Explanatory Memorandum to COM(2010)728 - Amendment of Council Regulation (EC) No 1234/2007 as regards contractual relations in the milk and milk products sector - Main contents
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| dossier | COM(2010)728 - Amendment of Council Regulation (EC) No 1234/2007 as regards contractual relations in the milk and milk products sector. |
|---|---|
| source | COM(2010)728  |
| date | 09-12-2010 |
The HLG has made a thorough evaluation of all the questions and aspects that the proposal seeks to address. The HLG was composed by representatives of all EU Member States, was chaired by the Director-General for Agriculture and Rural Development of the Commission with the attendance of an observer from the European Parliament's secretariat. It obtained oral and written input from major European stakeholder groups in the dairy supply chain: COPA-COGECA, European Milk Board, European Coordination Via Campesina (each representing farmers), European Dairy Association (dairy processors), EUCOLAIT (dairy traders), EUROCOMMERCE (retailers) and BEUC (consumers). Further, the HLG received contributions from invited academic experts, third country representatives (from the USA, New Zealand, Australia and Switzerland), National Competition Authorities and the Commission's services (DG COMP and DG AGRI). A dairy stakeholder conference was also held on 26 March 2010 allowing a wider range of actors in the supply chain to express their views.
The report and recommendations issued by the HLG were examined by the Council and Presidency conclusions were adopted at the meeting of 27 September 2010. Those conclusions urge the Commission to submit by the end of the year its response to the first three recommendations of the HLG (contractual relations, bargaining power of producers and inter-branch organisations) and to rapidly respond to the HLG recommendation on transparency.
One of the key aspects of HLG's work focussed on areas which relate to the structure of the market and the actors in it: contractual relations, bargaining power, producer organisations and inter-branch organisations. The current market structure significantly worsened aspects of the 2009 milk crisis, reflecting the fact that the reform process started significantly later for the dairy sector than for other sectors – essentially only in 2003. The existence for a long period of fixed quotas and high institutional prices, with, in effect, guaranteed outlets for dairy commodities created rigidities in the market. Structural adaptation was often inhibited, actors in the production chain were not stimulated to respond to market signals, including price movements, and there were reduced incentives for innovation or productivity gains. The dairy reform should mirror those in other sectors which have aimed at much more market orientation with 'freedom to farm'. This should lead to efficiency gains and allow for the EU sector to take advantage of market opportunities, inside and outside the EU.
A number of measures would seem to be necessary in the medium-term, leading up to and after the expiry of the quota regime. The market structure is very different between and within Member States, but often concentration of supply is much lower than concentration at processing level. This results in an imbalance in bargaining power between these levels. There are also rigidities in the market, with farmers having little choice of dairy (or even of transporters for raw milk). These factors can lead to a serious lack of adaptation of supply to demand and unfair commercial practices. In particular farmers often do not know what price they will receive for their milk when delivering (which is often fixed much later by dairies on a basis wholly out of the farmer's control). On the other hand, for dairies, the volume to be delivered is not always well-planned. The distribution of the added value in the chain is not balanced, especially with regard to farmers, and there is a significant problem of price transmission along the chain.
A key problem seems to be between the farmers and the processors and solutions to remedy the situation would focus at this level. The proposal provides for optional written contracts to be drawn up in advance for deliveries of raw milk by a farmer to a dairy which would include the key aspects of price, the timing and volume of deliveries, and the duration of the contract. In order to take into account the specific nature of cooperatives and not to interfere unnecessarily in current structures, cooperatives would not be required to have contracts on condition that their statutes provide for rules with the same objective.
To rebalance bargaining power, it is further proposed to allow farmers to negotiate such contract terms, including the price, collectively via producer organisations. Whilst current competition law provides for this to some extent, the possibilities are limited in the absence of shared processing facilities and there is a lack of legal certainty. The proposal provides for a legal basis in agricultural law to this end. In order not to destabilise the situation in reverse, a size limit is proposed. It does not affect dairy cooperatives, to the extent that they consist of vertical integration of farmers together with processing facilities.
A further issue arising from the HLG is the role of inter-branch organisations. Unlike producer organisations which only include farmers, those cover part or all of the supply chain: farmers, processors, distributors and retailers. They can potentially play useful roles in research, improvement of quality, promotion and spreading of best practice in production and processing methods. They exist in a few Member States today and carry out these roles whilst respecting EU law. Furthermore, in sectors such as fruit and vegetables, specific EU rules provide for such actions, subject to limits, and often Commission scrutiny. It is proposed to apply the rules on the objectives of IPOs in the fruit and vegetables sector to the dairy sector, with appropriate adaptations, so that hardcore restraints of competition (including price fixing and market partitioning) remain excluded and the agreements concerned are submitted to Commission approval.
They would contribute to improving knowledge and the transparency of production and the market, including by publication of statistical data on the prices, volumes and durations of contracts for the delivery of raw milk which have been concluded, and by providing analyses of potential future market developments at regional or national level.
Again with the purpose of improving knowledge of production and following of developments in the market, it is necessary for the Commission to obtain regular information on volumes of raw milk delivered.
In order to further enhance transparency, joint meetings of the experts of the Management Committee for the Common Organisation of Agricultural Markets together with the Advisory Group on Milk will be organised to assess the market situation and prospects, the objective being to increase awareness as well as reinforce the responsibility of operators in the dairy chain to better take into account market signals and adapt supply to demand.
The present proposal addresses all 4 elements: contractual relations, bargaining power of producers, inter-branch organisations and transparency to the extent that they need an amendment to present provisions.
These solutions are quite significant steps, and whilst justified by the current market situation and structure, they would be temporary and subject to review. The validity of the proposal should be limited to the timeframe needed for milk producers to adapt to the context without production quota and to improve their organisation in view of a more market oriented environment. The intermediate review should in particular see how the proposed provisions have operated, whether they should continue to apply for the rest of the period and examine ways to encourage farmers to enter into joint production agreements.
The proposal is based on the Treaty on the Functioning of the European Union, and in particular the first subparagraph of Article 42 and Article 43 i thereof.
Action at EU level is justified since in order to realise the objectives of the common agricultural policy, measures have to be taken in that context in order to ensure equal implementation throughout the Union, whilst maintaining effective competition on the dairy market and ensuring the proper functioning of the internal market. This is particularly the case where the application of EU competition law – an exclusive competence of the Union - to the common agricultural policy is concerned. However, in view of the differentiated situations in the Union as regards contract law, the choice as to whether to make certain elements of the proposal (contracts) compulsory is left to Member States.
EU competition law is an exclusive competence of the Union and individual Member States cannot therefore modify its application to the common agricultural policy, which may only be done under Article 42 TFEU. As regards contractual relations, the proposal leaves a wide margin of appreciation to Member States. However certain minimum standards need to be laid down in order to allow for the proper functioning of the internal market and the common market organisation due to their inherent cross-border nature.
The EU can achieve the objectives better, since the envisaged objectives on competition law cannot be achieved by individual Member States and the necessary minimum standards as regards competition law are needed to ensure the proper functioning of the internal market and the common market organisation.
The proposal respects the proportionality principle. The approach to contractual relations is voluntary at EU level. It is left to the discretion of the Member States whether or not to opt for a compulsory scheme. Only 4 aspects of contracts are regulated at EU level, once a Member State has opted for compulsory application on its territory in order to ensure the proper functioning of the internal market and the common market organisation.
As regards the provisions on strengthening the negotiating power of dairy farmers, a limit of 3.5% of EU milk production is proposed which would allow negotiations between producer organisations of approximately the same size as major dairy processors. A limit of a certain share of national production is also proposed in order to ensure competition in the supply of raw milk at national level. The possibility for the relevant competition authorities to intervene in necessary and justified individual cases would prevent prejudice to small and medium processors of raw milk in its territory.
Rules on inter-branch organisations are largely inspired by those existing for the fruits and vegetables sector and are merely aimed at ensuring legal certainty for the actions of those organisations.
The addition of an explicit legal basis for Member States to collect information on raw milk deliveries on a monthly basis concerns data in the hands of operators and should not impose a significant burden either on dairy processors or Member States.
In order to further improve supply concentration, producer organisations would also be encouraged, as recommended in the Commission Communication on a better functioning food supply chain in Europe. The current provision to support the setting up and administrative operation of producer groups, which is already available for all sectors in the new Member States under Rural Development Policy, should be extended to also cover the EU-15. However, the possibility to support producer groups in the fruit and vegetable sector should not be allowed as possibilities to support their activities are available under Article 103b-103g of the single CMO. The modification of the relevant provisions is part of the exercise to adapt the basis agricultural regulations to the Lisbon Treaty.
As far as the rest of the recommendations of the HLG are concerned, the issue of 'place of farming' discussed by the HLG would be treated as part of the so-called 'quality package'. Under this new framework, a legal basis for compulsory labelling of place of farming will be introduced for all sectors. This will allow the Commission, following appropriate impact assessments and on a case by case basis, to adopt delegated acts concerning possible mandatory labelling on place of farming at the appropriate geographical level in order to satisfy the consumers' demands for transparency and information. One of the first sectors to be examined will be the dairy sector. The results of the discussions in the Council and Parliament on the Commission proposal for a regulation on the provision of food information to consumers [COM(2008) 40] will be taken in to account.
Possible changes to market instruments, research and innovation would be addressed under the initiative CAP post 2013, in order to broaden the discussion to the wider context of all agricultural products and have a coherent approach.