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(1) Within the agricultural and food supply chain, significant imbalances in bargaining power between suppliers and buyers of agricultural and food products are a common occurrence. Those imbalances in bargaining power are likely to lead to unfair trading practices when larger and more powerful trading partners seek to impose certain practices or contractual arrangements which are to their advantage in relation to a sales transaction. Such practices may, for example: grossly deviate from good commercial conduct, be contrary to good faith and fair dealing and be unilaterally imposed by one trading partner on the other; impose an unjustified and disproportionate transfer of economic risk from one trading partner to another; or impose a significant imbalance of rights and obligations on one trading partner. Certain practices might be manifestly unfair even when both parties agree to them. A minimum Union standard of protection against unfair trading practices should be introduced to reduce the occurrence of such practices which are likely to have a negative impact on the living standards of the agricultural community. The minimum harmonisation approach in this Directive allows Member States to adopt or maintain national rules which go beyond the unfair trading practices listed in this Directive.

(2) Three Commission publications since 2009 (the communication of the Commission of 28 October 2009 on a better functioning of the food supply chain in Europe, the communication of the Commission of 15 July 2014 on tackling unfair trading practices in the business-to-business food supply chain, and the report of the Commission of 29 January 2016 on unfair business-to-business trading practices in the food supply chain) have focused on the working of the food supply chain, including the occurrence of unfair trading practices. The Commission suggested desirable features for national and voluntary governance frameworks for dealing with unfair trading practices in the food supply chain. Not all of those features have become part of the legal framework or voluntary governance regimes in Member States, leaving the occurrence of such practices still the focus of the political debate in the Union.

(3) In 2011, the Commission-led High Level Forum for a Better Functioning Food Supply Chain endorsed a set of principles of good practice in vertical relations in the food supply chain, which was agreed by organisations representing a majority of the operators in the food supply chain. Those principles became the basis for the Supply Chain Initiative launched in 2013.

(4) The European Parliament, in its resolution of 7 June 2016 on unfair trading practices in the food supply chain , invited the Commission to submit a proposal for a Union legal framework concerning unfair trading practices. The Council, in its conclusions of 12 December 2016 on Strengthening farmers' position in the food supply chain and tackling unfair trading practices, invited the Commission to undertake, in a timely manner, an impact assessment with a view to proposing a Union legislative framework or non-legislative measures to address unfair trading practices. An impact assessment was prepared by the Commission, which was preceded by an open public consultation as well as targeted consultations. In addition, during the legislative process the Commission provided information demonstrating that large operators represent a considerable share of the overall value of production.

(5) Different operators are active in the agricultural and food supply chain at different stages of the production, processing, marketing, distribution and retail of agricultural and food products. That chain is by far the most important channel for bringing agricultural and food products from ‘farm to fork’. Those operators trade agricultural and food products, that is to say primary agricultural products, including fishery and aquaculture products, as listed in Annex I to the Treaty on the Functioning of the European Union (TFEU), and products not listed in that Annex but processed for use as food using products listed in that Annex.

(6) While business risk is inherent in all economic activity, agricultural production is particularly fraught with uncertainty due to its reliance on biological processes and its exposure to weather conditions. That uncertainty is compounded by the fact that agricultural and food products are to a greater or lesser extent perishable and seasonal. In an agricultural policy environment that is distinctly more market-oriented than in the past, protection against unfair trading practices has become more important for operators active in the agricultural and food supply chain.

(7) In particular, such unfair trading practices are likely to have a negative impact on the living standards of the agricultural community. That impact is understood to be either direct, as it concerns agricultural producers and their organisations as suppliers, or indirect, through a cascading of the consequences of the unfair trading practices occurring in the agricultural and food supply chain in a manner that negatively affects the primary producers in that chain.

(8) A majority of Member States, but not all of them, have specific national rules that protect suppliers against unfair trading practices occurring in business-to-business relationships in the agricultural and food supply chain. Where reliance on contract law or self-regulatory initiatives is possible, fear of commercial retaliation against a complainant, as well as financial risks involved in challenging such practices, limit the practical value of those forms of redress. Certain Member States which have specific rules on unfair trading practices therefore entrust the enforcement of such rules to administrative authorities. However, Member States' unfair trading practices rules — to the extent they exist — are characterised by significant divergence.

(9) The number and size of operators vary across the different stages of the agricultural and food supply chain. Differences in bargaining power, which correspond to the economic dependence of the supplier on the buyer, are likely to lead to larger operators imposing unfair trading practices on smaller operators. A dynamic approach, which is based on the relative size of the supplier and the buyer in terms of annual turnover, should provide better protection against unfair trading practices for those operators who need it most. Unfair trading practices are particularly harmful for small and medium-sized enterprises (SMEs) in the agricultural and food supply chain. Enterprises larger than SMEs but with an annual turnover not exceeding EUR 350 000 000 should also be protected against unfair trading practices to avoid the costs of such practices being passed on to agricultural producers. The cascading effect on agricultural producers appears to be particularly significant for enterprises with an annual turnover of up to EUR 350 000 000. The protection of intermediary suppliers of agricultural and food products, including processed products, can also serve to avoid the diversion of trade away from agricultural producers and their associations which produce processed products to non-protected suppliers.

(10) The protection provided by this Directive should benefit agricultural producers and natural or legal persons that supply agricultural and food products, including producer organisations, whether recognised or not, and associations of producer organisations, whether recognised or not, subject to their relative bargaining power. Those producer organisations and associations of producer organisations include cooperatives. Those producers and persons are particularly vulnerable to unfair trading practices and least able to weather them without negative effects on their economic viability. As regards the categories of suppliers that should be protected under this Directive, it is noteworthy that a significant proportion of farmer-constituted cooperatives are enterprises larger than SMEs but with an annual turnover not exceeding EUR 350 000 000.

(11) This Directive should cover commercial transactions irrespective of whether they are carried out between enterprises or between enterprises and public authorities, given that public authorities, when buying agricultural and food products, should be held to the same standards. This Directive should apply to all public authorities acting as buyers.