Supplier security: Japan issues new food distribution guidelines to protect manufacturers from retailer practices
The new 22-page guidelines were formulated after the ministry conducted a national food distribution industry survey and discovered cases of retailers abusing their purchasing powers leading to suppliers taking unfair losses.
“Retailers in Japan have been found to have great purchasing power leaving suppliers selling to them such as wholesalers, manufacturers [and] other intermediaries [at their mercy], which was the reason we conducted the food distribution survey,” MAFF stated via a formal statement.
“The results of the investigation revealed that there were indeed cases of issues such as retailers unfairly returning products or reducing prices to attract consumers, which would lead [not only to supplier loss] but is also problematic from the perspective of the local anti-monopoly act.
“As such, we have decided to formulate these food distribution guidelines to highlight to both retailers and suppliers what the right actions to take are in the case of various scenarios, so as to prevent any illegal violations in transactions between both parties.”
Fresh foods were found to be the most severely affected items in these transactions due to the short shelf life involved, meaning that product quality would be severely at stake in the event of any delays or returns.
“Some common complaints we have received include retailers returning items to the suppliers without any justification, especially if returned up to a week after delivery but complaining of ‘poor quality’ or with evidence of the product already having been displayed such as attached barcodes,” the ministry said.
“In cases such as these, retailers should only remove items that are indeed damaged and there should also be photographic evidence showing that there was indeed damage or poor quality.
“Additionally, conditions of return need to be established in writing as part of the trade agreement, such as the applicable deadlines which must be agreed upon by both parties in advance.”
Another major concern surrounded price determinations by both parties, whereupon various discrepancies were found in terms of agreement and implementations.
“Suppliers have also highlighted how they would request retailers to increase prices based on data supporting a rise in labour costs, logistics costs and more – but that end-sale prices would be unilaterally left unchanged despite earlier communications,” said the ministry.
“Another common pricing issue has been for seasonal products such as ehomaki rice rolls, where price increases are requested but actual action is greatly delayed, resulting in the season ending without the expected profits being made.
“These issues will need longer-term solutions as there are various parts to it and a forum needs to be set up for discussion [but essentially] it has been clarified as part of the antitrust law that failure to reflect cost increases such as labour, raw materials and energy in the sales price and leaving it unchanged [in order to attract consumers] could be seen as the abuse of a superior bargaining position under the Antimonopoly Act or as bargaining bid under the Subcontract Act.”
No more unfair trade allowed
Essentially, based on these guidelines all businesses and particularly retailers will be prohibited from any unfair trade practices based on a superior position moving forward.
“A superior position means that it would be difficult for one business to continue operating without the other business in question – a case where the first business operator has no choice but to accept a request even if it is extremely disadvantageous and would cause major hindrance to operations,” said MAFF.
“In making these judgements, we also consider factors such as the degree of dependence, the market size, the potential to change business partners and so on, and the abuse of this superior or dominant position will be determined if one party takes advantage of its position to unfairly disadvantage the other in a transaction in light of normal business practices.
“Some large retailers in particular have been known to take advantage of their superior position to commit violations such as unfair product returns or demands for suppliers to pay them certain membership fees or demanding changes to the pre-agreed terms and conditions.
“All of these are considered prohibited acts by law, and there are specific legal provisions governing these – businesses need to remember that under the Antimonopoly Act, there is a penalty for abuse of a superior bargaining position.”
