New Supermarket Shelf Law in Argentina

Main objectives of the law

According to Section 1 of the Shelf Law, it has the following main objectives (i) to ensure the price of certain products remains clear and competitive for the benefit of consumers, (ii) maintain harmony and balance between economic operators, (iii) expand the supply of artisanal, regional and national products produced by micro, small and medium-sized enterprises as stated in Section 2 of Law No. 24.467 (“mipymes” after their acronym in Spanish), and (iv) promote the offer of products manufactured by family, peasant or indigenous agriculture, by popular economy sectors or by cooperatives or mutual associations, as defined in the respective laws.  

In order to achieve its objectives, the law establishes, on the one hand, rules and restrictions for the display of products in the compelled subjects’ supermarket shelves and, on the other, certain conditions that must be fulfilled in the commercial relationship between the compelled subjects and their suppliers, including compliance with the good commercial practices’ code which is also created by the law.

 

Enforcement authority

As regards the enforcement authority, the law sets out that it will be appointed by the Argentine Executive.

The authority will be in charge of (i) defining the products’ categories covered by the law (limited to food, beverages, personal hygiene products and household cleaning items), (ii) drafting of the good commercial practices’ code (iii) monitoring compliance with the law, and (iv) the application of fines and sanctions in case of infringement, among its main functions. The enforcement authority must also, within ninety (90) days of enactment of the law, publish a list of all the products impacted by the law.

Scope of the law

The law then outlines its scope by providing a definition of the compelled subjects and of the “shelf” term.

• Compelled subjects

Subjects compelled by the Shelf Law are all the establishments defined in Section 1 of Law No. 18,425 as follows: (i) total supermarkets, (ii) supermarkets, (iii) superstores, (iv) food products self-services, (v) non-food self-service stores, (vi) retail business chains, (vii) wholesale supply organizations, (viii) perishable product packers and (ix) shopping centers.

The aforementioned law takes into account different criteria for the classification of the establishments (such as the surface of the stores and their storage warehouses or the type and quantity of products sold). However, it could be concluded that the subjects reached by the Shelf Law would only be the large supermarket chains since the law sets out that companies whose turnover is equivalent to that of “mipymes”, in accordance with the provisions of Section 2 of Law No. 24,467, will be exempted from the regime. In order to define the exempted subjects, the Shelf Law refers to Section 2 of Law No. 24,467 (modified by Section 6 of Law No. 27,444), which entrusts the enforcement authority to make the corresponding definitions. In accordance with Resolution 154/2018 of the Secretariat of Entrepreneurs and Small and Medium-Sized Enterprises, the compelled subjects do not include companies with an average turnover of the last three years lower than that of a “Medium Section 2 company” belonging to the “Commerce” activity (ARS 1,140,300,000).

• “Shelf” definition

Pursuant to the definition provided by the law, the “shelf” includes all physical space, furniture, shelves, in which products of similar characteristics are offered, including the shelf ends, except for certain exceptions mentioned below. In addition, it is clarified that virtual marketing spaces are also subject to the Shelf Law provisions.

The law sets out that, general display rules are not applicable to exclusive freezers, display islands and displays adjacent to the cash line. However, there are some specific rules for such spaces, as it will be further mentioned in the following section.

 

Rules for the display of products

Having defined the compelled subjects and the spaces that will be object of the law, it continues to list in Section 7 the different rules for the display of products in the compelled subjects’ shelves (and virtual locations) that the compelled subjects must comply with:

 

• The display of products from a supplier or business group may not exceed 30% of the available space that it shares with products of similar characteristics. The law establishes that products of brands licensed by the same commercial groups or companies linked or controlled by them must be considered as a single brand;

 

• It also imposes the obligation to have no less than five suppliers or business groups in each shelf;

 

• A 25% of the shelf space and virtual locations must be guaranteed to micro and small companies registered in the mipymes Registry and/or the RENAF, and/or cooperatives or mutual associations (in the terms of Law No. 20,337 and Law No. 20,321), and an additional 5% to products provided by family, peasant or indigenous agriculture (as defined by Section 5 of Law No. 27,118) or by popular economy sectors (as defined by Section 2 of the annex to Decree No. 159/2017);

 

• Products with the lowest price according to the unit of measure must be at an equidistant height between the first and the last shelf. In virtual locations, it must be ensured that the lowest priced products are published in the first display of the products of the involved category;

 

• 50% of the display islands and displays adjacent to the cash line must be reserved for micro and small businesses and/or produced by cooperatives and/or mutual associations; and

 

• The display of imported products must not exceed the percentage determined by the enforcement authority of the available space for each category of products, depending on the ability of the national industry to meet the demand of such products.

 

Moreover, the law prohibits “generating an anticompetitive exclusion of suppliers for the rental of shelf spaces or virtual locations, or preferential spaces in the supermarkets’ shelves or virtual locations”, and establishes that “the payment of fees and/or commissions imposed by the compelled subjects which due to its characteristics or magnitude force the supplier to opt for only one distribution channel will be considered anticompetitive exclusion”.

The main question that arises regarding this matter is the way in which “anticompetitive exclusions" will be analyzed and whether intervention will be given to the National Competition Authority or if the parameters set by said authority will be taken into account to identify this type of conducts considering they are within the scope of the Competition Law. It remains to be seen if the regulation provides greater clarity in this regard.

 

Conditions in the relationship between the compelled subjects and their suppliers

The law also provides the following conditions under the heading “limits to abuses of dominant position” regarding the relationship between the compelled subjects and their suppliers:

• The maximum payment term for national mipymes may not exceed sixty (60) calendar days. In case of late payments that are not justified, suppliers may apply the active rate of the Banco de la Nación Argentina for the calculation of interests;

 

• The compelled subjects will not be able to demand financial contributions or advances from their suppliers, nor apply economic or debit withholdings unilaterally;

 

• The free delivery of products or ones below the provision cost cannot be opposed as conditions in the contractual negotiation;

 

• Prices, conditions or price variations of third party providers may not be imposed in the negotiation between the compelled subjects and their suppliers;

 

• It is prohibited to require suppliers reverse distribution costs or the replenishment costs;

 

• Costs for promotional sales of products, or for the generation of waste, must be contractually agreed;

 

• All contractual obligations must be formalized in writing; and

 

• The exchange of sensitive commercial information beyond the commercial relationship is prohibited.

The law also establishes a specific scheme for purchases of regional products.

 

Code of Good Commercial Practices of Wholesale and Retail Distribution

The law creates a Code of Good Commercial Practices of Wholesale and Retail Distribution (the “Code”) to be drafted by the enforcement authority.

The Code will be applicable to all establishments covered by the law that have an annual gross turnover (considering the turnover of the entire economic group) of more than 300,000,000 adjustable units provided in Competition Law No. 27,442 (approximately 12 billion Argentine pesos). For the rest of the companies, the Code will be voluntary. The Code must include:

• The practices considered abusive according to the Shelf Law, the Fair Trade Law, the Competition Law and the Consumer Protection Law;
• The obligation to designate a corporate responsible for compliance with the Code, whose designation will be notified to suppliers and the enforcement authority;

 

• The obligation for the contracts to stipulate an alternative procedure for the resolution of conflicts and attach a copy of the Code; and

 

• The periodic provision to the enforcement authority of the required information regarding the compliance with the Code.

 

Temporary lack of compliance with the law

The law determines that in the cases in which for a certain category of products it is temporarily impossible to comply with the minimum limits established by the law, the compelled subjects must inform the enforcement authority the reasons for said lack of compliance and the expected term to comply with the law, which may not exceed sixty (60) days.

The compelled subjects may only be exempted from compliance with the minimum limits established in the law in those cases in which the enforcement authority proves the impossibility of offering the products that the law seeks to promote. As such, and before determining the offer of products in certain segments as deserted, products, prices, annualized demand and supply requirements must be published on the website determined by the regulation for a period of sixty (60) days in order to guarantee the search for new suppliers.

The absence of suppliers will allow partial non-compliance of the law until a new supplier able to meet the demand presents itself.

 

Term

The compelled subjects will have a term of one hundred and twenty (120) days counting from the enactment of the law to make the necessary amendments and implement the provisions of the Shelf Law.

Before said term, and within ninety (90) days from the enactment of the law, the enforcement authority is expected to publish a list of all the products reached by the law for the compelled subjects to be able to make all the required adjustments.

 

Sanctions

Lastly the law establishes that, in the event subjects fail to comply with the Shelf Law, sanctions and fines will be applied pursuant to the provisions of the Fair Trade Law Regime which sets out fines of between one and ten million Adjustable Units (up to ARS 406,100,000), suspension in the National Registry of State Suppliers for up to 5 years, loss of concessions, special tax or credit regimes or the closure of facilities. Additional sanctions under Competition Law No. 27,442 or Consumer Protection Law No. 24,240 may be applicable as well.

Finally, it is worth mentioning that the law allows associations, business chambers, cooperatives of the popular economy and consumer associations to file complaints.

 

Conclusions

Undoubtedly, the Shelf Law will bring several challenges in its implementation, especially in relation to the application of the rules for the display of products. It remains to be seen whether the law’s regulation manages to solve some of the challenges and questions that have arisen in order to allow the law to fulfill its objectives.