Relationship between Suppliers and DistributorsEgalim 4 : Another reform of the French law on commercial negotiations ?
Catherine Robin
In response to the ongoing agricultural crisis, a new reform of the so-called « Egalim » law has been announced by the end of 2024. But what exactly is Egalim ?
- The legal context : a plethora of legislation
French legislation on commercial negotiations is unique. Since 1986, dozens of legislative texts have modified the system, with the obligation to sign a «single written agreement» between the supplier and the distributor « by 1 March at the latest ». This principle is accompanied by various other obligations: mandatory content, disclosure of general terms and conditions of sale, strict timetable for commercial negotiations, etc.
he so-called « EGalim » laws introduced a principle of fair remuneration for farmers. This was achieved through three laws over a five-year period, followed by the implementation of decrees and an emergency inflation law for 2024.
The objective of the EGalim 1 legislation was to ensure that producers received a fair price for their goods. This was achieved by establishing a pricing framework based on proposals from farmers, with prices being calculated in a manner that takes into account production costs and reference indicators developed by inter-trade organisations. In the event of fluctuations in the cost of raw materials and energy, prices are renegotiated. The promotion of goods is subject to regulation, while the threshold for resale for loss on foodstuffs is increased by 10% in order to rebalance margins in favour of producers and small businesses.
The EGalim 2 law has reinforced the system by requiring written contracts between farmers and their first buyers. The share of agricultural raw materials in the price of food products is now non-negotiable and must be clearly stated in the terms and conditions of sale, according to the three options provided for by the law. Furthermore, a clause has been included which allows for the price to be renegotiated in accordance with the cost of the raw materials in the event of a fixed price.
Finally, the Descrozaille law, also known as «Egalim 3», has been supplemented by the law on the inflationary emergency in France, thereby reinforcing the already robust legal framework in this area. In order to combat the practice of international purchasing groups operated by large retailers, this law stipulates that, from 1 April 2023, relations between suppliers and distributors must be governed by French law and subject to the jurisdiction of French courts when the products or services are marketed in France.
The law also addresses an ambiguity regarding the outcome of commercial negotiations. In the event that negotiations between the supplier and the distributor fail by the 1 March deadline, the law provides for two potential solutions :
- The supplier may terminate the commercial relationship with the distributor concerned, without notice and without the distributor being able to claim that the relationship has been brutally terminated.
- Alternatively, the supplier may terminate the commercial relationship subject to reasonable notice and the « economic conditions of the market in which the two parties operate ». In the event that an agreement cannot be reached on the terms of the notice period before 1 April, a mediator may be called in to assist in the resolution of the dispute. Should no agreement be reached, the supplier may terminate the relationship, without the distributor being able to accuse it of abrupt termination.
Despite the plethora of laws that have been enacted, the various objectives have not been achieved, as evidenced by the agricultural crisis that hit France at the beginning of 2024. Furthermore, the Minister for the Economy observed that 12% of the agreements had not been signed by the 2024 deadline. Consequently, the government has initiated measures to enhance the situation.
- Egalim 4: a solution to unsolvable problems ?
The designation « Egalim 4 » is unofficial and refers to a parliamentary mission whose objective is to propose a «light» reform of Titre IV du Livre IV du Code de commerce.
The legislative transition could be based on the information report on the Descrozaille law, published on 20 March 2024. A number of issues have been identified in commercial relations between suppliers and distributors.
The primary objective of this new law is to enhance producers’ capacity to negotiate. To this end, the President of the Republic has proposed the introduction of «floor prices» to guarantee a minimum income for producers. Some have suggested that tripartite meetings during trade negotiations between producers, suppliers and distributors may be a viable solution. Contractualisation and the consideration of producers’ production costs could also be reformed in a similar manner.
Secondly, the objective is to facilitate trade negotiations, which are perceived as increasingly challenging in the context of an economic climate characterised by tension between distributors and suppliers. Some have called for the 1 March deadline to be waived, or even for the implementation of a two-tier system based on supplier size, as was the case during the 2024 negotiations.
Finally, it is essential that the new system ensures the strict application of French law. Indeed, the use of international purchasing groups betrays a desire to evade French law. While the legislation already provides for the applicability of French law, it is the sanctions and their application that need to be corrected. In addition, wholesalers are excluded from the provisions of the EGalim law. This situation must be taken into account in order to prevent distributors from escaping the legal regime.
Ultimately, the forthcoming «EGalim 4» law is intended to refine the measures set out in the «EGalim 2» law, without fundamentally reforming the law on commercial negotiations in France. Rather than focusing on the legislation itself, the debate is more concerned with the manner in which it is applied.