A bill on significant market power in the sale of agricultural and food products that would substantially alter current legislation has recently entered the legislative process.
The bill implements the Directive (EU) 2019/633 on unfair trading practices in business-to-business relationships in the agricultural and food supply chain (the “Directive”).
The bill significantly amends the current laws preventing abuse of significant market power on the buy side in the food industry for the purpose of its resale in the Czech Republic or the provision of services related to the sale of food. Existing agreements must be amended to comply with the new regulation within 12 months from the entry into effect of the bill.
The regulation applies to customers with annual turnover exceeding EUR 2 million. In addition to customer annual turnover, supplier annual turnover is also of decisive importance for determining the scope of the Directive in relation to a specific business relationship. The customer has significant market power if:
|Customer’s annual turnover is||and Supplier’s annual turnover is|
|min EUR 2 million||max EUR 2 million|
|min EUR 10 million||EUR 2 million - EUR 10 million|
|min EUR 50 million||EUR 10 million - EUR 50 million|
|min EUR 150 million||EUR 50 million - EUR 150 million|
|min EUR 350 million||EUR 150 million - EUR 350 million|
|Public body||max EUR 350 million
If the customer has significant market power, agreements with the supplier must fulfil certain requirements.
In particular, the agreement must be in writing and must be concluded (i) either before the start of the supply or processing of agricultural and food products or (ii) before the receipt or provision of services.
The agreement must include:
The bill sets out an exhaustive list of prohibited trading practices and divides them into two categories – prohibited and conditionally prohibited practices.
Prohibited trading practices, such as:
Conditionally prohibited practices, i.e., practices that are prohibited unless they have been previously agreed in clear and unambiguous terms between the supplier and the customer with significant market power:
The bill also stipulates a list of offences. In particular, a customer with significant market power commits an offence by (i) using any of the unfair trading practices, (ii) failing to comply with an obligation agreed with the relevant authority, or (iii) failing to provide the relevant authority with complete, correct and truthful documents or information, including books of account, other business records or other documentation that may be of relevance for clarifying the subject matter of the proceedings.
The maximum fine is CZK 10,000,000 or 10% of the customer’s net turnover. The fine may be reduced by 20% provided that the accused entity admitted to having committed an offence and the relevant authority considers such penalty to be sufficient.
The bill is at the beginning of the legislative process and may undergo significant changes. Currently, it should come into effect on the first day of the second month following its publication. The transitional period for agreements concluded before the date of entry into effect of the Act that conflict with the new statutory requirements is 12 months. After this period, the contracting parties are obliged to amend the existing agreements to comply with the new regulation.
For more information, please contact Vojtěch Chloupek and Jiří Švejda.