Main impact of the Oct. 30th, 2018 French Food and Farming Law (“Egalim”) on commercial negotiations between business partners

In some distribution contracts, French law can apply even if it is not the law the contracting parties have explicitly agreed. This is the case when the law is considered to maintain the French public order. For example, the ministry of economy can bring actions against retailers under article L. 442-6 of the French commercial code when it considers that the terms of the agreement are unfair. Such measures of the Minister cannot be limited by a foreign law.

The reason for such provisions is that in the distribution market, there are indeed more producers than retailers (Carrefour, Leclerc, Intermarché, Casino, Système U, Cora, PPR, LVMH) which can create difficult or unfair relationships for producers with a low power of negotiation.

Retailers in a dominant position may use power in a market to drive its competitors out or prevent the entry of new players. The abuse of a dominant position can appear through predatory pricing for example. When the French market is involved, the French competition authority (Autorité de la concurrence)[1] will have jurisdiction to apply the French competition law.

The authority may order offenders who have implemented anticompetitive practices to cease the practice concerned or to modify their behaviour to comply with competition law. The French competition authority may issue interim measures based on the relevant  agreement[2]. The competition authority may also impose fines which, in theory, can represent up to ten percent (10%) of the company’s worldwide turnover.

The French government tried to regulate the distribution market by different laws, giving more or less power to the retailer depending of the political goals.

The recently passed law for a Fair Commercial Relationship in the Farming and Food Industry and for Healthy, Sustainable and Reachable Food for everybody[3] also called « Egalim » aims at giving more power to the farmer in their relationship with the retailers.

 

  1. Written distribution master agreement

Any agricultural product delivered in France must comply with article L. 631-24 of the Code rural et de la pêche maritime (CRPM) [4].  To be stronger in the negotiation, a group of producers or farmers[5] can be created to be the intermediary in the negotiation with the buyer, usually a grocery retailer. Such intermediary will negotiate prices and discounts for the members through a written master agreement including:

  • the price, the way how such price is determined and how it can be modified;
  • the quantity, the origin and the quality of the product
  • the terms of delivery
  • the terms of payment
  • the invoice rules and process
  • the duration and termination of the contract
  • force majeure

Non-compliance with this article can be punished by a fine of 2% of the yearly net turnover[6].

 

  1. Antidumping measures[7]

An antidumping law was established in France in 1996 to prevent the retailer from selling a product below the initial purchasing price. The government has now decided to rebalance the retailer’s margins by an increase by 10% of the antidumping threshold for food and pets’ food products. In other words, before the Egalim law, when the retailer bought a product for 1€ he had to sell it for 1€. Since the Egalim law, the same product must not be sold for less than 1.10€.

This measure will be on test for at least two (2) years as it can strongly increase the consumer price[8].

The French commercial code punishes trader who resell or announce the resale of goods at a price lower than its effective purchase price with a fine of 75,000 Euros. The fine can also be equivalent to half of the advertising expenses, should an advertisement, regardless of the medium, mention a price lower than the effective purchase price.

Indeed, in practice, this means that the retailer cannot make big margins and consequently increase the consumer price. However, the reason of this increase threshold is to allow the producer to sell at its production cost and reduce the pressure of the retailer’s power during the negotiation.

This shows the difficulties for the government to balance its economic and political goals. Indeed, we already demonstrate[9] that by pursuing political goals to increase the consumer purchasing power, the government legally gives more power to retailers in the negotiation. On the contrary, following the political goal to protect the producer or small independent seller, the final consumer price increases.

 

  1. Limitation of promotions, special offers and discounts

At least for two (2) years, for the food and pets’ foods product special offers cannot be higher than thirty four percent (34%) of the consumer price and cannot represent more than twenty five percent (25%) of the estimated turnover.

Those limitations do not apply for perishable foods held in stock for a short period. In this case, the advertisement of the discount will be limited to the specific store.

Furthermore, it is forbidden to use the word “free” for food product advertisement[10].

 

  1. Limitation of plant protection production selling

We can already say that the Egalim law seems to, step by step, impose the same restrictive rule for the plant protection (phytosanitaire) to the biocide[11].

Indeed, in both filds, discounts are forbidden. This means that now is the time for producers to increase their prices.

In the field of plant protection, it is not possible either to advertise to the consumer by giving away free products par example. The idea is clearly not to encourage the consumer to buy.

More specifically for the biocide, the negotiation is limited to the price of sale without discount for the retailer. It will however still be possible to modify the price by amendments to the contract. Indeed, we are still waiting for the list of biocides which will be concerned by the prohibition of discount and advertisement.

 

 

To conclude, we can say that this new law makes the commercial negotiation very sensitive for the concerned product and the food business in France. Throughout my legal practice as an independent lawyer as well as an inhouse advisor of a big French supplier in the area, I have gained experience dealing with all the variations of distribution contracts.

Please do not hesitate to contact me to be sure you are in compliance with the relevant French law .

[1] http://www.autoritedelaconcurrence.fr

[2] C. Com., L.462-10

[3] L. n° 2018-938, oct.30th. 2018, JO Nov. 1st

[4]CRPM, L. 631-24 : https://www.legifrance.gouv.fr/ 1

[5]  Organisation de producteurs : OP

Association d’organisations de producteurs : AOP

[6]CRPM, L. 631-25 : https://www.legifrance.gouv.fr/

[7] C.com., L. 442-2

[8] Ordonnance n° 2018-1128 du 12 décembre 2018 relative au relèvement du seuil de revente à perte et à l’encadrement des promotions pour les denrées et certains produits alimentaires

[9] A. Pagot, Grande distribution, commerce traditionnel : quelle concurrence ? 26 juill. 2017, www.amazon.fr

[10] C.com., L. 441-2

[11] C.env., L.522-5-2 et suivant.

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