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Accusations of president of UOKiK against companies from meat industry

Christian Fernsby ▼ | May 8, 2020
The President of UOKiK, Tomasz Chróstny, initiated proceedings against companies which engage in the so-called contract fattening.
Tomasz Chróstny
UOKiK   Tomasz Chróstny
Agrifirm and Agri Plus may be unfairly using their contractual advantage over pig farmers.

Topics: UOKiK meat

Contract fattening consists in the farmer fattening piglets under the instructions of a meat corporation or feed producer or through these entities. The system organiser provides the farmer with precise guidelines on the techniques for rearing the piglets it has supplied, as well as on the amount and type of concentrates or feed used, which it also supplies.

The organiser also undertakes to repurchase the pigs for fattening for a fixed price at an agreed time, after they have reached the specified weight. At the time of final settlement, it deducts the charges for purchased piglets, feed and other means of production or veterinary treatment, as well as reduces the remuneration in the event of failure to achieve specific results, e.g. weight or level of feed use.

Such contracts are concluded with farmers by Agrifirm and Agri Plus, which form part of large corporate groups. The first company belongs to the Royal Agrifirm Group, a Dutch feed producer, and the latter forms part of Smithfield Foods, a subsidiary of the Chinese WH Group – the largest pork producer in the world.

Initiation of proceedings against the above-mentioned enterprises does not mean that the President of UOKiK, Tomasz Chróstny, impugns the model of contract fattening itself. In some cases, this livestock farming system may be advantageous for farmers, e.g. in the case of lack of access to working capital which enables independent farming.

Reservations of the President of UOKiK after conducting explanatory proceedings, which analysed the principles of settlement applied by organisers of fattening, are connected with the method of determining the farmer’s final remuneration. President of UOKiK Tomasz Chróstny concluded that exposing suppliers to excessive risk may constitute unfair use of contractual advantage by large companies.

The ordering party supplies the animals, feed and precise guidelines on the farming. In some cases, it also closely monitors the process of fattening, including provision of veterinary treatment and medicine. Therefore, the farmer’s role is fundamentally limited to making livestock buildings available and caring for pigs for fattening. And yet the final remuneration is reduced by components which largely depend on the organiser of fattening.

For instance, the farmer receives less money upon settlement if a pig fails to achieve a satisfactory weight, even though the farmer has no impact on the quality and type of the supplied piglet genetics and is forced to only use the feed supplied by the organiser of fattening, in doses specified by the organiser. The final weight may also be affected by the animal’s welfare at the time of delivery for fattening, which is beyond the farmer’s control.

“One advantage of contract fattening is the relative stability of cooperation with a large business partner. However, this stability cannot justify reduction of remuneration where such reduction occurs under the influence of factors beyond the farmer’s control. Settlement with the farmer is based on the results, while the structure and conditions of contract fattening themselves point to the farmer’s ability to operate in line with the due diligence requirements.

"This is due to the fact that the fattening procedure itself has been formulated in a manner which limits the farmer’s direct impact on the results of rearing. As a consequence, the principles of settlement appear to be so formulated that it is the organiser who reaps disproportionate benefits rather than the farmer,” says President of UOKiK Tomasz Chróstny.

The President of UOKiK wishes to verify whether the accusations that actions of Agrifirm and Agri Plus constitute unfair use of contractual advantage will prove true. Therefore, what is impugned here is the uneven distribution of risk between the parties and burdening the farmers with the financial consequences of failure of the undertaking to an extent beyond their control.

“Using contractual advantage constitutes material violation of the applicable law; it has a negative effect on Polish farmers and producers from the agri-food sector. The rights, obligations and responsibility should lie with both parties to the contract in equal proportions, and large enterprises cannot use their position to act to the detriment of smaller business partners,” adds President of UOKiK.

The President of the Office has the powers to intervene in the event of such practices in the agri-food sector. They are punishable by a fine of up to 3% of the entrepreneur’s annual turnover.