HomeIdeaUnfair commercial practices, Italy tries to exclude cooperatives and producer organizations

Unfair commercial practices, Italy tries to exclude cooperatives and producer organizations

The draft legislative decree aimed at implementing the EU directive on unfair commercial practices - dir. UE 2019/633, so-called UTPs (Unfair Trade Practices) - aims to exclude from its scope the sales of farmers to cooperatives and producer organizations (POs) of which they are members.

A dangerous deviation from EU rules, in a country where the cooperative world is the protagonist in the agricultural and food production chains. And the producers' organizations have an important role in turn, destined to grow also and precisely to strengthen the negotiating power of the producers so aggregated.

We intend to demonstrate how and to what extent the non-application of the directive in question can penalize cooperatives and cooperatives, through the analysis of the financial statements of a large Piedmontese cooperative, Compral Latte. #Clean shovels

1. Unfair commercial practices, the dir. EU 2019/633. Genesis

The dir. EU 2019/633, as we have seen, it represents the outcome of two decades of analysis on the serious imbalances of power that afflict the food supply chain. With negative effects on all sectors, from farm to fork, as well as on the competitiveness of their protagonists - however organized - and on the market itself. (1)

The asymmetry of contractual powers in fact, the impossibility of obtaining transparent and reliable data on market dynamics is added. Precisely because complex contractual relationships, often of unknown content, alter the fundamental values ​​of exchanges. (2) The dysfunction is therefore systemic. (3)

2) UTPs Directive, the ABC

The UTPs directive introduced a minimum, illustrative and non-exhaustive list of requirements and prohibitions to be applied to contracts for the supply of agricultural and foodstuffs. As well as the services offered by their buyers to suppliers. The ABC to follow.

A) Mandatory requirements

- obligation of written form of supply contracts, where requested by suppliers (with the right to reinforce their protection at national level, as Italy has done by prescribing the written form in all cases, in article 62 of law 27/2012 ),

- payment terms at 30 and 60 days, respectively, for perishable and non-perishable goods,

- sales values ​​not lower than the production costs of the goods. And consequent ban on selling below cost.

B) Mandatory prohibitions

- unilateral and retroactive changes to supply contracts,

- cancellation of orders for perishable goods at short notice (<30 days),

- payment for services not rendered,

- abuse of the supplier's confidential information by the buyer,

- responsibility of the supplier for the deterioration of products already sold and delivered,

- responsibility of the supplier in the management of complaints for facts not attributable to its negligence,

- prohibition of commercial retaliation and / or threats, if the supplier makes use of the rights guaranteed by the directive.

C) 'Gray' business practices

Some business practices are permitted only if subject to a clear and unambiguous direct agreement between the parties:

- returns (or payments) on unsold products,

- listing fee,

- other unsolicited services, promotional and advertising expenses,

- transfer to the supplier of advertising costs in addition to those specifically related to its products,

- payment for goods management following delivery (eg logistics).

3) Cooperatives and producer organizations, the hypotheses of derogation

The draft decree legislation aimed at transposing the UTPs directive (4) excludes from the notion of 'assignment contracts' - and thus, from the application of the rules -'the contributions of agricultural and food products by agricultural and fish entrepreneurs to cooperatives of which they are members and to producer organizations'(article 2.1.e).

The European legislator however, it has not provided for any derogation from these concerns. Indeed:

- 'the term' supplier 'may include a group of such agricultural producers or a group of such natural and legal persons, such as producer organizations, supplier organizations and associations of such organizations'(EU directive 2019/633, art. 2.1.4),

- payment terms (30 or 60 days) always apply, even in cooperatives, 'payments related to the sale of agricultural and food products'. With a single, limited derogation (which the Member States can in any case exclude, for the better protection of the cooperators) on theadditional payments made by a cooperative to its members'(EU directive 2019/633, considering 17, last paragraph).

4) Inadmissibility of exceptions

The aforementioned exceptions the application of the criteria precisely established by the UTPs directive - in addition to other inadmissible exceptions contained in the enabling law (4) - clearly reduce the levels of protection of agricultural entrepreneurs.

Such exceptions are not compatible with the provisions of EU directive 2019/633, where it is established that Member States can only strengthen - and not decrease - the protection of producers. Following the French example, to which he has already referred. (5)

POs such as agricultural consortia and cooperatives on the other hand, they are subject to the same pressures and market dynamics as other suppliers. (6) Beyond the mutual objectives contained in their statutes, which were distorted by the Consorzi Agrari d'Italia operation, CAI SpA alias Federconsortia 2. (7)

5) Risks for farmers, POs and cooperatives

The hypothesis to remove agricultural entrepreneurs from the protections provided for in the UTPs directive - when they confer their (and others') commodities in cooperatives, or sell them through POs - is not only contrary to EU law, but entails a serious penalization of farmers.

The most concrete risk for farmers - in addition to being exposed to below cost sales, to finance organizations whose management is not always brilliant (a euphemism) - is to suffer late payments that Directive (EU) 2019/633 instead categorically prohibits. From theory to practice, we refer to the example of the Compral Latte cooperative in Savigliano (CN).

6) Effects of unfair commercial practices on cooperatives. The Inalpi SpA - Compral Latte case

The 2020 budget analysis of Compral Latte, compared with the 2019 financial statements, does not show any problems of an income nature (EBITDA, ROI, ROE indices). On the other hand, the patrimonial and financial criticalities of the cooperative are highlighted, caused by the late payment of its only customer Inalpi SpA. A vicious circle that also involves the payment of milk supplies to cooperating farmers outside the legal terms.

6.1. Net financial position

Net debt of Compral Latte at 31.12.20, i.e. the algebraic difference between financial payables, cash and cash equivalents and financial (tax) receivables, increased by € 3,7 million (+ 73%, from € 5,1 million to € 8,8 million ) compared to 31.12.19. Short-term bank debt rose from € 7 million to 10,6 million (+ 51%).

The debt rate in relation to EBITDA - which can be understood as the number of years necessary for the company to repay the financial debt (based on EBITDA, as a 'primary' cash flow), has grown by 10 points in 12 months, from 14,9 , 24,5 to 2020 in 9. (XNUMX)

6.2) Receivables from the single customer Inalpi SpA

Receivables as at 31.12.20 they increased by approximately € 5,6 million compared to 31.12.19 (from € 15,5 million to 21,1 million, + 36%). The increase in receivables - which for Compral Latte are the main item of current assets, in the absence of inventories in stock - represents the main financial requirement (beyond the increase in capital goods, for the construction of an office building to be € 0,5 million).

The average period collection of credits at 31.12.20 is 112 days, against 93 days at 31.12.19. Note how this expresses an average delay of:

  • 67 days, with respect to the terms of payment for perishable goods now prescribed in Italy (30 days at the end of the month from invoice date, i.e. on average 45 days),
  • 82 days, compared with the peremptory term (30 days from delivery) set by dir. EU 2019/633.

 6.3) Trade payables

Trade payables of Inalpi increased by € 2,1 million (from € 9,9 million to € 12,1 million, + 21% in 12 months). They represent the main source of financing for the company, covering trade receivables and investments to build the office building.

Payment terms of suppliers rose to 65 days, average value, as at 31.12.20. 5 days more than 31.12.19. As is foreseeable, perhaps even inevitable, considering the late payment of Inalpi SpA.

6.4) Net working capital

The capacity of the company to meet short-term financial commitments is essentially expressed by the net working capital (difference between current assets and current liabilities). Since Compral Latte has no inventory, this value is not affected by the inventory valuation criteria.

The working capital net of Compral Latte - which stood at € 31.12.19 at 700.000 (with current assets> current liabilities) - at 31.12.20 it was negative for € 200.000. Current liabilities therefore exceeded current assets, due to the greater increase in financial and trade payables compared to that of receivables.

7. Provisional conclusions

Disapplicate the directive on unfair commercial practices to the supply of agricultural commodities and food by agricultural entrepreneurs to cooperatives and POs of which they are members is illegal and dangerous.

The apparent advantage competitive thus attributed to cooperatives and POs translates into financial charges and below cost on the weakest link in the supply chain, their farmers and breeders.

In this wayon the other hand, the power of these intermediate organizations is strengthened. No longer serving those who work the land but treacherous bread-eaters who fatten up their wages.

And the 'government of the best' which side is he on? #Clean shovels

Dario Dongo


(1) Dario Dongo. Unfair commercial practices, the EU directive 2019/633. GIFTS (Great Italian Food Trade). 4.5.19/XNUMX/XNUMX, https://www.greatitalianfoodtrade.it/mercati/pratiche-commerciali-sleali-la-direttiva-ue-2019-633

(2) The data is completely obscure where even written supply agreements are missing. As ascertained by the Antitrust Authority (AGCM, so-called Antitrust) in 95,2% of the relationships with the suppliers of F.lli Pinna Industria Casearia SpA (see previous article https://www.greatitalianfoodtrade.it/mercati/pastori-sardi-e-pratiche-commerciali-sleali-sanzioni-irrisorie-dell-antitrust-a-f-lli-pinna-e-altri-5-caseifici)

(3) The European Commission acknowledged the need for transparency on the agri-food markets, but its ISAMM system (Information System for Agricultural Market Management and Monitoring) is still completely inadequate (see article https://www.greatitalianfoodtrade.it/mercati/trasparenza-nella-catena-del-valore-lavori-in-corso). All the more reason it is necessary to introduce telematic commodity exchanges, as the writer humbly proposed (see article https://www.greatitalianfoodtrade.it/idee/una-borsa-merci-telematica-per-favorire-trasparenza-ed-equità-nella-filiera-alimentare)

(4) Dario Dongo. Unfair commercial practices and European delegation law, critical analysis. GIFTS (Great Italian Food Trade). 24.4.21/XNUMX/XNUMX, https://www.greatitalianfoodtrade.it/mercati/pratiche-commerciali-sleali-e-legge-di-delegazione-europea-analisi-critica

(5) Dario Dongo. Unfair commercial practices, the lesson from Paris to Coldiretti and Confindustria. GIFTS (Great Italian Food Trade). 9.5.21/XNUMX/XNUMX, https://www.greatitalianfoodtrade.it/idee/pratiche-commerciali-sleali-la-lezione-di-parigi-a-coldiretti-e-confindustria

(6) Dario Dongo. Unfair commercial practices in the food supply chain, the protections that are lacking. GIFTS (Great Italian Food Trade). 26.4.21/XNUMX/XNUMX, https://www.greatitalianfoodtrade.it/idee/pratiche-commerciali-sleali-nella-filiera-agroalimentare-le-tutele-che-mancano

(7) See paragraph 'Agricultural Consortia in CAI SpA, mutual purposes?'in the previous article https://www.greatitalianfoodtrade.it/idee/federconsorzi-2-alias-cai-spa-un-po-di-chiarezza

(8) Dario Dongo. Inalpi, intimidation and updates. #Clean shovels. GIFTS (Great Italian Food Trade). 12.9.21/XNUMX/XNUMX, https://www.greatitalianfoodtrade.it/idee/inalpi-intimidazioni-e-aggiornamenti-vanghepulite

(9) According to financial analysts, an optimal index should not exceed 6. Even if it is not a golden rule, having to dynamically assess the ability of the company to meet its financial commitments

+ posts

Dario Dongo, lawyer and journalist, PhD in international food law, founder of WIISE (FARE - GIFT - Food Times) and Égalité.

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