The Agriculture Committee has agreed to the following Report:-
NEW COVENT GARDEN MARKET
1. New Covent Garden Market is a wholesale horticultural market which was brought within the remit of the Ministry of Agriculture, Fisheries and Food (MAFF) by the Covent Garden Market Act 1961. The Act also established the Covent Garden Market Authority (CGMA) as a public statutory corporation to run the Market originally at its traditional site in central London, and since 1974 at its 56-acre site at Nine Elms in the London Borough of Wandsworth. Ownership of the site at Nine Elms is vested in the CGMA. The Chairman and members of the Board of the CGMA are appointed by the Minister of Agriculture.
2. The total value of New Covent Garden Market's business in 1999 amounted to some £478 million, making it the largest wholesale horticultural market in the country. Of the six wholesale markets in London, it is also the largest in terms of turnover, the number of businesses established on the site, and the number of people employed. The Market Authority itself makes a profit; indeed it is required by legislation to ensure that its revenues "are sufficient at least to break even taking one year with another". Under a formula agreed between MAFF and the Treasury, the Authority retains a percentage of its profits for reinvestment purposes while the balance is remitted to MAFF. For the financial year 1998/99, this balance is expected to amount to £914,000. However, MAFF is required to transfer this sum to the Consolidated Fund and so derives no financial benefit from its ownership of the Market.
3. It has been the policy of successive governments since 1990 to "dispose of the assets of the Authority". The current Minister for Agriculture, Fisheries and Food, the Rt hon Nicholas Brown MP, confirmed in a speech given when visiting the Market on 1 April 1999 that "there is no good reason why MAFF should be involved in owning a horticultural wholesale market". However, he also said that he had revisited the assumptions underlying the policy of selling the Market and was "keen to explore ... the conditions under which it might be sold as a going concern". This has been welcomed by the Authority and by Wandsworth Borough Council, as providing a more certain future for the Market. As yet the primary legislation which would be required to implement the Minister's policy has not been forthcoming. Covent Garden Market is also experiencing difficulties in expanding its range of activities and in finding means to finance a much-needed modernisation programme. For all these matters, resolution lies in the hands of Ministers at MAFF.
4. Given the particular circumstances of New Covent Garden Market, we decided to undertake a short inquiry into its future as part of our responsibility to examine public bodies associated with MAFF. In the course of our inquiry we took evidence from the Covent Garden Market Authority, the Rt hon Joyce Quin MP, Minister of State, MAFF, and from the Corporation of London which controls three of the other wholesale markets in London. In addition, we received written memoranda from several organisations with an interest in the Market and from Mr Martin Linton MP, one of two Members of Parliament in whose constituencies the Market site lies. We are grateful to all who contributed evidence to this inquiry. On 7 February we also visited the Market to meet its tenants and to see the situation there for ourselves.
5. In this short Report we look at the main questions affecting the development of New Covent Garden Market: diversification of the type of trading undertaken at the Market, the requirement for investment in the Market's infrastructure, and MAFF's policy of privatisation of the Market. We then turn to the broader question of the future of London markets as a whole, setting New Covent Garden Market in a wider context.
6. Figures presented to us by the CGMA show that there has been a significant decline in wholesale turnover at the Market over the past decade. This has been attributed to supermarkets buying fruit and vegetables direct from growers, leading to a decline in the independent retail sector, traditionally the source of much of the Market's custom. The CGMA estimates that greengrocers now account for between 25 and 30 per cent of the Market's fruit and vegetable trade, and that the catering trade is now the Market's main customer. The market for flowers is in "marginal decline".
7. The Market Authority's favoured solution to the decline in its retail business is to diversify its product base and develop the Market as a one-stop food shop for the catering trade, supplying not only fruit, vegetables and flowers but also fish, meat and "related food produce". The statutes governing the Market stipulate that at least 50 per cent of its produce must be fruit, vegetables and flowers, and that the granting of licences to trade in other, non-horticultural produce at the Market is subject to Ministerial approval. A number of companies have received Ministerial approval to trade in non-horticultural produce at Covent Garden Market, which they do by electronic trading; that is, via the internet and by e-mail. These companies include traders in cheese, lobsters, smoked salmon, smoked meat and ice. The CGMA is currently negotiating with three other companies who wish to trade in fish and meat at Covent Garden Market. No licence has yet been approved which would allow direct, face-to-face trading in non-horticultural produce at the Market.
8. Applications to trade non-horticultural produce at New Covent Garden face-to-face have been opposed by the Corporation of London, anxious to protect its investment in the fish, horticultural and meat markets of Billingsgate, Spitalfields and Smithfield, for which it is the controlling authority. Having registered its initial opposition to the most recent application, the Corporation was asked in November 2000 to submit its detailed legal objections to MAFF. To date, it has not done so. The Minister has therefore granted the company involved a licence to trade at Covent Garden Market, with the specific proviso that there be no face-to-face selling, pending the Corporation's objections.
9. The Minister has indicated that he will consider whether to alter the conditions of the lease once the Corporation's objections have been received. While the Corporation noted that "The Ministry is not obliged ... to take into account or to follow our advice or our views", it is clear that MAFF believes that it can neither set a deadline by which the Corporation must submit its legal objections, nor take a decision in their absence. It was also clear in evidence to us that the Corporation does not intend to submit its objections at the present time. The decision-making process therefore continues to be delayed by this stalemate on what both sides see as a key decision in the development of activities at Covent Garden Market. We note that MAFF has been waiting for a year for the Corporation's submission on an earlier proposal. We recommend that MAFF set a deadline for consultation on proposals for Covent Garden Market. At the moment, MAFF is treating the Corporation as if it had a de facto veto over Covent Garden Market. This is not an acceptable attitude.
10. The only legal argument so far offered against diversification is that common law market rights might prevent a rival market being established within a radius of 6_ miles of an existing one. However, it is far from certain that this would prevail. The local Member of Parliament, Mr Martin Linton MP, thought the argument "ludicrous" and "obsolete", a view shared by the Chairman of the CGMA. MAFF itself is taking legal advice on "how much the ancient laws also inter-relate with much more up-to-date laws on competition and so on". We recommend that MAFF clarify the legal position relating to trading at the Market and publish a statement on the conclusions drawn from advice received.
11. The fact that it is the decision of the Minister of Agriculture, Fisheries and Food whether or not to allow diversification at New Covent Garden raised the possibility of a conflict of interest. The Market Authority's profits are payable to MAFF, and diversification would strengthen the position of New Covent Garden at the expense of other wholesale markets. A recent judgment on the role of the Secretary of State for the Environment, Transport and the Regions in planning decisions, currently undergoing appeal proceedings, may indicate there are human rights implications in the Minister taking a decision in which he has a financial interest. When asked whether MAFF had considered this, the Minister of State said "I am not aware of a Human Rights problem ... I think it is unlikely". MAFF later wrote to us and claimed that no conflict of interest arose because it is required to transfer the monies to the Consolidated Fund; MAFF therefore derives no benefit. The Corporation countered that the conflict of interest remains because the monies benefit the public exchequer. Even without the direct financial gain, there is still a possibility that MAFF could fall foul of the Human Rights Act since the Government is acting as judge in a case in which it is also the owner of one of the parties to the argument. We recommend that MAFF take legal advice regarding any possible or perceived conflict of interest in the light of human rights legislation.
12. Covent Garden Market moved to its present site at Nine Elms in 1974. Very little has been invested in the site since then with the result that "a lot of the infrastructure needs refurbishment". The Authority estimates that to address this "major problem", investment of around £20 million in the Market's infrastructure is required in the next few years. Under the current arrangements, plans by the Authority to spend more than £250,000 on capital investment in a year require approval by MAFF. There is therefore a question over how the Authority can raise the sums needed for a refurbishment project. Three possible solutions to this were raised in evidence to us: amending the funding formula; borrowing; and use of a contingency fund held by the Authority.
13. The funding formula by which the Authority remits the balance of its profits to MAFF is determined by agreement with the Treasury. The Minister of State acknowledged that "There is not a great deal of flexibility in the current formula" and that the formula itself would have to be changed if the CGMA were to retain a greater proportion of its profits for investment purposes. However, this could be achieved without recourse to legislation, by agreement between the Treasury and MAFF. A change to allow the CGMA to borrow funds for investment as a short-term measure would also be possible without legislation but the Minister of State pointed out that any such arrangement would still come within the limits of MAFF's capital receipts and MAFF's capital ceiling is tight. Despite this, the Minister indicated that "we are also willing to discuss
with the Authority ... how some of the programme of modernisation that they want to embark on could be embarked on". The Chairman of the Authority was cautious on this point, emphasising that "if we borrow the money, we would obviously have to make sure that we can repay it".
14. The Authority has some funds of its own, tied up in a contingency fund. The CGMA's Report and Accounts 1999/2000 show that it has £2.5 million on short term loan with a local authority, a sum intended to cover a contingent liability in respect of the Authority's tenants in the Market Towers office building. Originally part of the site, Market Towers was sold in 1990, although a few of the Authority's tenants remain in the building. The Chairman of the Authority believed that "it would be nice to retain that money ... for the capital expenditure we need" but that "The Ministry holds the key to the unlocking of that money". Although there are "only two or three" of the original tenants left, the liability is intended to cover the Authority's responsibilities toward them for "anything that goes wrong in Market Towers", and would last "Until the Ministry says that it does not". The Minister of State emphasised that the contingent liability was "not diminishing" and that "It remains in force until there are none of the original tenants left". These leases run until 2010, whereas the Market's need to invest in its infrastructure is more urgent.
15. The Minister of State acknowledged that investment in the Market's infrastructure was necessary and that MAFF was keen to explore how this might be done. She told the Committee "we are discussing with the Authority ways of allowing at least some of the new capital investment to go ahead. That, however, does depend on a more detailed costing than we have received so far from the Authority". The Minister confirmed that MAFF was still awaiting details from the Authority of its proposed capital investment programme, and that no such plan had been put forward since the Market moved to its present site in 1974. The Minister assumed that "the reason why there was not such a programme was because the future of the Market as a whole was so uncertain". In order to have further discussions with the Treasury about the possibility of amending the funding formula, however, MAFF requires from the CGMA "something more concrete ... than we have at the moment". We urge the CGMA to submit to MAFF at an early opportunity a detailed and fully costed proposal for a capital investment programme at New Covent Garden Market. We recommend that MAFF open discussions with the Treasury on a more appropriate funding formula for Covent Garden Market Authority to allow it to invest in the infrastructure of the Market. Efforts should also be made to determine if £2.5 million is really the right sum needed to address any contingent liability resulting from CGMA's remaining few tenants in Market Towers. The Treasury should be consulted on the possible use of this money for further investment in the Market. If no solution to the Authority's investment problems is found, the Market will cease to be attractive to traders, regardless of Ministerial decisions on privatisation or diversification. The present situation, where everyone recognises that Covent Garden Market is imprisoned in Government control but no-one seems willing to take the initiative to challenge it, is absurd.
16. The Minister of State was categoric that "I do not think any of us would regard running a market as a core responsibility of the Ministry of Agriculture". Privatisation of New Covent Garden Market, therefore, remains the Government's preferred longer-term option, the Minister's policy being to sell the Market as a going concern. So long as the Market is sold as a going concern, the CGMA does not appear to be very exercised on the question of ownership, being "quite content to carry on as we are under the overall umbrella of the Government" whilst pursuing policies which it believes are "in the best interests of any possible purchaser" if the Market is privatised.
17. It is estimated that the price tag for New Covent Garden Market would be between £40 million and £50 million. Last year it made a gross pre-tax profit of £1.4 million, based on an annual turnover of £7 million. This raises the question of who would be prepared to buy it. As the Minister put it, "given that we want to sell it as a going concern, there are a number of buyers for whom it would not be an attractive or lucrative opportunity". The Chairman of the Market Authority hinted at one possible purchaser, stressing that "The only people who could buy the Market are those ... with markets of their own. There is only one of those". The Corporation of London, however, claimed that it "does not have a policy to acquire New Covent Garden" and that "it does not matter to us who owns it", although whether the Corporation's policy is likely to change in the future was far from clear. So far as other possible models of ownership are concerned, the Minister of State thought it possible that "some other social consortium" might come forward with an interest in running the Market, which could include "some of the people who are at present involved in the Market".
18. Until recently, there has been significant pressure on MAFF to sell the Market in line with the stated policy of successive Governments. In 1998 the Treasury reduced MAFF's baseline for capital spending by £44 million, an amount equivalent to the expected receipts from the sale of the Market, and MAFF acknowledged that this reduction in its capital expenditure had been the cause of some difficulty. However, this situation eased last year when the Spending Review 2000 readjusted the baseline so that it is no longer reduced by this amount pending the Market's sale. This also reduced MAFF's incentive to press ahead with the privatisation of New Covent Garden, and indeed the Minister of State admitted that there was "less urgency now". The future of Covent Garden Market is therefore left hanging. The Minister emphasised that MAFF is committed to early legislation, regards its introduction as a high priority, and remains optimistic about the prospect of its introduction. We understand that a first draft of a Bill has been prepared, but when asked whether a detailed planning brief for the site exists, MAFF told us that "Until we have a legislative slot, we do not want to devote the resources".
19. A slot in the Government's legislative programme will not be found unless MAFF prioritises a Covent Garden Market bill and presses its case within Government. We believe that it is the right policy to sell New Covent Garden Market but in order to obtain a reasonable price for the taxpayer and to ensure the future of the Market, it is essential that MAFF first address the other difficulties outlined in this Report. Whilst we agree that it is absurd for MAFF to run a horticultural market, the attempted sale of Covent Garden Market without clarification of the legal constraints and a strategy for all London markets (see below) is unwise and may prove fruitless.
Future of London markets
20. In the course of our investigations it became clear that the future of New Covent Garden Market needs to be considered in the wider context of the general provision of wholesale markets in London. Three of these markets are under the control of the Corporation of London (Billingsgate, Smithfield and New Spitalfields Markets); the other two are controlled by Hounslow Borough Council (Western International Market in Heston) and the Trustees of the Borough Market in Southwark. A study of wholesale markets in the UK published by the University of Strathclyde in 1994 concluded that "there are too many markets" in the UK and questioned in particular "whether London needs so many markets". This view was supported in evidence to us by the Chairman of the CGMA and by the Corporation, which referred to "a problem with over-marketing in London". The Corporation predicted that "There will be a reduction in the capacity of wholesale markets ... it has to be the stronger ones which survive".
21. One option might be to combine two or more markets together on a new, single site. The Strathclyde Report cautioned that the economics of doing so were "very unfavourable", something confirmed to us by the Corporation of London. The Report's favoured solution was "rationalisation by combining existing sites", and it regretted that such an opportunity was lost when Spitalfields Market moved to Leyton in East London rather than to New Covent Garden in 1998. The Corporation claimed that legislation requiring it to maintain its markets at their current sites prevented it from pursuing a strategy of rationalisation. This could be changed only by new legislation, by way of a Private or Hybrid Bill. However, the Corporation was of the opinion that "the hurdle of getting the necessary legislation ... is a hurdle which at the moment we believe is insurmountable by us on our own". To this the Corporation added the cost of any rationalisation, the difficulty of persuading tenants to move, and its liability for compensation payments.
22. In the case of New Covent Garden, the Government has made clear its wish to sell the site as a going concern. The local authority, Wandsworth Borough Council, has also made it clear that it "supports the continuation of the Market at Nine Elms" and would "resist most strongly" any plans to move the Market and redevelop the site. This was acknowledged by the Minister of State, who referred to restrictions on development likely to be imposed by the local authority which "would be likely to indicate that you could not have on that site the most lucrative development opportunities". This reduces the attractiveness of the site for developers and with it any incentive to the Government to sell for such a purpose; it therefore makes the relocation of the Market or the partial redevelopment of the site less likely. It would be helpful if Wandsworth Borough Council could spell out in greater detail its position on the future use of the site, for example by preparing a more detailed planning brief.
23. Whether the present location of New Covent Garden and other London markets is an asset or a liability is open to question. It could be seen as impractical to have large wholesale markets close to the city centre, with the attendant problems of congestion, access and restricted scope for development, and London might be better served by one or more large markets on its periphery, similar to the Rungis development which serves Paris. The CGMA's Chairman argued against this, regarding the Market's location as undoubtedly its "unique advantage" which made it "better placed than any other market in London". The Corporation of London, on the other hand, believed that "location is one of the things that is damaging Smithfield" and that it was "nonsense" to have London's wholesale meat market in listed buildings in the centre of the capital's financial district. The likely introduction of congestion charges by the Greater London Authority, estimated by the CGMA as a total cost of up to £10 million a year to New Covent Garden Market, could have a strong bearing on the argument over location.
24. The Minister of State said that the development of a strategic plan for the future of wholesale markets in London "has not developed to any significant extent". It appears to us that a strategic plan is precisely what is needed. The Corporation was strongly in favour of a review of the current situation by a body appointed by the Government, with the obvious requirement that whoever was appointed should not have an interest in any one site. While the Minister of State confirmed that MAFF was "willing to be engaged in this process", she was clear that it was not MAFF's overall responsibility "to decide on the future of London markets as a whole". An additional consideration is that MAFF has a direct interest in the promotion of New Covent Garden, being "strongly committed to ... finding a way forward which allows [Covent Garden] Market to flourish". However, such a review as we envisage is not something which any of the commercial interests or local authorities involved have the necessary independence or authority to initiate. One possibility is that the Greater London Authority (GLA) may take an interest in this. The Government has a clear interest because of the status of New Covent Garden. The Corporation is an obvious major player. We recommend that the Government, together with the GLA and the Corporation of London, instigate an independent review, properly resourced, to take a rapid, rational and strategic view of the provision of wholesale markets in London. We recommend that the review examine the number and location of markets; whether their ownership by public corporations within a framework of statutory restrictions is the most flexible and adaptable model for their delivery; and a programme of action, legislative or otherwise, to implement a strategy for the development of London's wholesale markets.
25. The pattern of trading at London's wholesale markets is changing: electronic trading is developing, the retail sector has declined and the catering sector has increased. London's six major wholesale markets must attempt to meet this need and adapt to the changing demand. These markets fall within the responsibility of four different controlling authorities, which operate largely independently of each other. They are governed by different statutes which impose certain conditions on what they are able to do, and some remain located at congestion-bound inaccessible sites for historical rather than practical reasons.
26. At New Covent Garden the CGMA wishes to develop the Market to take advantage of these changes. Its vision of becoming a one-stop shop for the catering trade, of exploiting the advantages of its location and of promoting the benefits of e-commerce to traders all show that the Authority is preparing to meet the challenge after a decade of uncertainty concerning the Market's future. The Government must respond positively to these moves and take the necessary decisions, which are vital to the development of this Market and the other wholesale markets in London. We agree with the Minister of State that the question of the future of London's markets "goes much wider than MAFF" but it is clear that only the Government has the necessary resources and authority to address the issue, and we urge it to do so.
1 Q 88. Back
2 CGMA Report and Accounts 1999/2000, para 12; Ev. p. 2, para 22. Back
3 Association of London Markets' submission to the Mayor of London's proposals for road user charging, para 6. Back
4 CGMA Report and Accounts 1999/2000, para 1. Back
5 Ev. p. 16, para 10. Back
6 Ibid; Ev. p. 47, para 4. Back
7 Ev. p. 1, para 11. Back
8 CGMA Report and Accounts 1999/2000, para 31. Back
9 Ibid. Back
10 Q 6; Ev. p. 45, para 18. Back
11 CGMA Report and Accounts 1999/2000, p. 3. Back
12 Ev. p.17, para 11; Ev. p. 2, paras 14-16; Ev. p. 42, para 1. Back
13 Ev. p. 2, para 14; Q 9. Back
14 Q 10. Back
15 Ev. p. 2, para 21. Back
16 Ev. p. 2, para 20. Back
17 Q 11. Back
18 Ibid. Back
19 Ev. p. 30, para 6. Back
20 Ev. p. 47, para 3. Back
21 Ibid. Back
22 Ibid. Back
23 Q 235; Q 185; Q 186. Back
24 Q 238. Back
25 Qq 156-157. Back
26 Ev. p. 41. Back
27 Ev. p. 49; Qq 56-60. Back
28 Q 197. Back
29 Q 188. Back
30 Ev. p. 47, para 4. Back
31 Q 249. Back
32 Q 13. Back
33 Ibid. Back
34 Q 86. Back
35 Q 203. Back
36 Q 120. Back
37 Q 113; Q 122. Back
38 Q 122. Back
39 Q 13. Back
40 CGMA Report and Accounts 1999/2000, p. 26, Schedule 3; Q 17. Back
41 Q 21; Q 20. Back
42 Q 163; Q 165; Q 18. Back
43 Q 162. Back
44 Q 111; Q 221. Back
45 Q 202. Back
46 Qq 141-143. Back
47 Q 145. Back
48 Q 123. Back
49 Q 117. Back
50 Ev. p. 17, para 13; Q 114. Back
51 Q 8; Ev. p. 2, para 23. Back
52 Q 6; Q 154. Back
53 Q 6. Back
54 Q 129. Back
55 Q 6. Back
56 Q 240; Q 241; Qq 239-246. Back
57 Q 131; Q 132. Back
58 Q 177. Back
59 Q 154. Back
60 Q 226; Q 115; Q 118. Back
61 Q 153; Q 139. Back
62 Strathclyde Wholesale Markets Study, 1994, p. vi, rec. 15, and Part III, p. 71. Back
63 Q 82; Q 269. Back
64 Q 275. Back
65 Strathclyde Wholesale Markets Study, 1994, p. vi, rec. 16; Q 256. Back
66 Strathclyde Wholesale Markets Study, 1994, p. vi, rec. 16, and Part III, p. 71. Back
67 Q 259. Back
68 Q 256. Back
69 Ibid. Back
70 Ev. p. 45, para 14; Ev. p. 42. Back
71 Q 126. Back
72 Q 82; Q 85. Back
73 Q 255; Q 258. Back
74 Q 39. Back
75 Q 149. Back
76 Q 267; Q 259. Back
77 Q 193; Q 208. Back
78 Q 154. Back
79 Q 9; Q 22. Back
80 Q 208. Back