annual basis, most of the commercial relationships with retailers may be deemed to be ‘established’ ones and without a reasonable termination notice period during which the level of the turnover must be maintained, any termination is bound to be illegal. In what ways is the new Egalim 2 law impacting contracts in the food distribution sector? The Egalim 2 law pursues the same objectives as Egalim, i.e. to promote a fair balance between operators in the agricultural and food sector in order to respond to the existing imbalance between suppliers and retailers. The Egalim 2 law aims at supplementing the first Egalim law, to provide a better protection of farmers’ remuneration by reinforcing the regulation of the commercial relationships between the suppliers and the retailers. For food products, Egalim 2 has prohibited negotiations on the price of raw materials and imposed, in the suppliers’ general sales conditions, a disclosure of the price structure of the suppliers. The price-fixing clauses are regulated by a very complex set of rules according to which retailers now appear to be able to interfere in the products’ prices, in That context is coupled with two additional elements: (1) the purchasing power of the French retailers acting through powerful purchasing groups (to date, three purchasing groups represent almost 80% of market shares) and (2) the continued expansion of EU or French environmental regulations (sorting, product composition, packaging, labelling, etc.) which have been impacting the R&D costs as well as production costs for greener products. To offset the powers of retailers, French lawmakers constantly adopt new laws, the drafting of which unfortunately often raises new questions and add more work for suppliers to justify their prices. The result is that commercial negotiations take place in a fluctuating and poorly defined legal framework, where buyers and sellers are required to amend their previous contractual provisions to comply with such new laws, and where each party is naturally tempted to construe such new laws in a way most favorable to it. The best example is the new rules applying to logistic penalties (Egalim 2); none of the logistic agreements of the retailers have been modified to reflect such rules. The immediate delisting of the supplier’s products is the ultimate threat raised by retailers during negotiations, and this practice is almost never challenged by suppliers in courts. Nevertheless, one should never forget that, even if the negotiations are made on an Both suppliers and retailers will have to deal with the lack of clarity and the complexity of the ever-changing legal negotiations framework. particular by being in a position to access and question the costs of production. What should we expect to see in negotiations as we approach the end of the year? Are they likely to be very different from the present? First and foremost, one may anticipate that the retailers will try to transfer their own cost increases, especially logistic costs, to the suppliers, arguing that they are doing the work of distribution and dispatching of products to the points of sale. Both suppliers and retailers will have to deal with the lack of clarity and the complexity of the ever-changing legal negotiations framework. French administrative authorities frequently issue guidelines and opinions for the interpretation of the law. But while those could at best be considered ‘soft law’, they do not have the authority of statutes and do not bind courts. How such new legal provisions must be constructed will be an important part of this year’s negotiations. In any case, parties must keep in mind that ‘reciprocity’ remains the key word in their negotiation process. Suppliers 66 LAWYERMONTHLYDECEMBER 2022
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