As 2024 begins, large players in the CGFR sector active in Ireland will need to navigate a new and ambitious regulator governing the agricultural and food supply chain. The regulator will police new rules to mitigate power imbalances in the supply chain through fairness and transparency obligations.
Why a new set of rules?
The agri-food sector has long been recognized as vitally important for Ireland. In 2022, food and drink exports were worth over EUR 16 billion and employed circa 170,000 people. However, over the past few years, agri-food suppliers, such as farmers, have complained about pressure from large buyers. These concerns manifested at EU-level in the 2019 UPT Directive and oblige Member States to adopt 16 rules on unfair trading practices in business-to-business relationships in the agricultural and food supply chain.
At Irish level, the 2020 Programme for Government committed to establishing a new agri-food regulator. While temporary unfair trading rules were adopted in 2021, the Agricultural and Food Supply Chain Act (2023 Act) ultimately entered into force in December 2023 and establishes a new regulator: An Rialálaí Agraibhia (Regulator) and supplemented by new unfair trading regulations (2023 Regulations).
What does this change for players in the agri-food sector?
The most significant change under the 2023 Act is, ostensibly, the Regulator getting “teeth” to investigate, enforce and receive complaints about the 16 unfair trading practices in the 2023 Regulations. Key prohibitions include:
- Short notice cancellations (less than 30 days) for perishable products,
- Acts of commercial retaliation against suppliers seeking to invoke their legal rights,
- Buyers using suppliers’ trade secrets,
- Late payment for agri-goods,
- Refusal to confirm supply agreements in writing, and
- Unilateral contract changes by the buyer.
The Minister of Agriculture, Food and the Marine stated that he has “no doubt that the establishment of the Regulator will protect our Agri-food suppliers, in particular, our farmers, fishers and small food businesses”. However, it is notable that the 2023 Regulations do not directly seek to regulate or define the meaning of a “fair price”.
More broadly, the Regulator will also have new powers to engage in wider market review and data analysis powers along the agri-food supply chain. Indeed, the 2023 Regulations introduce new requirements for buyers with more than EUR 50 million turnover to submit yearly compliance reports to the Regulator and appoint an internal liaison officer to act as a point of contact. As well as the new compliance reporting obligations for large buyers, the new rules compel all buyers and suppliers within scope of the 2023 Regulations to record a broad mix of financial and cost data including in respect of rebates, discounts and other payments associated with the supply of agri-food products, which must be provided to the Regulator on request. These powers, which were not required under the UTP Directive, reflect instead an ambitious effort to identify where harm and unfair trading practices are occurring across the Irish agri-food supply chain. It remains to be seen what actions the Regulator may take on foot of this data.
Who does this regime apply to?
The 2023 Regulations apply to relationships between buyers and suppliers for the sale or supply of agricultural and food products where:
- the buyer (e.g., meat plant or grocery retailer) has an annual turnover of greater than EUR 2 million,
- the supplier (e.g., farmer or other primary producer) has an annual turnover less than that of its buyer.
How do the new rules differ from the previous regimes in Ireland?
Ireland has an unusual history of regulating trading practices in the wider food sector – dating back to the first Groceries Order in 1956. Since then, several Irish Governments have intervened with legislation to tackle different perceived harms – including a below-cost selling prohibition in 1987 (later revoked in 2006).
Most recently, the Grocery Goods Undertakings Regulations 2016 applied to certain grocery goods retailers – but these rules now too have been revoked. The 2016 rules only applied to “grocery goods undertakings” (defined as retail or wholesale sellers of grocery goods). Now, the 2023 Regulations apply to “anything done in relation to agricultural and food products in the course of a business-to-business relationship in the agricultural and food supply chain”. This distinction brings a potentially far wider array of areas of the food supply chain into scope. Further, financial sanctions under the 2023 Act are higher than the 2016 Regulations. A person who commits an offence under the 2023 Act faces fines of up to €10,000,000, or 10% of their aggregate turnover in the relevant financial year.
What complications could the new regime create?
Defining fairness is difficult. The Chair of the Regulator has stated that it is not the role of the Regulator to “get involved in price making”. Instead, the 2023 Act and 2023 Regulations empower suppliers, such as farmers, to have better command of negotiations and processes around their agri-food supply business. Arguably, this may indirectly aid suppliers in getting a higher price from buyers for their products. At the same time, in May 2023 the Irish Government gave a “clear message” to food retailers that it expected grocery prices for consumers to fall. Attempting to accomplish these distinct objectives is likely to be both politically sensitive and complex for the Regulator.
Practically, it will be interesting to see whether the creation of an entirely new regulator will efficiently achieve the laudable fairness objectives set out in the new legislation (with attendant need to now fund, recruit staff, draft internal policies and refine practices). Resourcing may be an issue. Currently, Niamh Lenehan has been appointed as CEO of the Regulator, with former IFA President Joe Healy acting as Chair of a 7-person board. The Regulator is based in the Irish Government campus in Backweston, Co. Kildare. According to reports, the Regulator has an annual budget of EUR 2.5 million and approval to recruit 17 staff. Notably, the 2016 rules were enforced by the Competition and Consumer Protection Commission (CCPC) which has a larger staff and budget. The Irish Government consulted in 2019 on whether the CCPC (or another new office) was best placed to enforce the unfair trading rules. Ultimately, political considerations led to setting up a new standalone Regulator. The CCPC has flagged that the task for a new office to enforce unfair trading practices “should not be underestimated” and “will be challenging and will require a complex regulatory model”. Clearly, such challenges involve the Regulator gaining an appreciation and understanding of the various sourcing, procurement and supplier relationship processes that are in place for agri-food traders. The Regulator will need to understand the different systems used by traders to administer transactional activity and agri-food procurement activities.
What happens next?
Going forward, large agri-food buyers active in the Irish market should be aware of the potential enforcement risk when dealing with other businesses in the supply chain.
Thanks to Des Cooke for contributing.