UTP
Development Policy Impact of Regulations on Unfair Trading Practices on Producers in Global Agricultural Commodity Value Chains
The production and export of agricultural commodities such as cocoa and bananas are essential sources of income for producing countries in the Global South and for the producers based there. However, the revenues generated are often not sufficient to secure a decent livelihood. This problem is largely caused by a highly unequal distribution of bargaining power, value added, and profit margins along the value chains, to the advantage of actors in the Global North. Due to the structural imbalances between small and large companies in the food supply chain, this sector is particularly vulnerable to unfair trading practices. Unfair trading practices (UTPs) are business-to-business transactions that deviate from good commercial conduct and violate the principles of good faith and fair dealing.
New regulatory approaches, such as the EU Directive on Unfair Trading Practices in the agricultural and food supply chain (Directive (EU) 2019/633), as well as national legislation in EU Member States, for example the German Agricultural Organisations and Supply Chains Act (AgrarOLkG), aim to protect agricultural holdings and supplier companies that are comparatively smaller than purchasing firms by prohibiting certain UTPs. These regulations also protect producers based outside the European Union. As a result, UTP legislation is also relevant for global agricultural commodity value chains.
However, the prevalence and significance of UTPs in key agricultural commodity value chains, such as those of cocoa and bananas, have not yet been systematically researched. It is also unclear to what extent the EU Directive and the AgrarOLkG are suitable and effective tools for combating UTPs in global agricultural commodity value chains, and what can be learned from the trading practices of the Fair Trade economy for successful regulation. The aim of this research project is therefore to analyse trade routes and trading practices in the global cocoa and banana value chains. On this basis, both UTPs and price-setting mechanisms, as well as regulations prohibiting prices below production costs, will be identified and examined.
The objective of this accompanying research is to highlight the development policy potential of legal regulations aimed at preventing UTPs and shaping price-setting mechanisms in selected global agricultural commodity value chains. The study will identify both the opportunities and the limitations of preventing unfair trading practices through the EU UTP Directive and the AgrarOLkG. At its core is the potential improvement of producers’ income situations, particularly in terms of income levels and income stability, and the resulting implications for development policy.
Project partner: Austrian Foundation for Development Research (ÖFSE)
Project team: Carola Schafhausen (Research associate), Dr. Christina Weber (Project lead), Prof. Dr. Christian Herzig (Project lead)
Duration: Oct. 2024 to Sep. 2027 (36 months)
Associated research focus of the professorship: Transformation and organisation of value chains and food systems
This project is funded as an accompanying research initiative by the Federal Ministry for Economic Cooperation and Development (BMZ).
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