Slovakia has a history of legislation focused on regulating business to business relationships in the food retail sector. Since 2004, four different acts have attempted to curb certain practices of food retailers and their suppliers in order to strike a fair balance in their business relationships. For that purpose, the last of these four acts (which has been in force since 2013) blacklisted more than 30 unfair practices. As such, they were prohibited from being included in agreements entered into between food retailers and their suppliers.
Slovak authorities, smaller suppliers, and those in the political sphere, nevertheless criticised this regulation as being too benevolent and its enforcement as too weak. As a result, a stricter act on unfair trade practices came into force as on May 2019 (the "UTP Act")1.
Main changes introduced by the new UTP Act
In essence, the UTP Act is in line with the philosophy of the former legislation, i.e. safeguarding a fair balance in business to business relationships in the food retail sector. Nevertheless, it places slightly more obligations and limitations on food retailers. This allows the conclusion that food suppliers are generally considered the weaker party to such business relationships. The UTP Act again includes a list of practices which are considered unfair and thus are prohibited (and sanctionable by a fine up to EUR 500,000). What is interesting is that, in comparison to similar legislation in the region, the list applies to every food retailer, irrespective of its turnover or market share2.
This list of prohibited unfair trade practices is now more detailed and was extended by more than 10 new unfair practices, such as:
- purchasing foodstuff from the supplier for a lower purchase price than the economically justifiable costs of the supplier, implying that the food retailer will not be able to sell of the products below the production cost of the supplier;
- applying a logistics bonus exceeding 3 % of the annual revenue achieved by a supplier and to be paid by a supplier to the food retailer (in addition to an already existing 3 % bonus limit for marketing and similar services provided by the food retailer);
- reducing the purchase price with the exception of a reduction applicable to the foodstuffs sold during a sales promotion of the food retailer;
- setting a due date for invoices exceeding 30 days from the date of delivery of the foodstuff (or 20 days from the delivery of an invoice).
In addition, the new UTP Act introduced a general clause under which practices other than those blacklisted might also be considered as unfair, if they deviate from the usual fair behaviour in business to business relationships.
Another major change is of a procedural nature. In the future, a fine imposed by an authority for non-compliance (not only with the UTP Act, but also for non-compliance with other acts, for instance for a breach on rules of hygiene on the business premises) will be due even if the sanctioned person files an appeal against such fine. The UTP Act now also enables anonymous complaints concerning the breach of its provisions (whistle-blowing).
However, the most controversial change is that the UTP Act requires food retailers when promoting or marketing agricultural products and foodstuffs through a leaflet, to ensure that at least 50 % of such promoted products were produced in Slovakia. This provision was criticised also with respect to potential non-compliance with EU law.
Potential impact on the retail market
The UTP Act has been in force since 1 May 2019, however, contractual relationships between food retailers and their suppliers must be amended in order to comply with the UTP Act by the end of September 2019.
The actual impact on the retail market is hard to predict since comparable legislation was in place even before. Nevertheless, since the UTP Act provides for more detailed regulation, new unfair practices, a general clause and increased inspection powers of the competent authority, it is likely that the competent authority will focus on inspections in relation to the implementation of the UTP Act. It will be interesting to see what further impact the new Directive (EU) 2019/633 on unfair trading practices in business-to-business relationships in the agricultural and food supply chain, which must be implemented by 1 May 2021, will have on the UTP Act.
Increased focus on food retailers
The UTP Act is part of the growing legislative focus of the Slovak government on the food retail sector, mainly on food retail chains (the majority of which are owned by foreign shareholders), due to alleged abuse of their strong market positions. Measures introduced against the food retailers in the last few years include for instance the increase of the potential maximum fines or substantially increased inspection activities. There is even an initiative on a potential regulation of food retailers’ margins.
However, the most controversial measure taken was in the form of the introduction of a special tax to be paid by food retailers as of 1 January 2019, which in the end was to be paid only by the major retail chains (due to an exception for small retailers). This measure was subject to widespread criticism also due to potential non-compliance with the EU rules on state aid, especially giving smaller retailers selective advantage over their competitors. In April 2019, the European Commission has opened in-depth investigations into this tax and issued an injunction against it. However, the Slovak government has meanwhile abolished this measure.3