Examination of Witnesses (Questions 460-473)
31 MARCH 2004
MS PENNY
BOYS, MR
ALAN WILLIAMS,
MR BOB
GADDES AND
MR COLIN
FARTHING
Q460 Chairman: In a sense Milk Marque
in its own way, where we started the story with the Milk Marketing
Board, was inevitably trying to move from a situation which was
supply dominated, with deficiency payments and all that and for
the producer a much safer environment to one which was what you
would call half competition. But in actually moving through from
half competition to so called full competition I think what we
are saying all the time is you have moved from not producer control
but producer confidence that they had some influence over what
was happening to a complete lack of confidence, which is why so
many dairy farmers continue and will continue to drop out of the
market. Is there any view that that should be something you should
have a view on, or is it competition come what may and if the
supply chain is incapable of getting its act together and the
producer base is eroding all the time that is not your problem?
Mr Farthing: Speaking for the
Competition Commission—Penny can speak for the OFT—we
do not have views, as it were, in that sense. We look at specific
problems which are put to us and the problem put to us at that
time was the position of Milk Marque, did it have too much market
power, was it abusing that power, and we looked at that question
and we answered that question. As I say, if other people wish
to put other questions to us in the future we will look at them,
but we do not have a continuing policy stance, as it were. We
are not that sort of organisation.
Ms Boys: I want to say something
which sounds very unsympathetic and hard. Of course it is ghastly
for people who find their businesses under pressure and decide
to exit the market. I do not want to say that is not a difficult
and unpleasant thing but I find it difficult from my perspective
to have any view about how much would be absolutely right for
the UK or different parts of the UK. That is a managed market
and I think we do start from the perspective that whatever the
volume of milk production it makes economic sense for this country
to have where a good profit can be earned and where competitive
prices are reaching consumers, that is where we want to be. Now,
that will change over time but I do not start from a presumption
that there is a sort of magic number for the existing dairy farmers,
for whom pricing and competition arrangements should be put into
some managed form. If that were to be anybody's wish that would
be most certainly something for the UK Government and not for
a competition authority.
Q461 Paddy Tipping: We talked about anonymity
earlier on. Just tell me how you respond to people who come to
you and say—I know you pick up all the stories, do you not?—"Something's
going wrong here. We're frightened to complain." Do you look
at that? What do you do with that information?
Ms Boys: Well, we wanted to capture
the most information that we could. So when someone wants to come
along and say, "Things aren't working here but please, you
know, I want to remain anonymous," we still want to hear
that. What we cannot do then without breaching that confidentiality
understanding with them is actually take it up with the supermarket.
There have been occasions when we have said to people, "Well,
okay. Look, there have been other people making complaints in
this area who want to remain anonymous. We might take this up
with X supermarket to explore what's going on." "Please
don't, because the mere fact that you are looking at these particular
transactions will blow our cover, as it were. They will know who
it is who has made the complaint to you and we don't want to take
the risk"—as Mr Jack was outlining—"of the
relationship and the supply relationship being at risk."
Q462 Paddy Tipping: So how do we sort
this out? People are coming to you and saying, "This is a
David and Goliath situation. We're frightened of losing our business."
You listen to them and there may or may not be some substance
in this. People do not want to take it forward. Should we change
the code so that people can do that?
Ms Boys: Well, I think this is
the important question we have got to address next. The next step
for us is to have the compliance audit and to have, as it were,
the trail of -
Q463 Chairman: Could you just say what
the timescale of the compliance audit is.
Ms Boys: We will be appointing
a firm of auditors next month and we expect to be reporting on
conclusions from the compliance audit, plus our views on the "Okay.
So what? Where next?" in the autumn.
Q464 Paddy Tipping: So it is a possibility
that people can complain anonymously and if you change the code
you will pursue it?
Ms Boys: It is not the change
in the code, of course, that would permit anonymous complaints.
There is nothing to do with the code that is preventing that.
It is the inhibition from the sort of imbalance in the supply
relationship which is making people very reluctant to do that.
So I think the question for us at the end of the compliance audit
is, is this code doing anything effective? Perhaps not. What do
we then do? On the basis of the other evidence that we have should
we make another reference to the Competition Commission on supply
generally or on milk? Should we ask them to have another look
at this? Have we got evidence of abuse of dominance and anti-competitive
agreements? I do not think we will be in this position, but if
we were then most certainly Alan and his team would be pursuing
those under the Competition Act. Have we got examples of particular
supermarkets breaching the code? In which case there would be
enforcement action we could take to say, "Well, the code
seems to be working but here is somebody who has breached it and
we must put that right," or of course we could say, "Well,
contrary to everybody's expectations it does actually seem that
things are working very smoothly." It is an open question
at the moment.
Q465 Paddy Tipping: So we might see some
action in the autumn, but I am just asking you more directly whether
people ought to be able to complain to you on an anonymous basis
and you should pursue that?
Ms Boys: People already are and
our doors are always open. We will take information of any type.
All I am saying is that it is the people themselves who are then
restricting the use that we can make of that information. It is
not us saying, "Oh, I'm sorry, we can't act on that."
They are saying, "Please don't raise this with the supermarkets
because . . ."
Paddy Tipping: It sounds like the Whip's
Office!
Chairman: We need a super action hero,
the Milky Bar kid, but we will not get into that!
Mr Jack: We need a milked confession!
Q466 Chairman: Could we just sweep up
a couple of other things. We have had the call, which no doubt
you heard, for the idea of a regulatory body for milk. Have you
a view on this? Off-milk is an expression Mr Jack reminds us but
we will try to pass on that. Have you looked into this? Have you
a view on this? It is outwith your direct responsibility.
Ms Boys: Yes. It would not be
for us, of course. I think there would be some questions that
one would ask before reaching a firm view on that. What is the
objective? What would such a body actually be trying to achieve
and how would it do it? What would the costs of doing that be?
What would be the other disbenefits? My guess is that the disbenefits
and the costs would outweigh any advantage, but that is just a
passing view.
Q467 Mr Breed: Could I just come in on
that. You could be right on an individual sector but in terms
of the fact that we get a Competition Commission report into a
particular sector abut once every ten or fifteen years or something
and, as we have clearly seen, things have moved on significantly
in three years, would not the post of a regulator for the retail
industry as a whole, bearing in mind that retailing is ever more
becoming concentrated in fewer and fewer hands, not just dairy,
not just fresh produce but a lot of others so that indeed we have
regulators, as you are obviously aware, in electricity, water,
all the sort of basics of life in that sense where there is now
a commercial function where they did not use to be and indeed
where in the sort of ideal world that you might have thought of
50 years ago when we were a nation of shopkeepers and where now
we are a nation, if we are not careful, of a shopkeeper, is there
not at least some merit in having a regulator for the retail industry
as a whole as the supermarkets seek to gobble up almost every
other sector as well, whether it is pharmaceuticals, cosmetics,
birthday cards, flowers, newspapers, magazines, insurance, banking,
I could go on? Are we not into a situation where in fact the power
of the general supermarket requires the consideration of a regulator
in general, of which Milk Marque would be one investigation?
Ms Boys: I think I would just
ask the same question, what would you hope to achieve?
Q468 Mr Breed: I suppose fair trading,
which seems to be the principle of the Office of Fair Trading.
Ms Boys: I wonder if actually
what you were saying you would want to achieve would be a managed
market.
Q469 Mr Breed: By whom?
Ms Boys: Presumably by the regulator.
Q470 Mr Breed: Up to a point you could
be correct, but if you have allowed the situation where we have
only four major retailers and where we could end up with even
less perhaps that is, I am afraid, the corollary of it. If we
have allowed competition to be so diminished that we now even
have to think about these things then perhaps that is, I am afraid
the natural progression of what we have allowed to happen.
Ms Boys: One would want to look
at how competition was working within that particular structure.
The last time it was looked at each of the supermarkets, significant
market power though they had, was judged to be competing effectively.
We had not lost competition, it was taking a different form. The
market had evolved a certain way into a certain structure. So
I go back to what I said originally. We do not have a fixed view
of what competitive structures are. We want to observe the competitive
process within whatever structures evolve and it is up to us to
enforce competition law against any allegation of an abuse of
a dominant position. The holding of a dominant position is not
against European law.
Q471 Chairman: Before we conclude, just
a couple of other things. There is also this idea of a supply
side milk agency to try and get the marketing of milk brought
forward in a more coherent manner. Would either of you comment
on whether that would be something that would be allowed within
your particular interpretation of competition?
Ms Boys: I guess that would depend
on the specifics. You mean some sort of agency, a collaborative
arrangement. It is possible that could be judged within European
law.
Mr Williams: It would depend on
what we are intending it to do or what it might do. An agency
which was there to assist dairy producers and milk producers more
effectively market their product but left them with the ultimate
pricing decision probably would not be much of a problem. But
if you have in mind an agency which effectively took most of the
milk around from most of the farmers and then set the price for
it you would be effectively creating a monopoly supplier and that
would certainly run into severe competition law problems.
Q472 Chairman: Mr Farthing, do you want
to add anything?
Mr Farthing: I would agree with
that. The last time I was directly involved in this was when we
did the Scottish milk inquiry in 2000. That was at the time that
"the white stuff"', milk promotion, was taking place
and that was conducted by the milk producers collectively. As
Alan has said, if it is simply coordinating an advertising promotion
campaign then I do not have any problem with that, but if it goes
into more worrisome areas then there could be difficulties.
Q473 Chairman: Okay. Could I thank you
very much for the evidence you have given. I know we have asked
for some written evidence, certainly in terms of telling us what
you have been inquiring into so we have it on the record in the
appendix, if nothing else, of the different inquiries you have
engaged with and clearly if there is anything else you would like
to say to us which either has not arisen which you think may clarify
our inquiry or that you particularly wish to further expand on
what you have said. But, unfortunately, what you have said is
on the record and will remain so, so we cannot do anything about
that, but thank you very much for coming.
Ms Boys: Could I just ask by when
you need the note?
Chairman: As always, as soon as possible,
but we are not aiming to write over the Easter, unless Fiona knows
something different to ourselves. Thank you very much.
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