Fairness and transparency

Strengthening the position of more vulnerable actors in the food supply chain

The principle of fairness is one of the guiding principles of organic agriculture. It stipulates that “organic agriculture should build on relationships that ensure fairness with regard to the common environment and life opportunities”.

Silvia Schmidt
Policy Associate Manager

In the supply chain, the supplier generally holds the bargaining power. Due to its length, fairness is difficult to coordinate and guarantee across the entire chain. Producers are vulnerable actors in this chain, with weaker negotiation powers and lower profit margins.

In our vision, we state how to achieve fairness and transparency along the supply chain:

  • Farmers and workers are paid fairly: value and power are equally distributed across the system;
  • New business models and communications foster trust between all actors;
  • The environmental, social and public health costs and benefits of farming are reflected in payments to farmers and in the cost of food and external costs are taken into account.

To achieve this, we work on issues such as unfair trading practices, true cost accounting and market transparency.

Legal framework – UTPs

Ongoing processes

The legislative framework for unfair trading practices (UTPs) is a directive and not a regulation. This means that Member States can go beyond the provisions laid down in the Directive when transposing it into national legislation. Member States must transpose the Directive into national law by 1 May 2021 and apply it 6 months later (by 1 November 2021).  

IFOAM Organics Europe is monitoring the process of transposition and advocating to go beyond the provisions of the directive, such as the banned number of unfair trading practices.

Legislative background

Since 2008, the issue of unfair trading practices has been on the European political agenda. In April 2018, the Commission published a legislative proposal on unfair trading practices. After intense months of negotiations between the European institutions and parallel advocacy activities from civil society and other stakeholders, the directive on unfair trading practices in business-to-business relationships in the agricultural and food supply chain was published in the Official Journal in April 2019. The first recital of this directive highlights that “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”. Unfair trading practices include those practices that “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”.

Together with other civil society organisations, IFOAM Organics Europe published a transposition guide to this directive. This gives an overview of the scope of this directive (page 5), banned unfair trading practices (pages 4-5), and reporting and enforcement mechanisms foreseen by the directive (page 7).

Legal framework – Market transparency

Legislative background

Currently, there is a lack of data on prices of several food commodities, especially prices towards the end of the supply chain at processors’ and retailers’ level. Producers also tend to have less (access to) knowledge about the market, leading to information asymmetries between producers and actors further along the supply chain. Information asymmetries and a lack of market transparency can lead to inefficient markets where those that have access to market-related data have more powers than those that do not. 

The new legislation on market transparency, Commission Implementing Regulation 2019/1746, was published at the end of 2019 to provide an answer to these inequalities. Its provisions will enter into force as of 1 January 2021.

The Commission has worked on a fairer legislative proposal for market transparency covering the meat, eggs, dairy, fruit and vegetables, arable crops, sugar, and olive oil sectors. This regulation stipulates that data for organic products will also be collected separately, something that IFOAM Organics Europe had long advocated for. Indeed, it is necessary to have a better and more holistic view of the prices of organic products through the supply chain.
We are also advocating for more market transparency in terms of costs, not only prices, tying into the topic of true cost accounting above.

True Cost Accounting: our work and position

Certain agricultural practices have devastating consequences on the environment. For instance, pesticide use results in water pollution, and negatively affects the health of people, animals and insects (among others). Given that nature cannot provide the bill for these harmful environmental consequences, it is more financially advantageous to harm the environment, people and animals than it is to preserve natural resources and strive for a socially just food system. These are so called ‘external costs’ that are currently not taken into account in the cost of food production in many agricultural practices.

IFOAM Organics Europe advocates for the internalisation of externalities (including them in the ‘true cost’ of the product). This way, the price of conventional products would likely be closer to the price of organic products. As organic producers use more environmentally beneficial practices, organic products already consider external costs.

True cost accounting in official EU documents

In terms of policies linked to true cost accounting, Article 191 (2) the Treaty on the Functioning of the European Union stipulates that “Union policy on the environment shall aim at a high level of protection taking into account the diversity of situations in the various regions of the Union. It shall be based on the precautionary principle and on the principles that preventive action should be taken, that environmental damage should as a priority be rectified at source and that the polluter should pay”. As such, the so-called ‘polluter pays principle’ is embedded in EU policies, but, unfortunately, this is not systematically translated into practice.

The Farm to Fork Strategy stipulates that “Tax incentives should also drive the transition to a sustainable food system and encourage consumers to choose sustainable and healthy diets. The Commission’s proposal on VAT rates (currently being discussed in the Council) could allow Member States to make more targeted use of rates, for instance to support organic fruit and vegetables”. A potential tax on harmful pesticides or a VAT reduction for organic products could move the cost of food products closer to their true cost.

Relevant studies

A study by IFOAM Organics International found that “consumers pay three times or even four times for seemingly cheap food. In some countries citizens ‘subsidize’ unsustainable agriculture e.g. through government schemes that promote synthetic fertilizers. Then, they also pay the price of the product, and in addition they finance, through tax payments, the mitigation of the negative impacts of production (e.g. for purifying drinking water) and finally bear the health costs of non-commutable diseases”.

In the study we commissioned “Taxation as a tool towards true cost accounting” we identify whether measures like increased taxation of synthetic pesticides or reduced taxation of organic products could be feasible and better reflect the true cost of food. The study found that “indirect taxes on plant protection products tend to have a higher chance of being implemented and thus having the intended impact compared to indirect taxes on food”. Another interesting finding of this study is that cultivating a hectare of conventional potatoes in Germany costs 1.298 EUR of water pollution (the 1298 euros are needed to clean the water), while cultivating a hectare of organic potatoes in Germany costs 0.4 euros in terms of water pollution.

Practical examples

Bio Suisse introduced a code of fair trade relations in the supply chain in Switzerland to enhance trade relations between organic market partners in Suisse supply chains. The fairness strategy includes a code of conduct, roundtable discussions on fairness between market partners and a fairness survey to evaluate the current level of fairness in trade relations. Read more about how our member Bio Suisse is putting fairness in practice.

eu organic 2030

REKO is model for selling and buying local food directly from producers to consumers. Products are sold based on pre-orders made through closed Facebook rings. Different producers bring their products to the same place at the same time. There are over 160 REKO rings in Finland at the moment. The REKO model has spread in other countries as Sweden, Italy and Iceland. For more information, visit euorganic2030.bio.

The platform targets agriculture producers, processors, farmers, traders, warehouses, public and private organisations and consumers. It is designed to work similarly as a social network or any other platform on which both parties register and either make an offer or a demand. This virtual agricultural trade sustains ecological producers to better market their products, especially in urban areas. Read more about this initiative on euorganic2030.bio.

The global food market is anonymous, which leads to ruthless exploitation of the planet and the people that live on it. Food production has hidden costs such as plastic waste, water pollution, degraded soils, climate change, social disruption and conflict. We need to reconnect the grower with the consumer, show the impacts on people and planet, reveal the True Costs of Food. That is what the Nature & More transparency system does. Find more information about this initiative on euorganic2030.bio.

Would you like to get inspired on how other players are making Fair play – Fair pay a reality? Check out the initiatives on euorganic2030.bio.

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