Shelf Law: A Portent of Things to Come?

On November 20, 2019, the lower house of the Argentine Congress approved a bill known as the “Ley de Góndolas” or the “Shelf Law.”[1]  The bill will now be put to a vote by the Senate, expected to occur in special sessions within the next two to three months. We believe the Shelf Law will, in something closely resembling its current form, soon become law.

The Shelf Law contains a series of controversial measures, which, if enacted, will dramatically change the landscape in Argentina for the marketing and display of consumer goods. These measures include a maximum allotment of space of store shelving or web pages.  In a relatively small economy like Argentina’s, this will have an immediately visible impact, as a small number of consumer product brands have dominated the country’s physical and digital platforms for decades.

The Shelf Law applies to supermarkets, self-service markets, other retail outlets of non-food products and certain wholesale product stores.^[2]  Products within the purview of the legislation include food, beverages, personal hygiene, and cleaning products. The law reserves to the eventual government enforcement agency the power to create an even more expansive list of regulated products.

In supermarket aisles and in web-based sales, this means:

• No vendor can occupy more than 30% of total product space.
• For each product category, there must be at least five different (unrelated) vendors.
• 25% of the space must be occupied by small businesses or cooperatives.
• 5% of the space must be allocated to products sold by family farms, rural cooperatives, indigenous or other grass-roots organizations.
• The lowest-priced products for each category must be placed on a middle shelf and on the first page of a web-based purchase.

The Shelf Law endeavors to protect local manufacturers. The law delegates to the enforcement authority to set a ceiling (expressed as a percentage) on imported products that may be displayed on shelves or web pages. This ceiling will be “based on the capacity of domestic industry to satisfy demand” for the specific products.

The Shelf Law will also extend a lifeline to small businesses by outlawing payment terms beyond 60 days. At a time in which Argentina’s economy offers no trade finance and inflation around 50% per year, the shortening of payment terms is significant. Manufacturers are currently facing as long as 180 days (without interest) before being paid for delivered goods.[3] The Shelf Law also prohibits common practices of requiring manufacturers to make contributions or “advances” or free goods or those under market price and other practices that give the larger manufacturers huge advantages over the small businesses that lack the financial wherewithal to endure these terms.

The Shelf Law touches on a number of unfair trade practices and remedies borrowed from antitrust law. Part of this includes requiring large volume (annual sales over AR$ 7.92 billion) supermarkets to adhere to a “Best Practices Code.” The Code—to be drafted by the government enforcement authority—will require certain periodic disclosures, specify unlawful conduct and trade practices specific to the sale of consumer products, and impose significant fines for violations.

The timing of the legislation could not be more ironic, as Argentina’s center-right government exits power in the wake of initiatives and decrees most often associated with center-left governments like the one that will assume power on December 10. The Shelf Law signals Argentina’s continuing trend to legislate economic behavior. This occurred in September with the price freeze on gasoline and on the clamp on purchasing and remitting foreign currency.^[4] The Shelf Law now applies a legislative hand to encourage the purchase of products manufactured by smaller, domestic businesses.

[1] The bill can be found here: https://enac.org.ar/download/multimedia.archivo.93ee2dc9107f3e03.676f6e646f6c617320746578746f2066696e616c20636f6e73656e737561646f2e706466.pdf.

[2] Section 1, Law No. 18,425.  The Shelf Law excludes small- and medium-sized businesses (currently defined as those businesses having annual turnover of less than AR$ 23.6 million).

[3] For family farms, rural and indigenous cooperatives, the payment terms are further reduced to 40 days.

[4] See:  https://wsclegal.com/novedad/argentinas-temporary-foreign-exchange-regulations.