Nearly three years after the enactment of the Dutch Unfair trading practices in agriculture and food supply chains act (Wet oneerlijke handelspraktijken landbouw en voedselvoorzieningsketen, “UTP Agriculture Act”), the Netherlands Authority for Consumers and Markets (“ACM”) issued the first penalty payment order based on this law against Royal Lactalis Leerdammer B.V. (“Lactalis”). In its decision dated 4 September 2024, the ACM determined that Lactalis acted in violation of the UTP Agriculture Act by unilaterally altering the milk price.
UTP Agriculture Actw
The UTP Agriculture Act is based on the European directive on unfair trading practices in business-to-business relationships in the agricultural and food supply chain, which is designed to limit unfair trading practices in this sector. The Act focuses on strengthening the position of suppliers, such as farmers, horticulturists, fishermen, and other producers, who often face larger and more powerful buyers, such as dairy companies and slaughterhouses.
The UTP Agriculture Act prohibits a number of unfair trading practices. For example, buyers are prohibited from unilaterally altering specific delivery terms, requiring perishable products to be paid for within 30 days, and prohibiting charges unrelated to the products supplied. These rules aim to protect suppliers from unreasonable demands from their buyers.
Enforcement request by Leerdammer Collective Suppliers Association (“LVLC”)
In July 2022, the LVLC, an interest group for dairy farmers who exclusively supply milk to Lactalis, submitted an enforcement request to the ACM. In 2022, the LVLC represented as many as 14,729 dairy farmers. The association alleged that Lactalis violated the UTP Agriculture Act on several counts, the primary complaint being that Lactalis unilaterally changed the milk price without agreement from the suppliers.
Lactalis determined milk prices based on the monthly rates of the main components of milk, namely fat and protein, without adhering to a structured and transparent pricing system that could be consistently verified by suppliers. According to LVLC, this approach left suppliers vulnerable, as they were forced to accept prices without insight into how these amounts were calculated. Suppliers lacked bargaining power or contractual guarantees to contest these prices, effectively operating as “price takers”.
In its decision, the ACM mandated that Lactalis must establish a clear and verifiable pricing model. This system must outline the objective criteria used to determine milk prices, such as (inter)national dairy benchmarks. Lactalis is required to make this information available to suppliers so that they can verify each component of the pricing model. The ACM also emphasized that the pricing mechanism must be mutually agreed upon.
The ACM imposed a cease-and-desist order on Lactalis, requiring the dairy company to adjust its delivery terms within three months. This means that Lactalis has until 5 December 2024, to present its suppliers with a transparent pricing system, clarifying how the price is determined and enabling dairy farmers to verify the price. Should Lactalis fail to meet this requirement by the deadline, it will incur a fine of €175,000 per month, with a maxium of €1,050,000.
Rejection of additional complaints
In addition to the pricing complaint, LVLC also lodged a complaint regarding the contribution fee collected by Lactalis for ZuivelNL. ZuivelNL is the sector organization for the Dutch dairy industry and facilitates dialogue between the interest groups of dairy farmers and dairy companies. Lactalis collected a specific contribution per 100 kilograms of dairy from LVLC members on behalf of ZuivelNL. LVLC argued that this contribution was unrelated to the sale of milk, a requirement under the UTP Agriculture Act to justify passing costs on to suppliers. According to LVLC, the contribution for ZuivelNL was allocated to sector-wide activities that did not always directly benefit individual suppliers.
In response to this complaint, ZuivelNL submitted a commitment request to the ACM. ZuivelNL indicated that the contributions would henceforth only be used for activities directly related to the supply and sale of milk, such as ensuring milk quality and supporting dairy farmers in areas directly relevant to their work. This commitment was declared binding by the ACM, meaning ZuivelNL must adhere to this limitation in the future. The ACM concluded that ZuivelNL’s commitment was sufficient to allay LVLC’s concerns and therefore dismissed the enforcement request.
Vion: previous case in the food chain
The ACM’s decision against Lactalis is not an isolated case. Previously, the ACM investigated similar practices at Vion, a major player in the pork industry. Vion was accused of unilaterally altering delivery terms, but the investigation was closed after Vion made commitments not to engage in such practices. These commitments were also declared binding by the ACM.
Implications for the dairy sector
The ACM’s decision against Lactalis may also have implications for other companies in the dairy sector. Dairy processors are advised to closely examine their delivery terms to ensure that their pricing systems are transparent. Furthermore, this decision may set a precedent for other sectors within the agricultural and food supply chains, where imbalances of power between suppliers and buyers are also a concern.
