Mr. Pat McCormack:

I thank the Chairman and his fellow members of the committee for the invitation to contribute on the unfair trading practices. I will briefly outline the issues as the Irish Creamery Milk Suppliers Association, ICMSA, sees them. In April, the European Commission and the Commissioner unveiled a draft directive which seeks to ban the most damaging unfair trading practices, namely late payments for perishable food products, last minute order cancellations, unilateral or retroactive changes to contracts, and methods which force the supplier to pay for the wasted products or waste food.

The ICMSA has always believed that a properly functioning food supply chain in the EU is central to ensuring that EU farmers and EU farm families receive a fair share of the final consumer price and an income comparable with that of other sectors. Farmers have consistently lost out. The figures stack up. In 1983 there were 66,000 dairy farmers; today there are less than 18,000. This is due to the concentration of market power and an unequal bargaining position among the various parties along the food supply chain. With the continuing growth and concentration of firms at the farm input stage, in food processing and in food retailing, it has swung even more to the detriment of the family farm in recent times.

The relatively vulnerable position of farmers in the food chain invariably means that we bear a disproportionate share of the risks within the food chain. The key to improving margins for farmers is to bring about a properly functioning EU food supply chain at processor and at retail level. This would mean that farmers would receive a return that covers their cost of production and leaves a reasonable income for the farm family.

There is considerable agreement, across the political spectrum and in virtually every member state, that the EU food market is not operating efficiently or fairly and that farmers and consumers are both losing out. The proper functioning of the food chain in the EU is central to the favourable development of the market income of EU farmers. Addressing unfair trading practices in the food sector is not an easy task and is likely to be an ongoing concern particularly due to the likelihood of increased volatility in world agricultural markets - Brexit is coming around the corner, for example - and increased emphasis on food security. The ICMSA particularly welcomes the acknowledgement in the draft directive that "When occurring, UTPs can put operators' profits and margins under pressure, which can result in a misallocation of resources and even drive otherwise viable and competitive players out of business."

The ICMSA supports this logical conclusion, that EU level measures are required. Certainly from an Irish perspective, given that 85% of our dairy produce is exported, it is very necessary that measures be enacted at the EU level. Clearly, Ireland has a major interest in the proper and transparent functioning of EU agricultural markets as a result and the ICMSA believes this is a step forward. Indeed, we recently submitted a submission focusing on market transparency which is a key ingredient to go with unfair trading practices.

The Commission’s proposals to tackle unfair trading practices are a step in the right direction to ensure fair market prices for farmers and to address the current power imbalances. Regulatory issues can only be effectively addressed at EU level given that many, if not most, of the major food retailing and processing companies operate in more than one member state. No individual member state can effectively address this problem by national legislation or regulations, therefore EU regulation and enforcement is required.

Specifically on the directive objective for unfair trading practices, the EU Commission has stated in previous communications on tackling unfair trading practices in the business-to-business food supply chain that increased concentration and vertical integration of market participants across the EU have led to structural changes in the food supply chain. That is very evident. The EU Commission rightly concludes that, while differences in bargaining power are common and legitimate commercial relationships, it is the abuse of such differences that lead to unfair trading practices. The four practices as outlined should lead to more equality in the supply chain if implemented correctly.

An unfair trading practice that has gained much notoriety within agricultural sectors is the use of products such as milk or vegetables as loss leaders in order for retailers to gain market share. This practice must be outlawed and legislated for as it strikes at the core of agricultural products and undermines the viability of family farms. We believe that omitting below-cost-selling would be an error of such magnitude that it would effectively undermine the whole drive to reform and make more fair the supply chain from farmer to producer to retailer. Unfair trading practices are a win-win for retailers. They do not carry the loss for the below-cost food because they just drop the price back to the food producers or suppliers and, ultimately, back to the primary producer. They win as a result of increased sales of other items arising from increased footfall. Below-cost selling is not just an unfair trading practice, it is a sheer abuse of dominant corporate retailer power.

Additionally, new laws relating to unfair trading practices in the food supply chain should not add an additional bureaucratic layer upon farmers. That is absolutely critical. The EU and Ireland should note and consider the French legislation called the field-to-fork review which is a response to the fact that farmers bear the brunt of price wars between retailers. Under the legislation, the French Government will be allowed to raise the threshold below which retailers cannot sell food products. The increase in the resale below-cost threshold caters for the inclusion of additional costs such as retailer logistics and staff. The Bill also empowers the Government to curb promotional offers. Retailers will not be allowed to discount products by more than 34% of their value or sell more than 25% of a product’s volume in a promotional offer.

The ICMSA feels that the proposals outlined in the draft document must be implemented with a view to improving overall market information in food production. The draft directive must broaden its remit to include more market transparency and monitoring and must ensure that these objectives are being measured and implemented. Effective monitoring of the food sector to ensure proper functioning and competition requires detailed data and information including the direct monitoring and publication of margins of large food companies and particular production lines.

We also have some concerns about some specific parts of the draft directive and, in this context, we feel it is right to outline these for the committee. The ICMSA has concerns for farmers and their product purchasers as contract law may supersede this directive and make some of the proposals null and void.

For example, the ICMSA has concerns regarding Article 3 and the payment within 30 days or one month. Our members feel that they are disadvantaged under this proposal and believe that the timescale should be shortened to 20 days at a maximum, or that the product purchasers should not be allowed to increase their payment intervals to 30 days.

In the context of a quality pricing system in the beef industry, we believe these articles can be used to contest the use of such a scheme when there is no difference in quality. The draft certainly needs to be scrutinised more closely in the context of returns. The return to the producer is widespread and obvious. There is a need to consider the position regarding processors, marketers and retailers.

I will leave it at that. We have also submitted a broader statement, which has been read before now.