The legislative process for the law on measures to improve the functioning of the food supply chain (the “LFC”) came to an end yesterday following the final voting and approval of Congress. This law will be published in the Spanish Official Gazette in the next few days although it will not enter into force until five months after its publication.
1. Purposes and goals of the LFC
Article 1 of the LFC states that its aim is to establish measures to improve the functioning of the food supply chain in order to achieve the goals set out in article 3. These goals are broad and ambitious, especially those set out in paragraphs b and d, which read as follows:
b) Improve the functioning and structuring of the food supply chain to benefit both consumers and operators, while ensuring a sustainable distribution of added value along the sectors.
d) Achieve greater balance and transparency in trade relations between the different operators by improving access to information and the traceability of the food supply chain, and regulating trade practices and promoting codes of good commercial practices among operators.
The purpose of the LFC is to correct some of the issues affecting this sector. In particular, the legislator understands that one of the most serious problems is that the bargaining power of the various operators in the food supply chain is asymmetric. According to the legislator, this situation may result in a lack of transparency on price formation and in unfair trade practices.
Although there are exceptions, the general scope of the LFC encompasses all business relationships between operators in the food supply chain, from food production to its distribution.
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2. Formal requirements
Amongst the most important changes introduced by the LFC are the formal requirements that must be met by the different operators in the food supply chain in order to document their commercial relationships. These formal requirements are that:
- contracts relating to foodstuffs must be formalised in writing. The failure to comply with this requirement does not affect the validity of the contract but it is considered an infringement of the LFC that may trigger fines;
- contracts relating to foodstuffs must have a minimum content, which includes contract pricing, and expressly establishing all payments, including applicable discounts, which must be fixed or variable amounts. Not having this minimum content is also considered an infringement of the LFC that may trigger fines;
- certain obligations must be complied with to carry out electronic tenders, including the obligation to announce in advance certain conditions applicable to the tenders; and
- documentation regarding contracts relating to foodstuffs and the conducting of electronic tenders must be kept for two years.
These obligations are only applicable when business transactions between operators exceed EUR 2,500 and one of the operators is in any of the following situations, considered by the legislator as situations of imbalance:
a) one of the operators is an SME and the other is not;
b) in the case of marketing unprocessed agricultural products, perishable and food supplies, one of the operators is an agricultural, livestock, fisheries or forestry primary producer or a group of them, and the other is not; or
c) one of the operators is economically dependent on the other. An operator is considered to be dependent on the other when the total turnover of the first, for a particular product sold to the other, represents at least 30% of the turnover for that product in the previous year.
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3. Unfair commercial practices
The LFC expressly prohibits certain unfair commercial practices, specifically: (i) unilateral changes to contract conditions; (ii) the demand for unforeseen payments; (iii) the requirement to supply sensitive commercial information when it is not justified and foreseen in the written contract, and; (iv) the mismanagement of own brand food products that harm third-party brands. These practices are already prohibited in the Unfair Competition Law. Finally, the final wording of the law does not include sales at a loss and the failure to comply with the terms of payment as unfair commercial practices as requested by the producer associations.
4. Codes of good practice
The LFC also aims to encourage self-regulation in the sector through the approval of the Code of Good Commercial Practices for Food Supply Chain Contracts (Código de Buenas Prácticas Mercantiles en la Contratación Alimentaria). The purpose of this Code is to establish the principles on which the commercial relationships between operators should be based. Although adherence to this Code is voluntary, the LFC establishes that it will be taken into account in the regulations governing grants and subsidies related to the food supply chain and promoted by the Ministry of Agriculture, Food and Environment.
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5. Infringements and sanctions
The infringements regulated in the LFC are deemed minor, serious and very serious. Minor infringements include the failure to comply with formal obligations, engaging in unfair practices or failing to provide information requested by the competent authority. The reoccurrence of two or more minor infringements within two years and the failure to comply with the payment terms in commercial transactions that involve foodstuffs are considered serious infringements. Furthermore, the reoccurrence of two or more serious infringements within two years will qualify as a very serious infringement. A minor infringement will be sanctioned with a fine of up to EUR 3,000, a serious infringement will be sanctioned with a fine ranging between EUR 3,001 and 100,000, and a fine ranging between EUR 100,001 and 1,000,000 will be imposed for a very serious infringement.
6. Creation of the Information and Control Food Agency
Another important novelty that the LFC introduces is the creation of the Information and Control Food Agency (Agencia de Información y Control Alimentarios). This new agency will not only take over the functions of the Olive Oil Agency, but will also have broader powers such as ensuring compliance with the LFC. In order to achieve this, the agency may exercise, amongst others, inspection and monitoring powers, including accessing food supply chain operators’ installations and any document related to their activity. In addition, the new agency may initiate ex officio sanctioning proceedings or, where appropriate, submit a complaint before the National Markets and Competition Commission.
Health and Food Practice Area
For advice on this new law, please contact Teresa Paz-Ares (teresa.paz-ares@uria.com
/ (0034) 91 586 06 82) or Beatriz Cocina (beatriz.cocina@uria.com / (0034) 91 586 04 46).
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1. Purposes and goals of the LFC