On 1 November 2021, important legal changes that will apply to companies that sell food, drinks or agricultural products will come into effect. The UTP (Unfair Trading Practices) Directive will be transposed to Lithuanian law. One of the goals of this Directive is to ensure balanced relationships between buyers and suppliers.
What does this mean for business?
- New restrictions affecting the relationship between buyers and sellers of food, drinks or agricultural products will be introduced. Older agreements that are still in effect will have to be reviewed
- Previous, well-established business practices may have to change
- Payment deadlines for food and agricultural products may change
- Fines for unfair trading practices will increase
Who will be affected by the changes?
Unfair trading practices will now be prohibited in relationships with any buyer (and not only with the largest supermarket chains), as long as certain sales revenue thresholds are met. Moreover, the scope of protected suppliers will also change.
The Law on the Prohibition of Unfair Practices of Retailers (the Unfair Practices of Retailers Law), which is currently in force, has so far only been applicable to relationships between suppliers whose sales revenue in Lithuania did not exceed EUR 40 million in the previous financial year and the largest supermarket chains in Lithuania.
On 1 November, the following changes will come into force:
- The Unfair Practices of Retailers Law will be applicable to suppliers whose sales revenue does not exceed EUR 350 million in the previous financial year. However, the worldwide revenue of the entire company group will now be used for this threshold.
- A new law that transposes the UTP Directive will enter into force: the Law on Unfair Trading Practices in the Agricultural and Food Product Supply Chain (the Unfair Practices of the Food Product Supply Chain Law). This law will be applied to a much wider range of buyers (and not just to the largest supermarket chains) and will be applicable based on the sales revenue of both the supplier and the buyer. For example, it will apply to:
- relationships between suppliers whose revenue does not exceed EUR 2 million and buyers whose revenue exceeds EUR 2 million
- relationships between suppliers whose revenue is between EUR 2 million and EUR 10 million and buyers whose revenue does not exceed EUR 10 million, etc. In total, there will be five revenue “ranges” of this kind
- the highest revenue threshold for a supplier to still be protected by this law is EUR 350 million. Beyond this threshold, no protection will apply
- revenue will be assessed as in the Unfair Practices of Retailers Law, i.e. by the worldwide revenue of the company group during the previous financial year.
Payment deadlines for food and agricultural products: what changes?
Lastly, the third package of rules related to the UTP Directive concerns timely payment. The rules regarding timely payment for food and agricultural products will apply to all suppliers and buyers (although they are not applicable to relationships with consumers).
Up until now, the government has set out what food and agricultural products must be paid for within 30 or 60 days on a separate list. If a product was not on these lists, parties could agree on a longer term.
After 1 November, agreeing on a longer term will no longer be possible. Moreover, the concept of “perishable” food products will be introduced. Payments for “perishable” food and agricultural products must be made within 30 calendar days.
Moreover, the Ministry of Agriculture issued a recommendation list of the products that are considered “perishable”. This list is similar, but not identical to the earlier list that set out products which had to be paid for within 30 or 60 days. As a result, it is worth checking whether different terms now apply for your products.
However, the Ministry of Agriculture has also issued a list of products that, despite not being considered “perishable”, must also be paid for within the 30-day deadline. Please note that all other agricultural and food products must be paid for within 60 days.
Late payment is considered a violation of the Unfair Practices of the Food Product Supply Chain Law. Liability under this law applies when a company fails to ensure timely payment to a supplier whose revenue does not exceed EUR 350 million. The Law on Payment for Agricultural Food Products, which has been governing this area, will also remain in force.
What are the new prohibitions?
Most unfair practices were already prohibited for the largest supermarket chains. However, from now on the prohibitions (e.g. on demanding “listing fees”) could be applied to all buyers that meet the necessary sales revenue thresholds. There are also new prohibitions on unlawful acquisition, use or disclosure of suppliers’ trade secrets and others.
The role of the new supervisory authority – the Rural Business and Markets Development Agency
So far, the Lithuanian Competition Council has been supervising unfair business practices in this area by enforcing the Unfair Practices of Retailers Law. The Competition Council will continue to investigate and enforce these infringements.
However, the enforcement of the Unfair Practices of the Food Product Supply Chain Law will be supervised by the Rural Business and Markets Development Agency. Although the agency is not a newly established institution, its role in enforcing regulations was previously minor.
The agency notes that it will prioritise advising and helping businesses. Consequently, if there are questions about how the new laws will be applied, the agency might be able to assist.
Liability for infringements
If payments for agricultural or food products are late, different legal acts may be applied depending on the circumstances. If the late payment is also an infringement of the Unfair Practices of the Food Product Supply Chain Law, the fine will be no lower than EUR 200 but will not exceed 20% of the debt. If the Unfair Practices of the Food Product Supply Chain Law is not applied, the fine for the head of the legal entity (or other responsible person) may range from EUR 100 to EUR 6,000, depending on the size of the debt.
All other infringements of either the Unfair Practices of the Food Product Supply Chain Law or the Unfair Practices of Retailers Law will be punished by a fine to the relevant legal entity. The size of the fine can reach up to 0.7% of sales revenue over the previous year.