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Contractual Justice and Market Efficiency in the Supply Relationships within the Agro-Food Chain

Antonio Albanese

Il paper esamina, da un punto di vista economico, etico e giuridico, alcuni strumenti normativi attraverso i quali il diritto civile può migliorare l’efficienza e l’equità del commercio nella filiera agroalimentare.

Al riguardo, i contratti di integrazione verticale svolgono un ruolo chiave nella regolazione dei rapporti di fornitura, obbligando gli agricoltori a rispettare specifici criteri e tecniche di coltivazione e di allevamento, nonché a vendere i loro prodotti alla controparte, che, a sua volta, ha l’obbligo di acquistarli previa verifica del rispetto di tutti i requisiti pattuiti. Tuttavia, un tale sistema integrato di produzione espone gli agricoltori al rischio di abusi, in ragione della loro posizione di dipendenza economica. Di conseguenza, sono necessari strumenti giuridici che possano impedire a una parte di approfittare del proprio potere contrattuale ai danni dell’altra.

Nei sistemi che identificano il fondamento dell’ordinamento giuridico nei valori sociali e nei diritti inviolabili incorporati nella Costituzione, sarebbe inaccettabile una lettura delle norme che governano le relazioni economiche come finalizzate esclusivamente a promuovere l’efficienza del mercato. La tutela di altri interessi non economici richiede una disciplina obbligatoria dei rapporti contrattuali, coerente con la funzione non solo economica ma anche etica del mercato.

Nel libero mercato, tuttavia, la legge non impone autoritativamente il contenuto del regolamento contrattuale, ma corregge gli squilibri generati dall’abuso di potere contrattuale che limitano la libertà della parte economicamente più debole, costringendola ad accettare condizioni inique. Secondo questo punto di vista, comunque, a differenza del modello neoliberale, l’intervento pubblico non si limita a stabilire le regole organizzative e procedurali, in ossequio a un principio di eguaglianza formale dei contraenti, ma mira a rimuovere gli ostacoli sociali ed economici che, limitando la libertà e l’uguaglianza delle parti, impediscono il pieno sviluppo della persona umana anche nel contesto dei rapporti economici.

Articoli Correlati: contractual justice - market efficiency


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1. Vertical integration by contract farming agreements as a response to the needs of the contemporary society - 2. Mandatory rules to prevent abuse of bargaining power. Ethics and Economics in the regulation of the agro-food market - 3. The role of collective autonomy in agriculture and its limits - 4. Examples and characters of public intervention on private autonomy in the food chain: prohibiting improper conducts of negotiations, requiring written form and minimum mandatory content for individual contracts and fighting against late payments - 5. Justice and Freedom of Contract in the market regulation. Ethical foundations of positive law - NOTE

1. Vertical integration by contract farming agreements as a response to the needs of the contemporary society

A complex society such as ours, with its typical consumption’s habits, implies, on the one hand, an agro-food system characterized by a strong speciali zation and labor division [1] and, on the other hand, an ever-closer coordination of production, processing, and distribution [2]. The industrialization process in the food system has in fact gradually changed the structure of the agricultural market, no longer based on direct sales from producers to consumers, but on a tight network of contractual relationships that govern the different stages and activities, through which the goods from production sites reach the final market [3]. Instead, the so-called short chain and local markets of zero-kilometer products are marginal and, despite the renewed focus on them [4], cannot nowadays replace the food industry in the satisfaction of human needs. In the present historical context, vertical integration by contract farming agreements plays a key role in regulating the relationships in the supply chain [5], requiring farmers to comply with specific criteria and techniques of cultivation and breeding, and to sell all their products to the other party, who, in turn, is obliged to purchase the products after having verified the compliance with all the agreed standards [6]. This approach not only benefits individual parties, but also increases the efficiency of the whole food system [11], both in terms of improving the quality of production, which can comply better with the needs of the end markets [12], and in terms of harmonizing supply and demand quantity, thus avoiding the risk of surplus items that remain unsold. The development of integration contracts, in fact, makes it possible to overcome the connatural difficulty of the market to ensure, without high information costs, the correspondence between the supply and the demand from the processing and distribution sector [13].

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2. Mandatory rules to prevent abuse of bargaining power. Ethics and Economics in the regulation of the agro-food market

However, this integrated system of production exposes farmers to the hazard of abuse because of their position of economic dependence [14], when in order to adjust their production to the other party’s request, they make specific investments difficult to switch [15]. Indeed, when the contract expires, the buyer can take advantage of the renegotiation by imposing unfair contractual terms and conditions on the farmer [16]. Moreover, an economic dependence may result from other circumstances that limit the contractual freedom of a contracting party, regardless of the existence of previous relationships [17], and can induce it to accept an unfair deal [18]. As a consequence, it’s necessary to develop legal instruments, which in accordance with the free market, could prevent and correct these imbalances produced by abuses of bargaining power. In achieving these objectives, mandatory rules play a key role, since the “myth” of a liberal market – able to regulate itself according to a spontaneous order and to naturally increase the overall well-being [19] – is more and more illusory. The very same economic sciences show that without adequate controls and corrections, the distortions of competition and market imperfections may cause this idealized market’s failure [20], as experimented also in the agro-food sector. Furthermore, there is the risk that free competition, in the absence of legal rules, may comply with economic criteria but violate fundamental human rights [21]. Therefore, protection of higher interests cannot be left to the spontaneous functioning of the market, but calls for a choice of legal policies resulting in a mandatory discipline of contractual relationships, coherent not only with the economic, but also with the ethical function of the market [22]. Indeed, recognizing the artificiality of the market as an institution governed by legal rules does not necessarily mean to agree with a merely positivistic model of the law, namely with the arbitrary will of the law imposed on the market [23]. In constitutional systems that identify the foundation of law in ethical values and inalienable rights incorporated in the Constitution, it would be unacceptable reading the rules governing economic relations as exclusively aimed to promote market efficiency [24]. However, regulation is legitimate when aimed at ensuring that the private economic [continua ..]

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3. The role of collective autonomy in agriculture and its limits

To remedy these disadvantages, Producers’ Organizations (PO) play a fun­damental role both in the USA [38] and in the UE agricultural market structure [39]. With reference to the latter, the Treaty on the Functioning of the European Union (TFEU) provides a specific status for the agricultural sector with regard to competition rules and article 42 gives unique powers to the EU legislator to decide to what extent the competition rules, set out in the TFEU, apply to the sector, taking into account the five objectives of the Common Agricultural Policy (CAP) defined by article 39 as follows: 1) increasing productivity of agricultural production; 2) ensuring a fair standard of living for agricultural communities; 3) stabilizing markets; 4) assuring supplies and 5) ensuring reasonable prices for the consumer. For these reasons the production and trade of agricultural products, given the special nature of this market, “may” be exempted from the common competition laws. This principle is laid out in the basic act for agricultural markets, the Common Organization of the Market (CMO) Regulation n. 1308/2013 of the European Parliament and of the Council of 17 December 2013. In particular article 209, by derogating from the general prohibition of agreements restricting competition under article 101 § 1 TFEU, allows joint activities by agricultural producers, provided that there is no obligation to charge an identical price, no exclusion of competition and this does not jeopardize Common Agricultural Policy (CAP) objectives [40]. As a consequence, they might engage in various joint activities such as marketing and selling, in order to reach a larger scale on the markets. In this logic farmers may establish PO in order to rebalance their position towards their commercial partners, without preventing the proper competitive functioning of the market [41]. As a result, on the one hand, they are able to concentrate supply, selling products supplied by their members [42] and, on the other hand, they may balance the bargaining power of buyers [43], for example determining the content of individual farming contracts by means of Framework Agreements (FA) with the opposing organizations, representing companies involved in processing, distribution, and marketing. This possibility is expressly recognized by EU law, which in certain production [continua ..]

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4. Examples and characters of public intervention on private autonomy in the food chain: prohibiting improper conducts of negotiations, requiring written form and minimum mandatory content for individual contracts and fighting against late payments

In order to overcome this and other situations of unequal bargaining power within the supply chain, regulatory intervention is also appropriate at the level of individual bargaining [51]. This intervention may imply prohibiting improper conducts of negotiation in order to ensure an effective freedom of contract to the weaker party, identified in the farmer. In most European legal system the protection of agricultural producers focuses primarily on the end runtime of the farming contract, when they sell their products to wholesalers, supermarket chains or to the processing industry [52]. This choice of legal policy can largely be explained as an expression of a more general trend of European law to shape the legislation on contract to the liberal model of commercial sale, by transforming long-term partnerships into synallagmatic spot relations [53]. But it is also based on the empirical finding that the imbalance of bargaining power between producers and buyers, even in vertical integration relations, is typically crystallized in the sale of goods [54]. In this case, the protection of contractual freedom of farmers requires the judge to control the fairness of the exchange and avoid its terms, which are not authentic expression of both parties autonomy but the consequence of the abuse of bargaining power by one of them [55]. It can also be appropriate to impose some formal requirements and a mini- mum mandatory content for the contract, in order to establish more transparent contractual relationship and prevent buyer’s requests for undue benefits [56]. According to this logic the legislative provision of form in order to protect weaker party has been gradually extended from the consumerist legislation to the business regulation [57]. In particular, binding the stronger party to determine the sale price at the time of signing the contract fights the common practice of setting it, in case of future agricultural products, by reference to lists and mercurial at harvest. In this way, the negative effects of price volatility in the agricultural market are attenuated [58] and the farmer can plan investments according to more rational and efficient criteria [59]. In both cases the law does not impose political terms, but it requires the stronger party to make the economic content of the exchange more reliable and transparent [60]. For the same reason the contractual freedom of the [continua ..]

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5. Justice and Freedom of Contract in the market regulation. Ethical foundations of positive law

All these regulatory measures share a common concern toward minimizing unequal bargaining power, as a prerequisite for a contract legitimately ba- lanced according to a criterion of justice, operating not in opposition to parties’autonomy, but simply ensuring effective freedom of contract for everyone [63]. This discipline complies with a specific trend in modern legal systems: following the demands of the post-liberal society, the principle of freedom of contract is here replaced by a judicial review of the agreement [64], that takes into account not only the unfairness of its content, but also the inequality of bargaining power between the parties and the improper conduct of one of them in the formation of the contract [65]. In this way, the protection of the weaker party is gradually extended by law from consumer contracts to businesses relations. According to some scholars these cases fall within the scope of a uniform regulation of “contracts with asymmetry of bargaining power”, while according to others they represent an autonomous contract category (the so-called “third contract”), with their own and distinct discipline [66]. Indeed, without a specific provision of law, the judge can neither automatically apply the consumer protection to businesses who are in a weak bargaining position, nor rule out such an extension on the basis of a difference between the two situations, always considered essential. Instead, he has to extend by analogy the rules governing certain contracts to other contracts, where there are the required conditions (casus omissus and same legal reasoning) [67]. In this approach both formal and substantive justice are involved [68]. According to the idea of procedural justice [69], the law does not impose authoritatively a contractual settlement, considered as an a priori right, but it corrects the imbalances generated by abuse of bargaining power that would limit the freedom of the economically weaker party, forcing it to accept unfair conditions [70]. Indeed, the direct intervention of the State in socio-economic relations, also in terms of control of trade negotiations, does not adequately cope with the complexity of a technological society, also due to the insufficient cognitive competence of the legislative bodies and to the difficulty of founding legal choices on the majority principle as a criterion of [continua ..]

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