The Romanian government has introduced the obligation for agricultural producers to trade cereals using a template contract to be adopted by the Ministry of Agriculture. This obligation applies to both sales on the Romanian market and to export sales. These changes have been formally introduced within Government emergency ordinance no. 12/2006 on measures regarding the market for cereals and processed cereal products by way of another Government emergency ordinance, no. 81/2017 (the “GEO”) (available here).
Background and rationale
According to the explanatory notes, the GEO is intended to harmonise market policy in Romania with the principles and mechanisms of the EU’s Common Agricultural Policy. Moreover, it aims to enable Romania to gather market information, including production data and prices of agricultural products, that it must report to the European Commission as per the provisions of the Commission Implementing Regulation No. 2017/1185, which sets out rules for the application of Regulations No. 1307/2013 and No. 1308/2013. The urgency in adopting the GEO is also explained through the following:
- the absence of rules introducing a written contract in the cereals sector, which is presented as leading to a lack of accountability of operators, difficulties for the tax authorities in carrying out reviews regarding the sale prices and payment of applicable taxes, and causing unfair commercial practices;
- a potential crisis on the cereals market because of the rise of production and decrease of prices, as well as due to the lack of economic predictability for farmers and economic operators involved;
- a distortion of agricultural markets taking into account the Russian embargo on agricultural products from the European Union; and
- the difficulties in estimating the support required by farmers when they are affected by market distortions or facing bankruptcy.
Main provisions of the GEO and its relation to EU law
According to the GEO, the sale of cereals by agricultural producers, either legal or natural persons, on the domestic market or to export markets will be conducted using a template contract. The model template contract will be adopted through an order of the Minister of Agriculture, following the proposal of the Inter-professional Organisation “Cereals and Derived Products from Romania”.
The order of the Minister of Agriculture will have to be adopted within 30 days following the entry into force of the GEO. Also, within 45 days after the entry into force of the GEO, all sales of cereals will be based on a written contract or the first purchasers will have to make a written offer for a contract covering the delivery of cereals by the producers. First purchasers are natural persons, registered natural persons (in Romanian: persoană fizică autorizată) or legal persons buying cereals from agricultural producers for consumption, processing or trading purposes.
Moreover, the GEO establishes that the sale contract or, if the case, the written offer for a contract must comply with the conditions and contain the elements included in Article 168(1) and 168(4)-(7) of Regulation No. 1308/2013 on the Common Organisation of Markets in agricultural products (“Regulation 1308/2013”).
The GEO also provides that sale contracts concluded according to Government emergency ordinance no. 12/2006 before the entry into force of the GEO will continue to be governed by the legal provisions in force at the time the contracts were entered into as regards their conclusion, amendment, interpretation, effects, execution and termination.
Article 168 of Regulation 1308/2013 enables Member States to introduce the compulsory use of a written contract in respect of agricultural products, except for the milk and sugar sectors, which are regulated at EU level. Such a written contract must be made in advance of the delivery of the agricultural products and include, in particular, clauses on price, quantity and quality of products, duration, payment periods and procedure, arrangements for collecting or delivering the products and rules applicable in the event of force majeure.
Article 168(6) also adds that all the elements of contracts for the delivery of agricultural products concluded by producers, collectors, processors or distributors will be freely negotiated between the parties. However, Member States are allowed to introduce a minimum duration (of at least 6 months) to such contracts, provided certain conditions are met.
At a first glance, the text of the GEO could raise concerns about its compliance with EU rules. First, the GEO provides that the template contract for trading cereals will apply to both sales in Romania and to export markets, whereas Article 168(1) of Regulation 1308/2013 only enables a Member State to introduce compulsory written contracts for deliveries “in its territory”. As such, apart from not being in line with Regulation 1308/2013, an obligation to conclude a template contract for intra-community sales could also be interpreted as hindering trade between Member States. Also, we hope that the secondary legislation referenced in the GEO will allow the parties to negotiate all contractual elements, as provided by Article 168(6) of Regulation 1308/2013.
The exact drafting of the template contract for trading cereals will be relevant to follow, taking into account the somehow strict rules laid down by Article 168 of Regulation 1308/2013 and by EU law in general. At the same time, it remains to be seen how the Romanian authorities will manage to achieve a fair balance between fostering the interests of Romanian cereal producers and the paramount obligation of not impairing the proper functioning of the EU internal market.