Egalim 3: Balancing the trade relationship between agri-food and large retailers

The main purpose of Egalim 3 is to increase the protection of farmers in their trade relations with the large retail sector. To this end, the Act introduces various measures.

Possibility to interrupt deliveries or to apply a notice of termination in the event of failure of the annual negotiation

Commercial negotiations between suppliers and distributors take place every year on 1^er December to 1^er March. These relate to the price of the products, the amount of orders and potential promotions.

So far, if the parties had not reached an agreement by 1^er In March, the supplier was to deliver the distributor on terms agreed to the previous year. This provision ignored the possibility of a significant year-over-year increase in production costs for the supplier.

Henceforth, over the next 3 years and on a trial basis, if no agreement is concluded by 1^er in March (or within two months of the start of the marketing period for products or services subject to a particular marketing cycle), the supplier may:

• terminate the commercial relationship with the distributor, without the latter being able to invoke the abrupt termination of the commercial relationship; or
• or apply written notice of termination taking into account the duration of the commercial relationship and the economic conditions of the market on which the parties operate.

In the event of a dispute over the terms of the notice, the parties may refer the matter to the mediator for agricultural commercial relations or the mediator for companies in order to conclude, before 1^er April, an agreement setting out the conditions of notice. The agreed price will apply retroactively to orders placed on or after 1^er March. If mediation does not lead to an agreement, the supplier may terminate any commercial relationship with the distributor, without the latter being able to invoke the abrupt termination of the commercial relationship.

Sanctions against distributors' means of pressure

Distributors fail to meet 1 deadline in order to pressure suppliers^er March.

In order to put an end to this practice, this new law provides that in the event of non-compliance with the deadline of 1^er in march, the distributor is liable to an administrative fine not exceeding 200 000 € for a natural person and EUR 1 million for a legal person. It shall double that amount in the event of repeated infringement within two years of the first penalty being imposed.

Protection of good faith

In order to safeguard the interests of suppliers and ensure compliance with the 1^er In March, the Egalim 3 Act states that the negotiation of the written agreement must be conducted in good faith by the parties. Failure to comply with this good faith, where it has the consequence of not allowing a contract to be concluded by the deadline, constitutes a restrictive practice of competition, rendering the author liable and obliging him to make good the damage caused.

Jurisdiction of French courts and application of French law

Agreements concluded between a supplier and a distributor concerning products or services marketed in France are now subject to French law. In addition, disputes arising from their application are decided by French courts, subject to compliance with European Union law, international treaties and recourse to arbitration.

The purpose of this measure is to protect French products from central purchasing bodies (wholesale intermediaries) located abroad and from the "legal evasion" that can be practiced by distributors.

Capping of logistical penalties and creation of the logistical agreement

In order to prevent the abuses practiced by large retailers, the logistical penalties that they can impose on supplier companies have been capped at 2% of the value of the products orders falling within the category within which non-performance of contractual commitments has been established. Distributors must also inform the Director General of Competition, Consumer Affairs and Fraud Prevention of the penalties imposed on their suppliers during the last year. Suppliers must also report on penalties incurred over the past year. Such communication shall take place no later than 31 December of each year.

The Egalim 3 Act also introduces a logistics convention, which will be separate from the commercial tariff convention.

Extension of the measures to control promotions and the resale threshold at a loss

Finally, the Egalim 3 Act extends the implementation of measures introduced by the Egalim and Egalim 2 Acts:

• the framework for food promotions until april 15, 2026 34 % of the value of foodstuffs in supermarkets and 25 % by volume;
• the supervision of promotions on consumer products (hygiene and maintenance products, beauty products...) as of 1^er march 2024 34 % of their value and 25 % by volume. This measure aims to protect French SMEs from promotions that are harmful to their sustainability;
• the resale-below-cost threshold until april 15, 2025 which obliges distributors to sell food products at the price at which they bought them, plus 10 %. Fruit and vegetables are excluded from this scheme.