At the end of 2021, the Act on Combating Unfair Trading Practices in the Agricultural and Food Supply Chain entered into force, which transposed into Estonian law Directive (EU) 2019/633 of the European Parliament and of the Council of 17 April 2019 on unfair trading practices in business-to-business relationships in the agricultural and food supply chain. In September 2022, the 12-month transitional period for the application of the law expired, which meant that all contracts for the sale of agricultural and food products had to be in accordance with the law from that time on.
There are 16 unfair practices listed in the law: nine of which are always prohibited (§§ 4 and 5) and seven of which are prohibited if the parties have not agreed in clear and unambiguous terms of supply in a form reproducible in writing (§ 6).
For example, it is prohibited always and in any circumstances to pay for agricultural and food products later than within 30 days or to require the seller to make a payment not related to the sale of the seller’s agricultural and food product. In the absence of such an agreement between the buyer and seller, the buyer is prohibited, for example, from returning unsold agricultural and food products to the seller without paying for those unsold products or without paying for the disposal of those products, or requiring the seller to pay for the promotion, advertising and marketing by the buyer of agricultural and food products.
In order to find out what products are considered agricultural and food products within the meaning of the Act on Combating Unfair Trading Practices in the Agricultural and Food Supply Chain, Annex I to the Treaty on the Functioning of the European Union (TFEU) should be consulted. In addition, agricultural and food products are products not listed in that Annex but processed for use as food using products listed in that Annex.
Last year, the Competition Authority commenced supervisory proceedings at its own initiative against a large retail chain. The authority has mainly processed requests for explanations regarding the interpretation of the law, which increased significantly shortly before the end of the transitional period. The majority wanted to know what constituted buying for own consumption and what did not. The interest in this topic stemmed from the fact that the Act on Combating Unfair Trading Practices in the Agricultural and Food Supply Chain does not apply to buyers who buy agricultural and food products for their own consumption. One example of buying for own consumption is when a legal person buys agricultural and food products to offer to its customers or employees (eg tea, coffee and candy at the premises of the company for consumption on site or as company gifts for partners). However, it is not considered buying for own consumption if, for instance, an animal keeper buys feed for the animals and later resells the animals or animal products. Resale of products, whether in raw or processed form, thus constitutes the dividing line by which buying for own consumption can be distinguished.
In addition, there were repeated requests for information on whether the Act on Combating Unfair Trading Practices in the Agricultural and Food Supply Chain also applies to food supplements and beverages. If the food supplement is intended for human consumption and it contains an ingredient listed in Annex I to TFEU, the Act on Combating Unfair Trading Practices in the Agricultural and Food Supply Chain applies to the food supplement. In such a case, the percentage of the ingredient in the end product is irrelevant. The same conditions also apply to beverages. Insofar as the legal definition of food does not specify that the food has to be in solid form, beverages also fall within this definition. The main condition is that the product is intended for human consumption. Therefore, a beverage that contains an ingredient listed in Annex I to TFEU is considered food within the scope of the Act on Combating Unfair Trading Practices in the Agricultural and Food Supply Chain.
As Estonia has transposed the Directive into national law on stricter terms – the calculation of annual turnover was abandoned, as was the distinction of perishable products, as a result of which a shorter 30-day payment period applies to all agricultural and food product groups – there have been a lot of questions about invoice factoring. Factoring is a transaction in which the outstanding sales invoices of buyers are transferred to a finance company that pays the seller the full amount of the invoice in return for a service fee. Factoring helps undertakings finance their activities, in other words, factoring is a way for sellers to finance their working capital.
Sellers have expressed concern that, compared to the 30-day payment period in Estonia, several other Member States have laid down longer payment periods of 60 days under the Directive. In light of the above, sellers operating in Estonia have been put under pressure because buyers outside of Estonia are not buying their products as much anymore as they are given longer payment deadlines in countries that introduced the 60-day payment period, which is something that Estonian sellers cannot offer. It has been pointed out that Estonian sellers have sustained losses of competitiveness as a result of the above and that solutions to this problem are needed.
Consequently, it has been asked whether an activity where the seller issues an invoice to the buyer with a 30-day payment period, which the seller then assigns to a factor who, as the new creditor, extends the initial 30-day payment period granted to the buyer by an additional 30–60 days so that the buyer can pay the invoice within a maximum of 90 days is prohibited within the meaning of subsection 1 of § 4 of the Act on Combating Unfair Trading Practices in the Agricultural and Food Supply Chain. The Act on Combating Unfair Trading Practices in the Agricultural and Food Supply Chain does not preclude invoice factoring, however, it is important to ensure that the use of different financing mechanisms does not extend the payment periods laid down in the Act on Combating Unfair Trading Practices in the Agricultural and Food Supply Chain.