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Office of Competition and Consumer Protection

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Dairy sector - UOKiK's report

< previous | next > 24.04.2018

Dairy sector - UOKiK's report
  • Obligation to release all milk from the farm, under pain of penalty. This is not
    a description of a 16th century Polish village, but an agreement concluded between a milk processing facility and a farmer in 2018.
  • UOKiK has analyzed agreements and has come up with recommendations for the sector

July 2017 saw the entry into force of the Contractual Advantage Act. One of the first proceedings instigated were concerned with relationships between milk processing entities and their suppliers. The Authority has verified agreements concerned with sales and delivery of milk, as well as specifying the quotas contracted.  A report has been drawn up identifying those solutions that are good, as well as those that may be considered unfair practices abusing the parties’ contractual advantage.

“We have come up with a report making recommendations as to what fair agreements should look like. These are the first proceedings we are conducting on the dairy market, and the Contractual Advantage Act has entered into effect only recently. Therefore, we are aware that entrepreneurs could be oblivious, in many instances, to the fact that specific practices are not in compliance with the newly introduced regulations. That’s why we have decided to limit ourselves to providing guidelines for suppliers and recipients. Our analysis serves as a roadmap for them, showing what their commercial relationships should look like. If, however, we identify questionable provisions in the agreements in the future as well, relevant proceedings will be instigated and fines will be imposed” - says Marek Niechciał, the President of UOKiK.

Exclusivity clause

The exclusivity clause and its consequences are among the issues that the Authority had the most reservations about. The exclusivity clause requires suppliers to release all the milk they produce to a specific dairy. According to UOKiK, no supplier should be forced to deliver its products to one milk processing facility only, especially if a contractual penalty is envisaged. In some cases suppliers are even forbidden to maintain any commercial relations with other processing entities. This prevents them from signing new contracts, replacing the recipient with a one that will offer better conditions, or even trying to determine whether a different dairy is capable of offering more favorable contractual provisions.

Milk prices

The Authority has also verified the manner in which milk prices are calculated. In the majority of cases, the final remuneration is determined following the delivery of the product, based on the confirmed parameters.  Such an approach is justified, as the price of milk depends, to a considerable degree, on its quality, which may be varying. The process should be transparent, however, and should be based on pre-determined criteria. Therefore, the Authority is not a supporter of solutions authorizing the recipient to freely define or change the prices, without any specific grounds to do that.

Termination of agreement

UOKiK has also verified the process of terminating agreements in the dairy sector. It had doubts, inter alia about provisions that settle this issue unilaterally, e.g. providing the dairy with the right to terminate cooperation without a notice period.

Quality of milk

The report deals also with the quality of milk and with the meeting of standards provided for in applicable legal regulations. It is worrying that processing plants buy milk that fails to meet the quality requirements, e.g. the product contains too much bacteria, or no current sanitary and veterinary certificate is available for a specific batch. Such situations cannot be considered to constitute an unfair abuse of competitive advantage, but such products should not be marketed at all. Luckily, such cases are sporadic. Most dairies reserve the right to refuse collecting milk that fails to meet specific requirements.

Individual contracts contain different provisions in terms of who should pay for verifying the quality of milk. In the majority of cases the costs are borne by the recipient. It happens also that such costs are evenly distributed, or covered by the supplier. In the last two situations it is important for such costs to be precisely stated in the agreement.

Opinion of KOWR

Having completed the proceedings, UOKiK applied to Krajowy Ośrodek Wsparcia Rolnictwa (National Farming Support Center) for its opinion. KOWR has agreed with the primary findings of the report, inter alia those related to the exclusivity clause, or to unilateral determination of prices.

Additional information for the media:

Press Office of UOKiK 
Pl. Powstańców Warszawy 1, 00-950 Warszawa
Tel. 22 55 60 430, 695 902 088
Email: [SCODE]Yml1cm9wcmFzb3dlQHVva2lrLmdvdi5wbA==[ECODE]

Twitter: @UOKiKgovPL

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