Regulation on business relationships (agricultural products)

REGULATION ON BUSINESS RELATIONSHIPS OF AGRICULTURAL PRODUCTS AND AGRIFOOD SALES IN THE LIGHT OF THE NEW REGULATION INTRODUCED BY ARTICLE no. 62, LAW no. 27/2012 AND INTER-MINISTERIAL DECREE OF 17TH JULY 2012

1 – Inter-ministerial decree of 17th July 2012.

On 17th July 2012 the Minister for Agricultural, Food and Forestry Policies together with the Minister of Economic Development issued one inter-ministerial decree implementing article no. 62, Law no. 27 of 24th March 2012 and ruling of food and agricultural products’ sales.
The text of relevant inter-ministerial decree has been transmitted to the Council of State.
According to Mr. Catania, Minister of Agriculture, “article no. 62 of the Law no. 27/2012 introduced transparency rules in both agricultural and food chain due to relevant written agreement with terms and payment conditions for those products. This supports the sector growth and eliminates misuses heavily affecting farmers and entrepreneurs.
The inter-ministerial decree issued by both relevant Ministers (Agricultural Policies and Economic Development) on 17 July 2012 implementing article no. 62, paragraph no. 11 bis of Law no. 27/2012, defined the implementing terms of article no. 62 which innovates the regulation on business relationships as to agricultural and food products.
During his first statement regarding inter-ministerial decree of 17th July 2012, the Minister Catania explained that such decree established the implementing criteria to enter into force the regulation. Consequently “that regulation is the result of a profitable dialogue with all chain’s stakeholders, sharing a specific path and taking into consideration their proposals, including party’s needs.

2 – The fundamental principles of the new regulation on food and agricultural product’s sale.

The purpose of the new regulation is to implement fundamental principles and clarify the sale of food and agricultural product, namely:
• Transparency
• Correctness;
• Proportionality;
• Mutual performances consideration with reference to supplied goods.
Relevant elements of article no. 62 of the law no. 27/2012 concern:

  1. a) mandatory written form “ad sustantiam”;
  2. b) mandatory terms description (in the contract) otherwise this shall be void:
    duration;
    • quantity;
    • features of the product;
    • price;
    • delivery and payment terms.
    Those elements (included in article no.62, paragraph no.1 – written form and essential conditions of the agreement) when missing, lead to absolute nullity of sales contract of food and agricultural products pursuant to article no. 1325 Civil Code.
  3. c) prohibition of unfair trade practices (article no.62, paragraph no.2).
    The paragraph no. 2, article no. 62 prohibits both indirect and direct restrictions of sales and purchase conditions and any other term considered justifiably severe, even when retroactive or subject to extra contractual obligations. Not only. Such regulation prohibits objectively different conditions for similar performances. It also prohibits to subordinate the termination and the execution of agreements, including both continuity and regularity of business relationships, to performances by both parties which by their nature or according to commercial usage, have no connection with the subjects of commercial usage, or with performances execution.
    Moreover, it is forbidden any further unfair practice resulting from business relationships “as a whole” related to procurement terms.
  4. d) terms of payment set out as follows:
    30 days for perishable goods;
    • 60 days for other goods;
    • from the first day after receiving the invoice plus automatic interests in the event of payment failure from the day after the established deadline, including imperative surcharge of two percentage points of the interests’ rate.

3 – Scopes of the new regulation.

Article no.1 of inter-ministerial decree of 17th July 2012 establishes the implementing criteria of the procedures and describes the “scopes” of article no. 62, law no. 27/2012,
Excluded from the scopes of article no. 62 are:
• Sales/contributions regarding agricultural and food products made by entrepreneurs to cooperatives (set out in article no.1, paragraph no. 2 of legislative decree no. 228/2001) if the entrepreneurs are members of those cooperatives;
• contributions (set out in legislative decree no. 12/2005), if the entrepreneurs are members of those organizations;
• contribution of fish products among fish entrepreneurs (set out in article no.4, legislative decree no. 4/2012) and lastly:
• instantaneous supply of food and agricultural products (i.e. cash and carry), with contextual delivery and payment of the agreed price with only specific reference to paragraphs no. 1 and no. 3 of article no. 62, law no. 27/2012, having excluded from  article no. 1 of inter-ministerial decree the reference to paragraphs no. 2 and no.4 and subsequent of article no. 62.

4 – Definitions 

Article no. 2 of inter-ministerial decree of 17th July 2012 also mentions “definitions” for fair implementation of new regulation procedures, namely:

  • Definition of “final consumer” is very interesting; final consumer is that natural person who buys products for those purposes different from his/her business activity or professional performance.
    • Interests are identified as late payment interests or interests at a rate agreed upon between the parties and established in the contract;
    • Statutory interests due for late payments which consider the late payment interests or interests at a rate equal to the reference rate as set out in national regulation transposing relevant EU directives against late payments in business transaction, namely the reference rate between 1st semester of the year (rate in force on 1st January) and second semester (reference rate on 1st July).

5 – Framework contracts, framework agreements, basic contracts and finalized agreements with purchasing groups.

The definition of framework contracts, framework agreements, basic contracts and finalized agreements with purchasing groups connected with food and agricultural products reported in the decree of 17th July 2012, is particularly relevant.
Finalized agreements, also with purchasing groups such as framework contracts, framework agreements and basic sales contracts of food and agricultural products, conditions of sale and purchase activities, features of products, price list and provided services with their potential recalculation.
With reference to prices of the Framework Contract it will be possible to identify the “arrangements for determining the price applicable when issuing orders” with reference to price list.
The Framework Contracts signed with purchasing groups, shall include the list of those associates included in relevant purchasing groups having received their mandate.
Definitions refer also to Inter-professional Agreements within the parties set out in article no. 12, paragraph no.1 bis, legislative decree no. 173/1978 and subsequent modification and integration.

6 – Written form.  Electronic form, telefax.

Paragraph no. 2 of article no. 3 of Inter-ministerial Decree dated 17th July 2012, states (otherwise is void) a mandatory written form and conditions (set out in article no. 62, paragraph no.1) specifying that all written forms both “electronic” and “telefax” are valid even without subscription, having the purpose of signalling the parties’ willingness to establish, govern or terminate a legal relationship having as its subject the disposal of those products set out in relevant article no. 2 of inter-ministerial decree letter a ) agricultural products, and letter b) food products.
As underlined when defining framework contracts, the implementing procedure of article no. 62 included in article no. 3, inter-ministerial decree  of17th July 2012 is to consider “met” the essential requirements of article no. 62, paragraph no. 1, law 27/2012 included in contracts or agreements pursuant to article no.2, inter-ministerial decree of 17th July 2012, paragraph no. 1, letter 1.  (framework contracts, framework agreements, basic agreements, including agreements with purchasing groups) and letter m (inter-professional agreements) on condition that those contracts or agreements include details and references of relevant contracts or agreements related to:
• Contracts of products’ supply;
• Delivery or transportation documents, namely the purchase order forwarded by the buyer to the seller regarding the delivery of the products.

7- Contractual forms. 

The item no.4 of relevant article no.3 of the inter-ministerial decree regarding the essential conditions set out in article no. 62, paragraph no.2, states that those conditions shall be included during communication or orders prior to delivery.
Delivery and transportation documents including invoices, when integrated with all essential conditions required for sales contract (article no. 62, paragraph no.1, Law 27/2012) except for those referable to framework contracts, framework agreements or basic contracts, or contracts with purchasing groups, comply with the obligations provided by article no. 62 if relevant following text is written:
“In compliance with article no. 62, paragraph no.1, legislative decree no.1, 24th January 2012 converted with modifications by Law no. 27, 24th March 2012.
In addition, information and communication in the framework of Italian Telematic Commodity Exchange comply with the obligation provided by article no. 62, paragraph no.1 because executed on an agreement basis connected with the current regulation in force and including all conditions set out in article no. 62, paragraph no.1.

8 – Unfair business practices.   Prohibition.

The implementing procedures of prohibitions (regarding the so-called unfair business practices) set out in article no. 62, paragraph no.2, explain those principles inspiring new regulation (transparency, correctness, proportionality and mutual consideration of the performances) are implemented by article no.4, inter-ministerial decree of 17th July 2012:

With reference to best practices and prohibition of unfair practices identified by the European Commission, High level forum for the improvement of food chain, approved on 29th November 2011 and attached to inter-ministerial decree of 17th July 2012 (according to best practices, the general principles which shall be implemented by the parties who committed themselves to act according to the applicable laws, with a specific reference to fair competition, are:                                                                    a) parties shall consider the interests of the consumer and the general sustainability of food chain in B2B relationships by guaranteeing the highest efficiency, optimizing resources when distributing goods along the food chain);

II- Prohibition of abuses connected with higher market strength determining the imposition of “unjustifiably” severe contractual conditions:

  1. a) by including services and/or additional performances (also on behalf of third parties) to relevant supply and without “any” objective link both direct and logic, with sales;
  2. b) by excluding interests for late payment to the detriment of creditor or compensation for credit recovery costs;
  3. c) by excluding conditions imposing the seller to issue invoices, after the delivery of the products and not before a minimum period agreed with the debtor;
  4. d) by allowing delivery quotas of the products within the same month, including the agreement of issuing the invoice only after the last monthly delivery;
  5. e) at last, when the “unfair” business practice is a “common practice”, that condition may be the proof of abuses connected with the negotiation or market power and suffered from the contractor complaining the abuse, only with the purpose of obtaining an unjustified economic benefit (the counterpart) or unjustifiably serious (own damage).

9 – Payment terms   Invoices.   Contractors’ rights. 

Article no. 5 of inter-ministerial decree of 17th July 2012 sets out the implementing procedures of payment terms and invoicing pursuant to article no.62, paragraph no.3, Law no. 27/2012. In this framework the implementing procedures described in the inter-ministerial decree are:
1 – Payment terms’ limits starting from the last day of the month when receiving the invoice.
2 – Different invoices for supplies subject to different payment conditions.
3 – In order to assess interests for late payment it shall be considered: the date of the receipt of the invoice (delivered in person and/or by registered mail with return receipt or any other equivalent tool in compliance with tax regulation).
4 – If uncertainty on date of the invoice receipt, the assumption for interests is the date of goods delivery.
5 – Supply of alcoholic products refers to article no. 22 Law 28/1999.
10 –Both Creditor and Buyer rights.
Article no.6 of inter-ministerial decree of 17th July 2012 implementing article no. 62, paragraph no.3, Law no. 27/2012 establishes both Creditor and Debtor rights as follows:
I – Creditor rights: creditor who has complied with legal and contractual requirements and has not received due amount because of debtor’s delay is entitled to:
a) “automatic” interests, the day after the limit set out for the payment;

  1. b) calculation of interests:
    – interests for late payment; or

– interests rate agreed by parties provided it is not unfair;
– plus surcharges as per law (namely two further percentage points of the rate);

  1. c) Non-derogation of the automatism for the calculation of interests in compliance with article no. 62, paragraph no.3.

II – Buyer rights:
a) when the supplier does not comply with legal and contractual obligations agreed in the supply contract, the Buyer may “demand” the suspension of payment terms;
b) in case of disputes over a supply, the Buyer may retain a “partial” amount and not full amount connected with relevant complained supply.
11 – The Supervisor.
In connection with the activities of relevant Supervisor of Market and Competition, it is implemented the Supervisor Regulation in order to “guarantee the adversarial principle”, “full knowledge” of the acts, including reporting and publication of decisions (article no.62, paragraph no.8, law no.27/2012.
12 – Entry into force.
The new regulation under article no. 62 is entry into force on 24th October 2012.
However certain cases of deferred entry into force of the regulation are described:
1) For those effective contracts on 24th October 2012, the regulation is applied from that date, only for the requirements of paragraph no.1, article no. 62 (namely written form and essential conditions) and shall comply not later than 31st December 2012;
2) For those agreements signed under EU rules involving terms for signatures prior to 24th October 2012, they shall comply with the new regulation and adjusted for the following crop season;
3) In all cases the provisions included in article no.  62, paragraph no. 2 (prohibition) and paragraph no.3 (payments terms) shall be applicable to all contracts starting from 24th October 2012.

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