I. In France, the Egalim 2 law introduces significant changes in the agrifood sector
On October 19, 2021, the French legislator adopted a new law intended to protect the remuneration of French farmers (âEqual 2“).
This very technical law introduces new regulatory and transparency measures, which affect the entire agrifood chain in France, from (I) its upstream part – i.e. the relations between agricultural producers and their direct buyers, for (I) its downstream part – i.e. the relationships between suppliers and distributors of food, and (iii) consumer information.
This bulletin aims to provide a brief overview of this new law and its impact on the agri-food sector.
I. The impact of Egalim 2 on trade negotiations upstream of the agri-food chain
Several provisions of Egalim 2 relate to the relationship between agricultural producers and their direct buyers.
Introduction of the obligation to conclude written and multiannual framework contracts
Egalim 2 imposes a new obligation on any agricultural producer who delivers goods on the French territory of conclude written and multiannual framework contracts with their direct buyers who will provide a frame of reference for the continuation of negotiations between the parties.
Producers must initiate these framework contracts including clauses relating to:
- the duration of the contract (at least three years);
- the price, the criteria and modalities of its determination of the relevant production costs in agriculture) and the modalities of its automatic revision.
Experimentation with a price variation control mechanism, also called a “price tunnel”
Egalim 2 provides for the trial (for a maximum period of five years) of a price tunnel where the parties (producers and their direct buyers) set minimum and maximum price limits to control price changes over time.
Establishment of the Agricultural Trade Dispute Resolution Committee
Egalim 2 sets up an “Agricultural Trade Dispute Resolution Committee” (“The committee“) to settle disputes relating to the conclusion or execution of such contracts, where mediation before the agricultural trade relations mediator has previously failed. In this regard, the Committee may issue precautionary measures.
The Committee will decide on the basis of the non-binding recommendations of the Mediator for Agricultural Trade Relations.
It will be composed of five members who are (i) former members of administrative or judicial jurisdictions, (ii) people with previous experience in trade relations, (iii) in the agricultural product manufacturing sector or (iv) ) in the agricultural products processing sector.
ii. The impact of Egalim 2 on downstream business negotiations in the agri-food chain
Egalim 2 also has a major impact on business relationships between food suppliers and distributors, including intermediaries.
Increase the transparency of general sales conditions
Egalim 2 introduces a new article of the Commercial Code (article L.441-1-1) which fixes a general principle of transparency which must govern the drafting of the general conditions of sale – the objective is to bring transparency on tariffs linked to raw materials.
To this end, the supplier must indicate, in the general conditions of sale, the proportion of agricultural raw materials contained in his product, both in volume and in price.
In the event of a breach of these rules, Egalim 2 provides for the possibility of a sanction, with a fixed ceiling of 375,000 â¬.
Introduction of mandatory provisions to be included in contracts
Egalim 2 specifies that the contracts concluded between the food suppliers concerned and their distributors must include:
- the methods used to determine the price derived from the cost of the raw material;
- the terms of the automatic revision of this price, linked to the evolution of agricultural prices;
- the duration of the contract.
Egalim 2 also prohibits price discrimination without compensation.
Modification of the price negotiation clause
Performance contracts concluded for a period of more than three months for the sale of agricultural and food products, and whose production prices are significantly affected by fluctuations in the prices of (i) raw materials and agricultural and food products, (ii) energy, (iii) transport, and (iv) materials used in the composition of packaging, must now include a price renegotiation clause.
This clause includes conditions and thresholds which, when reached, automatically trigger a renegotiation during the execution of the contract.
Establishment of a new framework contract
Egalim 2 sets up a new framework for contracts concluded between food suppliers and distributors linked to their branded products.
To this end, and as stated above, Egalim 2 provides for a automatic price revision clause depending on the variation in the cost of agricultural raw materials used in the composition of food products.
But the law also introduces several contractual requirements, in particular:
- Provide commitments on forecast volumes;
- Take into account innovation efforts requested by the distributor for the determination of the price;
- To define the minimum period of contractual notice and the methods of disposal of packaging and finished products in the event of termination of the contract,
- Write a additional charge clause occurring during the performance of the contract,
- Establishing, for the distributor and the manufacturer, a warning system and periodic information exchange in order to optimize supply conditions and limit the risk of disruption.
Introduction of new thresholds for lost sales
The sales framework system resulting from the first version of the Egalim law was once again adapted because the inflationary side effects observed could not be corrected.
In this regard, Egalim 2 raises the thresholds in practice for lost sales for spirits and specifies that an order can be taken by the Minister of Agriculture and Food to waive 10% increase in thresholds lost sales of certain fruits and vegetables.
iii. The impact of Egalim 2 on consumer information
Finally, Egalim 2 includes various provisions relating to consumer information, in particular on the origin of food products.
Testing a product display
It introduces, for a trial period of five years, a display (by marking or labeling or by any other appropriate process) on the products which offer the consumer information on producers’ remuneration of the agricultural products concerned.
This test applies to meat, milk and dairy products, as well as certain other agricultural products determined in more detail.
Introduction of obligations linked to the origin of foodstuffs
On the indication of the origin of foodstuffs, Egalim 2:
- Introduces a new category of deceptive marketing practices that punishes displaying a French flag, a map of France or any other symbol representative of France on food packaging whose primary ingredients are not of French origin.
- Recalls the European regulations applicable in this sector: When the country of origin or the place of provenance of the foodstuff is indicated and it is not the country of origin or the place of provenance of its main ingredient, the country of origin or place of provenance of the main ingredient is also indicated – or is only indicated as being different from that of the food.
- Applies the obligation to display the origin of meat to âobscure kitchensâ – establishments offering take-out meals only.
In conclusion, we can say that the purpose of Egalim 2 is clearly shared by all. In practice, however, it will be difficult for economic operators to apply its highly technical and complex provisions – subject to various interpretations – in such a short period of time.
Finally, the provisions of the Egalim 2 law will have to be incorporated soon. However, it is important to be vigilant insofar as the timetable for the entry into force of these provisions is as follows:
II. In the European Union, the vertical block exemption regulation will be significantly amended by the Commission
Recently, the European Commission decided to review its regulation n Â° 330/2010 on vertical agreements and concerted practices.
On July 9, 2021, the Commission published a draft revised Block Exemption Regulation, also known as the âRevised VBERâ.
This draft regulation does not include any specific provision for the agri-food sector. However, certain modifications of the general provisions may have important consequences for this industry in Europe.
In this regard, two major aspects are particularly relevant:
Changing the rules for unconditional restrictions
Regarding the exclusive distribution, the revised VBER introduces the possibility of providing “Shared exclusivity” according to which a supplier can reserve a territory or customers to several distributors, instead of one of them.
When suppliers and distributors enter into a distribution agreement with territory / customer restrictions, the revised VBER provides that suppliers can force their distributors to pass these restrictions on to their co-contractors.
Finally, the revised VBER allows a supplier operating multiple distribution systems, in multiple territories, to prevent a buyer in a territory not covered by these systems from actively or passively selling to unauthorized distributors in a territory covered by the systems. . To this end, the revised VBER offers enhanced protection for selective distribution systems.
With regard to selective distribution, the revised VBER makes it possible to restrict the active sales of selective distributors or their customers to an exclusive territory or to a group of customers.
In addition, a supplier now has the option of prohibiting the customers of a selective distributor from making active or passive sales to unauthorized distributors located in the selective distribution territory.
Amendment of the dual distribution exemption
Like the current version of the applicable regulation, the revised VBER provides that its exemption does not apply to vertical agreements concluded between competing companies, except in the case of dual distribution agreements.
As the number of dual distribution agreements has increased considerably, the revised VBER intends to limit its exemption to vertical agreements concluded between competitors in a situation of dual distribution when the combined market shares of the parties on the retail market do not exceed 10%.