country being “forced” to source locally when dealing 
with multi-national suppliers, thus raising obstacles to cross-border trade. Such practices are 

14 

15 

Proposal  for  a  Regulation  of  the  European  Parliament  and  of  the  Council  on  the  provision  of  food 
information to consumers – COM(2008) 40. 
Communication from the Commission on "Agricultural product quality policy" – COM(2009) 234 final. 

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likely  to  undermine  the  functioning  of  the  Internal  Market  and  could  negatively  affect 
consumers through higher prices and a narrower selection of products. 

In order to remove obstacles and end practices that fragment the Internal Market, the 
Commission: 

6.  will  assess  measures  to  address  territorial  supply  constraints,  to  the  extent  that 
these  create  economic  inefficiencies  and  contradict  Internal  Market  principles. 
The  Commission  will  produce  an  Impact  Assessment  based  on  a  detailed  study  to 
inform its action by the end of 2010; 

7.  urges  the  Council  and  the  European  Parliament  to  rapidly  adopt  the 
Commission's proposal for the revision of the legislation on labelling rules;  

8.  will  review  selected  environmental  standards  and  origin  labelling  schemes  that 
may  impede  cross-border  trade,  with  a  view  to  establishing  whether  the  policy 
objectives of these regulations can be reached with a smaller impact on the integration 
of  the  food  supply  chain;  it  will  also  work  with  Member  States  and  the  industry 
towards  better  harmonising  the  implementation  of  Community  food  safety 
standards. 

3.3.2.  Competitiveness of the food supply chain 

The agricultural sector is highly fragmented and diverse in terms of size, farm type and socio-
economic  performance  of  agricultural  enterprises.  The  current  economic  crisis  is  having  a 
very significant impact on the sector by exerting considerable pressure on agricultural prices 
and  income,  notably  in  the  dairy  and  livestock  sectors.  Although  several  mechanisms 
embedded in the CAP have already been implemented to alleviate some of the most negative 
effects of the crisis, it has reinforced the pressure towards further restructuring the sector. 

The  agro-food  industry  is  a  significant  contributor  to  employment  and  value-added  growth 
among EU manufacturing industries but growth in value-added and labour productivity within 
the  EU  food  industry  is  outpaced  by  that  of  the  United  States.  At  world  level,  EU  food 
products are losing market share to Brazil, Canada and Australia. The High Level Group on 
the  Competitiveness  of  the  Agro-Food  Industry16  (HLG),  following  a  comprehensive 
approach,  identified  the  main  issues  underlying  the  competitiveness  gap  of  the  sector  and 
proposed a set of 30 concrete recommendations addressed to political and economic actors17. 
The  HLG  acknowledged  the  lack  of  transparency  in  price  formation  mechanisms  and  the 
imbalances  between  actors  as  major  concerns  for  the  food  supply  chain.  In  addition,  while 
urging  the  EU  to  maintain  a  high  level  of  food  safety  and  quality  standards,  the  group 
identified  a  strong  need  for  an  improved  innovation  framework,  targeted  actions  on  the 
numerous SMEs in the sector and on the performance of the European agro-food industry on 
world markets.  

16 
17 

Commission Decision No 2008/359/EC of 28 April 2008. 
Final report, recommendations and roadmap of key initiatives available at: 
http://ec.europa.eu/enterprise/sectors/food/competitiveness/high-level-group/documentation/ 

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The retail sector faces a competitiveness challenge as well. Even though the sector has been 
transformed  dramatically  over  the  past  decade  as  a  result  of  increased  consolidation,  the 
emergence  of  hard  discounters  and  the  introduction  of  low  cost  own  labelling,  European 
retailers have experienced lower productivity growth than, for example, their US counterparts 
over the last decade. Among the several factors that have contributed to this productivity gap, 
which  depends  also  on  the  different  market  dynamics,  investment  in  information  and 
telecommunication  technologies  and  in  new  business  processes  appear  to  have  played  an 
important role.  Some regulatory features may also have impeded productivity growth in the 
EU retail sector.  Restrictive establishment rules have limited the  opening of new stores  and 
thereby the diffusion of innovation18. Crucially, an ambitious implementation of the Services 
Directive would make a major contribution to the removal of such barriers. 

In order to foster the competitiveness of the food supply chain, the Commission will: 

9.  promote  and  facilitate  the  restructuring  and  consolidation  of  the  agricultural 
sector  both  in  the  context  of  the  Rural  Development  policy,  notably  by  encouraging 
the creation of voluntary agricultural producer organisations, and in the broader context 
of post 2013 Common Agricultural Policy. This will first be examined for the specific 
situation  in  the  dairy  sector  by  the  recently  established  High  Level  Expert  Group  on 
Milk; 

10.  take  action  to  bring  forward  the  proposals  of  the  High  Level  Group  aiming  to 
improve  the  competitiveness  of  the  agro-food  sector,  notably  of  SMEs,  and  to 
foster innovation and exports in the sector. 

4. 

IMPLEMENTATION OF POLICY INITIATIVES 

This Communication sets forth a number of proposals for tackling the challenges identified. 
The  increase  in  transparency  along  the  food  supply  chain  and  the  promotion  of  sustainable 
and  market-based  relationships  between  stakeholders  have  the  potential  to  facilitate  the 
European recovery and should thus be undertaken with priority before the end of 2010. The 
other initiatives address structural issues of the chain, with the aim of improving integration 
and  competitiveness  in  the  longer  term.  They  will  be  complemented  by  propositions  to 
strengthen the competitiveness of Europe's retail sector in the forthcoming Communication on 
the Retail Market Monitoring exercise. 

The  Commission  will  issue  by  November  2010  a  report  on  the  follow-up  to  the  actions 
proposed, on the basis of on-going discussions with EU Institutions and relevant stakeholders. 
To that effect, the Commission plans to broaden the scope and mandate of the existing High 
Level Group on the Competitiveness of the Agro-Food Industry, as well as its membership.  

18 

These  issues  will  be  further  developed  in  the  forthcoming  Communication  on  the  Retail  Market 
Monitoring exercise. 

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5. 

CONCLUSION 

The rapid rise and fall of agricultural commodity prices and its delayed impact on food prices 
have  raised  concerns  amongst  stakeholders  and  policy  makers  about  the  functioning  of  the 
food  supply  chain.  The  market  monitoring  exercise  conducted  over  the  past  two  years  has 
shown  that  these  concerns  are  justified.  The  lack  of  market  transparency,  inequalities  in 
bargaining power and anti-competitive practices have led to market distortions with negative 
effects on the competitiveness of the food supply chain as a whole. Similarly, price rigidities 
have negatively affected the adjustment capacity and innovativeness of all the industries along 
the supply chain. 

Looking  into  the  future,  it  should  not  come  as  a  great  surprise  that  agricultural  commodity 
prices may increase again rapidly as the world climbs out of recession. If the identified market 
malfunctioning is not addressed soon, there is a risk that consumer food prices will increase in 
turn disproportionately, leading to a drop in purchasing power and consumer confidence, and 
possibly  slowing  the  emerging  recovery  of  the  European  economy.  It  is  therefore  of  the 
utmost  importance  to  exert  constant  vigilance  in  order  to  identify  and  remove  market 
distortions that have contributed to the observed asymmetries in price transmission along the 
food supply chain. 

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