New law regulates commercial dealings between suppliers and comparatively larger buyers of food and agricultural products.
Germany passed a new law, Agrarorganisationen-und-Lieferketten-Gesetz (“AgrarOLkG”), the Agricultural Organizations and Supply Chain Act, that aims to correct perceived imbalances in bargaining power between suppliers and buyers of agricultural and food products. The Act implements the European Union’s Unfair Trading Practices Directive (“UTP”) (2019/633), which means that buyers of agricultural and food products in the EU need to look out for similar rules in other EU countries as well.
The AgrarOLkG requires covered buyers to adhere to strict obligations in their commercial dealings with smaller suppliers, covering issues that previously were the subject of private contracts between parties. For example, under the AgrarOLkG, buyers cannot:
- Pay beyond certain deadlines (30 or 60 days, depending on the product);
- Return unsold products without certain compensation;
- Cancel orders on short notice;
- Require the supplier to share in the costs of storing delivered products or other costs that arise through no fault of the supplier;
- Have unilateral authority to amend sales contracts with respect to delivery, quality, payment terms, prices, storage, and certain other terms;
- Retaliate against a supplier for, among other things, asserting its legal or contractual rights;
- Refuse to confirm supply agreements in writing; or
- Disclose the supplier’s trade secrets.
The AgrarOLkG also prohibits other practices, such as charging stocking or marketing fees, unless spelled out in the agreement between the parties.
The AgrarOLkG, which went into effect on June 9, 2021, applies to buyers with total revenues of €2 million or more if they source food products from smaller suppliers, as measured by comparative revenue. The AgrarOLkG protection applies to suppliers with revenues of up to €350 million, and in some cases of up to €4 billion, provided the supplier sells to comparatively larger buyers. When calculating revenue, any type of revenue is relevant, not just revenue received from food products. Therefore, the AgrarOLkG reaches beyond the food and agricultural industry to any company that buys food products for commercial purposes, including any company (such as banks or industrial companies) running a cafeteria, for example.
The sanctions for violations are severe. The Bundesanstalt für Landwirtschaft und Ernährung (“BLE”), the Federal Office for Agriculture and Food, may issue fines of up to €750,000 for each violation. Companies in the food and agricultural industry should evaluate their existing supply agreements and update their contracting practices to comply with the AgrarOLkG, and evaluate how other Member States plan to implement the UTP Directive. The UTP Directive provides minimum standards that Member States must adopt. However, as the AgrarOLkG demonstrates, Member States may adopt more onerous requirements than the UTP Directive requires.