In a decision of 4 September 2024 (Dutch only) the Dutch Authority for Consumers and Markets (ACM) imposed a cease and desist order on cheese producer Royal Lactalis Leerdammer B.V. for violating the Unfair trading practices in the agricultural and food supply chain Act (UTP Act). Royal Lactalis Leerdammer B.V. had not agreed in advance on a transparent price-fixing system with its suppliers (Dutch dairy farmers), but unilaterally set the monthly remuneration each month.
The UTP Act
In the agricultural and food supply chain, producers of primary agricultural products are often the weakest link. In order to protect their market position against unfair trading practices (UTP), the European legislator listed in the UTP Directive a number of trading practices that are deemed to be always unfair. The Dutch transposition of this directive, the UTP Act (Dutch only), entered into force on 1 November 2021.
The ACM is the designated enforcement authority as referred to in Article 4 UTP Directive. In connection with this, the ACM has the power, inter alia, to impose fines and cease and desist orders. The ACM can act not only on its own initiative, but also in response to complaints. In Dutch administrative law, a complaint from an interested party is regarded as a request for enforcement. A complaint from a third party is considered a tip-off.
The ACM took the first two decisions (Dutch only) based on the UTP Act early this year. Both decisions concerned unilateral price adjustments by Vion Food Group (Vion), an internationally operating Dutch food conglomerate with mainly slaughterhouses and meat processing plants for pork and beef. Of the three complaints lodged by an interested party, two complaints, according to the ACM, did not relate to a UTP but a commercial dispute. The requests for enforcement were therefore rejected. The third complaint concerned a practice that did qualify as a UTP. However, Vion offered to adjust that practice in line with the ACM’s requirements. That commitment was declared binding by the ACM. Consequently, a breach of the UTP Act was not determined and the complaint was dismissed as well.
The case at hand
The parties involved
Royal Lactalis Leerdammer B.V., a subsidiary of French multinational dairy company Lactalis (Lactalis), produces a Gouda style cheese under the name Leerdammer. Lactalis pays the dairy farmer who supply milk for the production of this cheese a monthly remuneration based on the quantity and the composition (protein and fat content) of the milk delivered. The dairy farmers concerned are united in the Leveranciersvereniging Leerdammer Collectief (LVLC).
Compliants by LVLC regarding Lactalis
On 5 July 2022 LVLC submitted several complaints with the ACM. LVLC alleged that Lactalis violated the UTP Act in various ways. According to LVLC Lactalis:
| 1. | determined the remuneration unilaterally |
| 2. | demands payments not related to the sale of milk |
| 3. | changes unilaterally the terms of delivery |
| 4. | obtains and uses trade secrets unlawfully |
Regarding the first complaint, LVLC claimed that Lacatalis’ unilateral determination of the monthly remuneration based on fat and protein content qualified as a UTP. The remuneration changes from month to month without any influence from dairy farmers. Moreover, a dairy farmer cannot verify whether the right price is paid to him, as there are no parameters on the basis of which the remuneration is actually determined.
Lactalis argued that it never changed the pricing mechanism and therefore it does not violate the UTP Act. The dairy farmers allegedly agreed to Lactalis’ pricing system consisting of Lactalis fixing the remuneration. Thus, Lactalis does not change the terms when it sets the remuneration monthly. It is merely giving effect to an upfront agreement made with the dairy farmers, namely that the remuneration is based on the price that fat and protein have fetched in the market. In this regard, Lactalis referred to a decision of 4 July 2023 (Swedish only) by the Konkurrensverket, the Swedish competition authority. This authority reportedly ruled in a seemingly similar case that the contested trading practice did not qualify as a UTP.
With respect to the second complaint LVLC argued that dairy farmers have to pay various payments and surcharges not related to the sale of milk. In any case, dairy farmers cannot check whether this relation exists. Lactalis claimed that its monthly charges include milk sample testing, quality assurance, administration and preparation of the milk remuneration settlement.
Regarding the third complaint, LVLC alleges that Lactalis unilaterally changed the terms of supply in 2022 and 2023. Despite objections from both the LVLC and individual dairy farmers, Lacatalis implemented the amended terms of delivery. Lacatalis argued that there was agreement on the amended terms of delivery, as dairy farmers continued to supply milk.
The fourth complaint concerned the use of farm data that dairy farmers are required to provide to Lactalis to enable it to verify whether the individual dairy farmer meets contractual quality requirements. According to the LVLC, Lactalis shares this farm data with third parties, including Statistics Netherlands (CBS). Lactalis argued that dairy farmers authorise it to share the said data. Each authorisation specifies the purpose for which this data is requested and to whom it is disclosed.
The ACM’s assessment
Review of the complaints
The ACM agrees with the LVLC that Lactalis unilaterally changes the terms of supply by unilaterally determining fat and protein prices (and thus the amount of remuneration) on a monthly basis, without a transparent system agreed with the dairy farmer in advance. In doing so, Lactalis violates the UTP Act. The ACM notes that the prices for protein and fat are not fixed and that it is not transparent how these prices are determined on a monthly basis. In addition, a dairy farmer cannot negotiate fat and protein prices with Lactalis. Consequently, there is no transparent price-fixing system and there are no guarantees to prevent arbitrariness. Thus, in the opinion of the ACM, it cannot be said that Lactalis and its suppliers have agreed on a price or price mechanism.
The Konkurrensverket’s decision referred to by Lactalis, related to the supply of eggs. The buyer, Dava Foods, introduced so-called “market-adjusted” prices in 2022. This meant, among other things, that prices were adjusted weekly based on market conditions. In its decision, the Konkurrensverket concluded that there is no unilateral price change when Dava Foods pays egg producers a new price every week during the period of the agreement. The ACM remains silent on whether it shares the interpretation of the Konkurrensverket. In the ACM’s view, the Konkurrensverket merely interpreted Swedish law in a specific case. According to the ACM, this does not detract from its own reasoning and conclusion.
Regarding the payments and surcharges, the ACM considers that these do relate to the supply of milk. However, Lactalis should clarify certain components in its terms of delivery in order to make the relationship with the delivery of milk more transparent.
With respect to the unilaterally changed supply conditions, the ACM agrees with Lactalis that dairy farmers are given the opportunity to object to the changes. The agreement can be tacit, which the UTP Act does not prohibit.
As regards the fourth complaint, the ACM sides with Lactalis as well. According to the ACM the dairy farmers share their farm data with Lactalis to demonstrate compliance with legal and sectoral requirements. The ACM has no indications that Lactalis has obtained, used or disclosed farm data in an unlawful manner.
Decision
Only the complaint relating to unilateral fixing of the monthly remuneration hits the mark. The ACM orders Lactalis to change the terms of delivery insofar as these relate to the calculation of the monthly remuneration and to present the new system to its suppliers. The price system should be transparent, so that it is clear to milk farmers in advance how the remuneration is calculated and that this can be verified by the individual mil farmer. The LVLC’s request to formulate the cease and desist order more concretely in the sense of explicitly stating the requirements to be met by the milk price or pricing system to be used is not honoured. Based on a separate decision dated 28 October 2024 (Dutch only), Lactalis has been given until 4 April 2025 to comply with the cease and desist order. If it fails to comply, Lactalis will become subject to a periodic penalty.
The ACM’s decision is subject to objection and appeal. It cannot be ruled out that LVLC and/or Lacatalis will have made use of this possibility.
Concluding remarks
What stands out about the decision under discussion is first of all that Lactalis apparently has not been able to clarify how the remuneration was determined in actual practice. While Lactalis indicated that the remuneration was calculated based on the monthly prices of protein and fat, it was not able to make clear which prices it exactly used. Was it at all clear what exactly the parties had agreed on with regard to fixing the monthly remuneration? If the agreement was unclear, was there not simply a commercial dispute? In the Vion case, the ACM did not qualify such a dispute as a UTP. This is without prejudice to the fact that a complaint about a unilateral modification should not automatically be excluded as a commercial dispute from the application of the OHP Act. Otherwise, the practical effect of the UTP Act would be impaired.
It is furthermore rather unfortunate that the ACM does not explain in more detail why the lack of a contractual system to calculate the monthly remuneration qualifies as a UTP. Perhaps the comparison can be drawn with a unilateral change clause that allows the buyer to unilaterally modify the contract. Such a clause is most likely to be prohibited by Article 3(1)(c) UTP Directive. According to the Commission’s proposal for the UTP Directive, parties are not allowed to contractually deviate from the UTP’s listed in Article 3(1) UTP Directive. These UTP’s are not subject to parties’ contractual discretion due to their “as such” unfair nature (p. 13). In any case, the absence of a contractual price-fixing system makes a formal unilateral change clause de facto redundant. Materially, the absence of a price-fixing system seems to have a similar effect to a unilateral change clause. After all, it allows the buyer to unilaterally set the price to be paid to the supplier.
On top of this, it is likewise a pity that the ACM does not address the substance of the Konkurrensverket decision cited by Lactalis. Without any content-related argumentation, the ACM states that the Konkurrensverket applied its national law in a specific case. It does not explain whether and if so where the Swedish legal framework and the Dava Food case differ from the Dutch legal framework and the Lactalis case the ACM had to rule on. From the Konkurrensverket ’s similarly cursory decision, it would seem that although Dava Foods unilaterally set the new prices, it then communicated them to egg farmers in advance. In the absence of an explanation, it is uncertain whether the mere advance announcement of the new price was sufficient to rule out a unilateral change in the Konkurrensverket’s view. Did egg farmers not have to agree to the new price? And if they did have to, the question is whether and if so how acceptance took place. Tacitly, by continuing to supply? In such a case, surely the Konkurrensverket should at least have made it clear that the egg farmers had a to refuse delivery in the event they did not agree to the new price. Or, in the absence of such an option, should the egg farmers have delivered under protest? All in all, the Konkurrensverket’s decision is so poorly reasoned that it presumably could not usefully contribute to the debate with the ACM on the admissibility of the price-fixing practice adopted by Lactalis. Viewed this way, the ACM may have merely wanted to politely set aside the Konkurrensverket’s decision without having to take a substantive position.
The above does not alter the fact that the lack of substantiation in the ACM’s decision is a miss for day-to-day practice. As noted above, the ACM has assessed only two cases since the introduction of the OHP Act in 2021. Thus, the number of examples is extremely limited. As a result, several questions remain unanswered to date.
This blog is partly based on the blog ACM legt last onder dwangsom op aan Lactalis vanwege eenzijdige prijsbepaling (Dutch only) written by my DVAN colleague Rémon van Wingerden.
* photo by TheoRivierenlaan from pixabay.com
