Unfair trade practices in the food retail sector in Hungary: Will the new UTP Directive bring substantial changes?

2020 | roadmap

The legislation on unfair trade practices is a classic interplay between competition law and trade law. The close and complementary relationship between trade and competition policies can be derived from the similarity of their objectives: fostering fair and effective competition while at the same time protecting vulnerable market players from abusive conduct by those with stronger negotiating power.

On 25 April 2019, Directive (EU) 2019/633 was introduced in the European Union on unfair trading practices in business-to-business relationships in the agricultural and food supply chain ("UTP Directive"). The UTP Directive aims to reduce unfair trading practices (UTPs) in the food supply chain by introducing a minimum common standard of protection across the EU.

The idea behind the UTP Directive is not novel. The directive itself notes that most Member States already have specific national rules that protect suppliers against unfair trading practices in business-to-business relationships in the agricultural and food supply chain. In Hungary, such national rules exist in the form of a separate act effective since 1 January 2010 (Act XCV of 2009 – "UTP Act").

As Hungary has an almost decade-long, well-established practice on UTPs in the agricultural and food supply chain, the most important question facing the main market players is whether the UTP Directive brings any changes to the national rules. The main differences are as follows:

Personal scope of the UTP Directive vs. the UTP Act
The UTP Directive follows a dynamic approach and excludes from protection the largest suppliers (whose yearly turnover exceeds EUR 350m) and does not bind the smallest retailers (whose yearly turnover does not exceed EUR 20m).

On the other hand, the UTP Act – like its recent Slovak equivalent1 – covers all food retailers and suppliers irrespective of turnover.

Prohibited practices
The UTP Directive introduces a "black list" for trade practices which are per se prohibited, and a "grey list" from which the parties can deter if they agreed on it beforehand in a clear and comprehensive manner.

The UTP Act does not distinguish between black-listed and grey-listed conducts; all conducts included in the act are per se prohibited. Most of the prohibitions listed in the UTP Directive already have a Hungarian equivalent in the UTP Act, but certain amendments will be required for full compliance, which we highlight in the following table.

UTP Directive

UTP Act

Necessary amendment

Article 3 b) – cancelling order on perishable products on unreasonably short notice; notice of less than 30 days shall always be considered short notice

Section 3 (2) m) – the trader alters its order on unreasonably short notice

The UTP Act must specify that a notice of less than 30 days will always be considered short notice.

Article 3 e) – supplier to pay for the deterioration or loss, or both, of agricultural and food products that occurs on the buyer's premises or after ownership has been transferred to the buyer

Section 3 (2) b) – stipulating a buy-back or take-back obligation upon the supplier if close-to-expiry products remain on stock at the trader and they expire

The UTP Directive provides for much broader protection. The UTP Act will be reworded in this respect in line with the Directive.

Article 3 f) – the buyer refuses to confirm the terms of a supply agreement in writing

Section 3 (2) l) – applying a contractual provision which has not been put in writing within three days, despite the supplier's explicit request

The UTP Act must make clear that refusing to put the terms of a supply agreement in writing, despite the request of the supplier, is unfair in itself, i.e. it is not required to actually apply a provision that has not been put in writing.

Article 3 h) – the buyer punishes the supplier if the supplier exercises its contractual or legal rights

n/a

This explicit prohibition must be incorporated in the UTP Act.

Article 3 i) – asking compensation from the supplier for costs of examining consumer complaints related to the supplier's products

n/a

This explicit prohibition must be incorporated in the UTP Act.

Other than the above, the UTP Act is even stricter than the UTP Directive in the sense that it contains prohibitions which are not even mentioned by the UTP Directive. These special national prohibitions include e.g. prohibition of sales below cost, prohibition of applying discriminatory retail prices based on the country of origin of essentially the same products, etc.

Takeaway
The UTP Directive is an appreciable step towards better protection of those suppliers of agricultural and food products who are highly exposed to weather conditions and other objective factors affecting their productivity and efficiency, while at the same time a stable supply of agricultural and food products is a common interest.
However, as is evident from the above, implementing the UTP Directive in Hungary will not bring substantial changes to the status quo. Most of the unfair practices listed by the UTP Directive are also explicitly prohibited in the UTP Act or can be derived from the current text, although minor twists and tweaks can be expected for full compliance.

1https://www.schoenherr.eu/publications/publication-detail/new-law-on-unfair-trade-practices-in-the-food-retail-sector/