New Provisions to the Food Market Act to enter into Force on 1 November 2021
Following the adoption of Directive on Unfair Trading Practices in the Food Chain 2019/633, new provisions will be introduced to the Finnish Food Market Act (1121/2018) as of the beginning of November. The purpose of the partial revision of the act is to bring it in line with the new directive on unfair trading practices in business-to-business relationships in the agricultural and food supply chain.
The new provisions introduce a prohibition of certain trading practices that apply to the sales of agricultural products and food supplies when the buyer’s turnover is higher than the seller’s turnover and exceeds EUR 2 million. The reform’s aim is to balance the relationship between the suppliers and the highly concentrated food industry and grocery trade.
Key changes to supply contracts
Under the new Food Market Act, the buyers will be prohibited from changing the contract terms unilaterally. These prohibited changes may concern e.g. the order volume and frequency, the method and place of the delivery, quality standards as well as payment terms. The buyer must confirm the terms of the agreement in writing if the supplier so requests. In addition to the prohibition of unilateral changes, the buyers will not be allowed to engage in any form of commercial retaliation, such as decreasing the order volumes or removing the products from the buyer’s selection when the suppliers rely on their contractual or statutory rights or collaborate with the authorities.
The suppliers’ position in relation to the buyers will also be strengthened by the rules on minimum time for order cancellations and the prohibition of payments that are not related to sales. The cancellation of orders for any agricultural products and food supplies will not be possible less than 30 days before the agreed delivery. The buyers will not be entitled to collect any payments not related to sales, such as marketing fees. Moreover, the buyers will be prohibited from requiring any payments for the deterioration of foods at their premises or for handling customer complaints. In the event that any payments are applied to certain services offered by the buyer, including warehousing, promotion and display of the products, these payments must be expressly agreed between the buyer and the supplier. Any unsold products may not be returned to the supplier without paying for them unless the parties have expressly agreed upon the return of the products. The buyer will also be liable for the costs of the possible destruction of any unsold products.
The new act also stipulates that payment periods may be up to a maximum of 30 days. However, the parties can agree on a longer 60-day payment period when non-perishable foods are concerned.
New enforcement powers to the Food Market Commissioner
The Food Market Commissioner’s enforcement powers will be enhanced by introducing a penalty payment that can be imposed on the buyers if they intentionally or negligently violate the provisions on contractual terms that have been set out in the Food market Act. The penalty payment can be up to 1% of the buyer’s turnover that has been generated by the products falling within the scope of the Food Market Act during the year in which the buyer was last involved in the violation. The penalty payment may be ordered by the Market Court on petition by the Commissioner.
The Food Market Commissioner’s enforcement powers will be further increased by introducing additional investigation powers and extending the Commissioner’s right to issue an admonition or public warning against the buyer in the event that the buyer has violated the provision on prohibited contractual terms. Henceforth, the Commissioner may also issue a ban on the continuation of the unfair trading practices.
The changes may call for the companies to bring the content of their agreements to conformity with the new provisions. The reform will broaden the scope of operators to whom the Food Market Act will be applied. However, as a significant number of companies that procure agricultural products and food supplies have a turnover of less than EUR 2 million, the amendments will not introduce changes to the majority of buyers.
The current supply contracts that have been entered into before 1 November 2021 must be updated to meet the new requirements by 1 May 2022.
Borenius’ lawyers are available to assist in addressing any questions you may have regarding the legislative amendments and bringing the agreements into conformity with the amendments.