The ECPC publishes its best practices on price revision and renegotiation

The CEPC has published its Recommendation No.24-1 on a guide to good practice on automatic price review clauses and renegotiation clauses in relations between manufacturers and distributors.

On 2 December 2024, the CEPC published its Recommendation No.24-1 on a guide to good practice on automatic price review clauses and renegotiation clauses in relations between manufacturers and distributors.

As a reminder, the EGAlim laws have introduced two mechanisms to take into account the variation in the price of inputs, in particular agricultural raw material (MPA), in contracts for the sale and distribution of food products:

1. The automatic price revision clause (Article L.443-8 of the French Commercial Code)
2. The renegotiation clause (Article L.441-8 of the Commercial Code, existing since 2014)

These clauses aim to guarantee a “forward movement” of the price, that is to say a passing on of cost variations from the agricultural producer to the various links in the chain (first buyer, industrial, distributor)

This recommendation is part of the EGAlim laws and aims to improve the effectiveness of these clauses, which are central in the regulation of commercial relations in the agri-food sector.

It follows a referral to the ECCC based on the Ministers’ finding that these contractual clauses provided for by law have not, to date, fulfilled their objectives.

For each of these clauses, the CEPC has drawn up an inventory, pointed out good practices and formulated its recommendations.

• Firstly, with regard to the automatic price review clauses:

The ECPC notes the existence of difficulty in applying these clauses due to the lack of publication of relevant indicators; and due to the different transparency options (as a reminder, there are 3) which do not always make it possible to build a clause adapted to the products in question.

Therefore, while single agreements typically include an automatic price review clause, in practice they are unlikely to be triggered.

Based on this observation and the good practices identified, the CEPC makes 7 recommendations at constant duty on automatic price revision clauses:

Recommendation # 1: Trigger thresholds and implementation deadlines must be the same for upward or downward revision or, if different, have been fully negotiated and justified to avoid any risk of significant imbalance grievance. More generally, the clauses must provide for reciprocity in the rates and in the trigger thresholds.

Recommendation #2: Wherever possible, automatic price review clauses downstream between the supplier and the buyer, use indicators similar to those provided for upstream under Article L. 631-24, III, 1° of the CPMR subject to compliance with these provisions by the parties in the context of the upstream relationship, and the relevance of this similarity with regard to the composition of the products manufactured by the manufacturer.

Recommendation3: Suppliers should propose an automatic revision formula adapted to their production and supply cycles.

Recommendation4: While preserving the parties from too frequent discussions, the thresholds negotiated must be realistic, and consistent with the production and marketing cycles of the products covered by the contract in order to make the clause operational and not lead to neutralization of its effects.

Recommendation5: When the supplier offers a very wide range, with products whose composition is very variable, the parties could agree on an arc per category of relatively homogeneous products, which would be called upon to trigger, if necessary, a revision of the agreed price only for the products of said category.

Recommendation No.6: The automatic review clauses should not be interpreted as clauses inducing permanent fluctuation and a correlative adjustment of the price, but as the means of reflecting a significant and lasting variation in agricultural production costs, resulting from an initial discussion between the parties on an objective basis with a view to a revision of the price during the execution of the contract, in the preservation of the contractual balance,

As such, an automatic review should potentially take place at most once a year when the contract is annual, or even twice in the event of a significant variation in the agricultural raw material.

Recommendation No.7: Pursuant to Article L. 631-24 of the CPMR, recognised inter-branch organisations are required to publish reference indicators for the agricultural products they represent. These indicators are necessary for the proper application of the provisions relating to the automatic price revision clause. They must therefore be published and updated on a regular basis.

• Then, with regard to the renegotiation clauses:

The CEPC notes difficulties in application due to the demanding formality posed by Article L.441-8 of the Commercial Code which paralyzes the parties who generally never engage in the renegotiation process and favors other forms of negotiations.

It also notes that the indicators used are mainly those of INSEE, which generally does not reflect the reality of suppliers’ costs.

With regard to trigger points and observation periods, the data are very variable, between 15% and 30% and 2 to 6 months.

Finally, the finding is the same as for the revision clause, the renegotiation clause is generally inserted in the contracts but little triggered.

Based on this observation and the good practices identified, the CEPC makes 2 recommendations at constant duty on automatic price revision clauses:

Recommendation No.8: In accordance with the spirit of Articles L. 441-8 and L. 442-1, I, 2° of the Commercial Code, the parties may only take into account the most relevant cost items among those mentioned by this text.

Recommendation No.9: Pursuant to Article L. 631-24 of the CPMR, recognised inter-branch organisations are required to publish reference indicators for the agricultural products they represent. These indicators are necessary for the proper application of the provisions relating to the renegotiation clause. They must therefore be published and updated on a regular basis.

The challenge for stakeholders in the sector will be to take ownership of these recommendations and adapt them to their economic realities, while remaining attentive to future legal developments. A collaborative approach and a shared willingness to build balanced and sustainable business relationships will be essential for the success of these schemes.

(Recommendation No. 24-1 of 2 December 2024 on a guide to good practice on automatic price review clauses and renegotiation clauses in relations between manufacturers and distributors)