Initially passed in 2018, the EGAlim law aims to promote "a balance in commercial relations between the agri-food industry and mass retailers". On March 30, 2023, Egalim III (or loi Descrozaille) strengthened the legal framework for negotiations between retailers and suppliers, not just agricultural producers.
Here's an overview of what's at stake with this latest version and its impact on the retail sector.
In this third version, the legislator has introduced a number of provisions designed to rebalance the balance of power between the parties involved in commercial negotiations. These can be summarized as follows:
Sources :
The measures introduced by EGAlim 1 and 2 are extended by EGAlim 3.
Consumer goods
Food products
With the aim of protecting French industries, EGAlim III also regulates the promotions applied by supermarkets on non-food FMCG products. The 34% cap had already been in force on food products since 2018, but it now applies to the DPH (drugstore, perfumery, hygiene) department.
The government's aim is to protect French SMEs whose existence is threatened by the price pressure imposed by retailers. Retailers still have the right to offer in-store discounts, but these are now governed by law, just as they are for food products. Protecting manufacturers' margins should therefore benefit the entire food industry.
In February 2024, Bruno Le Maire announced the massive control of distribution contracts to verify the application of Egalim III, with the possibility of imposing substantial financial penalties in the event of non-compliance. Because anger is growing in the farming world! And for good reason: EGAlim focuses heavily on relations between suppliers and distributors. In order to match the prices imposed by supermarkets, manufacturers tend to sacrifice their suppliers' margins rather than their own, resulting in a total lack of results in some cases.
But this is not the only stumbling block facing the law. In particular, the authorities have set their sights on a financial arrangement: some retailers have set up central purchasing units abroad to avoid the purchasing constraints imposed by Egalim III. Private labels often benefit from this lower-cost sourcing, which boosts the profitability of retailers' own products. Such a scheme undermines all the fairness objectives set by the legislator.
It should be noted here that Egalim is a French law, and that the aforementioned actions are not necessarily contrary to European law. In this case, supply channels are being set up through intra-European partnerships, notably with Spain. As is often the case, the question of European law is therefore at the heart of the financial and legal stakes for French companies. French President Nicolas Sarkozy was unequivocal when he described European purchasing groups as "circumventing French law".
Inflation is another limitation that Egalim does not address: while public procurement contracts generally provide for a possible price increase (often limited to 5%) in the event of verifiable inflation and the provision of appropriate supporting documents, supermarket contracts tend to ignore this common-sense measure. In such cases, it is the manufacturers, and consequently the farmers, who pay the price.
Farmers are therefore largely dissatisfied with the current situation, and the new version due in the summer of 2024 should focus primarily on agricultural production.
For its part, French supermarkets are surprised to be under such pressure, while the catering industry is still a long way from achieving its EGAlim targets.
In addition, distributors are asking the legislator to require manufacturers to negotiate their purchases with farmers before entering into annual negotiations with retailers, thereby assuming responsibility for the remuneration levels imposed on farmers.
In fact, current legislation does not oblige suppliers to make their raw materials purchase prices known to distributors. The latter would prefer to see transparency in this area, so as not to have to pay the price for commercial practices implemented by manufacturers.
Finally, on the subject of European purchasing groups, supermarkets point out that such mechanisms exist in other industries, and are precisely the way to defend French companies against American or Chinese giants.
