Competition Authority presents Final Report on the commercial relations between Suppliers and Large-Scale Food Distributors

​Earlier today, in a joint parliamentary hearing of the Committee on Economic Affairs, Innovation and Energy and the Committee on Agriculture, Rural Development and Fisheries (Comissão de Assuntos Económicos, Inovação e Energia and Comissão de Agricultura, Desenvolvimento Rural e Pescas), the Competition Authority (CA) presented the Final Report on the commercial relations between suppliers and large-scale food distributors.

This analysis arises from a CA decision under its powers of supervision and from statements by different operators in the sector regarding an alleged negotiating imbalance between the parties.

It aims to provide as complete a description as possible of the markets for the production, supply and large-scale distribution of food. It required the collection and processing of a vast array of information – requested from around 50 bodies – on nine large retail groups (LRGs) operating in Portugal and a representative sample of the goods most commonly consumed, that is, “general non-durable consumer products”.

The CA identified four areas in which the imbalance in negotiations between distributors and suppliers, in general to the disadvantage of the suppliers, seems to be most striking: (i) the unilateral imposition of conditions (i.e. the negotiation of standard contracts); (ii) discounts and other benefits in return; (iii) penalties; and (iv) payment deadlines.

On the basis of the analysis carried out and the relevant Portuguese and European legal framework, the CA has put forward a set of Recommendations aimed at promoting competition, achieving balance and transparency between the economic agents and assuring more effective intervention by the bodies responsible for the matter.

The Recommendations should be duly positioned within the debate on agri-food and large-scale distribution issues, which has been taking place at the European Union level, in particular in relation to the work of the European Council, European Commission and European Parliament.

The first Recommendation is especially directed towards the Confederation of Portuguese Industry (CIP), the Association of Distribution Enterprises (APED) and Centromarca, as the most representative associations of the parties involved. It relates to the need to reactivate the 1997 CIP/APED Code of Good Practice or adopt a new Code of Conduct.

The purpose of this Recommendation is to promote competition culture through an effective process of self-regulation that helps to improve the contractual and/or extra-contractual conditions governing the commercial relations between producers and distributors. Among other aspects, this Code should include a mechanism for conflict resolution, the possible creation of an “ombudsman” and principles to be observed in standard contracts, the exclusion of retroactive penalties, shelf space management and the definition of payment periods.

The second Recommendation, which is directed at the government, raises the opportunity for the possible regulation of the commercial practices that have been presented by the economic agents as a source of problems in their contractual relationships – practices that, furthermore, cannot be covered by the competition legislation or legal framework on restrictive trade practices or, again, be resolved through a code of conduct.

The third Recommendation, which is also addressed to the government, relates to the need to bolster the collection, processing and dissemination of statistical information on prices throughout the food supply chain, in combination with the corresponding statistical information on quantities.

In addition to the latter, the CA deems that it should also formulate the following recommendations: (i) renewed importance should be given to inspection relating to, and the application of, the restrictive trade practice legislation and the new legislation on payment periods; (ii) the government should consider additional measures to promote the creation of small and medium-sized commercial units in local markets; (iii) an independent consultant, financed by the most representative associations of the distributors and suppliers, should analyse the impact of “look-alike” and “copycat” retail products on social well-being; (iv) trading practices related to these products should be the subject of particular monitoring and supervision; (v) the government should analyse the possibility of giving priority to transposing to Portuguese law the next Directive of the European Parliament and the Commission on payment periods for commercial transactions (as soon as the proposal at present under discussion among the European decision-makers is approved); and (vi), in keeping with the need for national solutions to fit well within the European context, the public entities responsible for the field should remain actively focused on the European Union institutions concerned with matters relating to large-scale distribution and the agri-food chain.

From the analysis carried out, and in keeping with similar analyses in other European Union countries, it was ascertained that the concerns identified by the Competition Authority do not, strictly speaking, fall within the prohibitions of the Competition Law. In effect, it does not appear that the object or effect of the clauses in the contracts analysed is to prevent, distort or restrict competition to an appreciable degree (Article 4). Furthermore, there is no evidence of the abuse of a dominant position, considering that no LRG holds a dominant position in the legal and technical sense of the term (Article 6). Similarly, though there may be suppliers whose commercial relations are with just one LRG, it is not evident that there are no alternatives that are equivalent to them. Thus, evidence of the abuse of the suppliers’ economic dependence on the LRGs was not forthcoming (Article 7).

However, some of the issues analysed may fall within the scope of the restrictive trade practices legislation, for which they should continue to merit strict supervision.
The report is available at the Competition Authority’s site, www.concorrencia.pt.