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14 Oct 2009 : Column 98WH—continued
"Price cuts serve only to devalue bananas yet further, creating a false illusion amongst shoppers that they can be sustainably produced for such give-away prices...This is highly irresponsible at a time when farmers and workers across the developing world are facing their own economic crisis, as well as battling the growing effects of climate change."
The impact on developing countries comes in several forms. The concern relates not only to the supermarkets' ability to force down prices, as they do here in Britain,
but to the impact that that has on terms and conditions. Often, the supermarkets do not enter into written contracts and retrospective changes are made to agreements, and when the buyers come back to their original suppliers they often charge for shelf space. Promotions are often conducted at the expense of the suppliers: buy one, get one free offers are not, in fact, the gift of the supermarket, but something the supplier is required to provide for the supermarket. Several practices set out in the Competition Commission's report show that what the supermarkets are doing is extracting wealth from suppliers. It is appropriate to note that, in these recessionary times, supermarkets are posting record profits. Someone is hurting, but it is clearly not the supermarkets.
A further argument being made by development charities and others relates to the impact on labour standards in developing countries. As the Under-Secretary of State will be aware, on 4 August this year, the Competition Commission recommended that the Government establish the post of ombudsman. That area is the responsibility of the Department for Business, Innovation and Skills, and the post held by his colleague the Minister of State at the Department for International Development straddles both Departments. There will, no doubt, be discussions between both Departments, but the commission has clearly recommended in its report that the role of the ombudsman must be established because the supermarkets have failed to adopt the scheme voluntarily. From 4 August the Government had 90 days to respond and make a decision-three weeks away now.
As the Minister may be aware, I also raised the issue at Prime Minister's questions on 4 February, asking:
"Does the Prime Minister agree that the commission's proposed remedies to tackle this problem should now be implemented without further delay?"
"The hon. Gentleman is absolutely right to highlight this problem-first, because of the failure to introduce early payment to many of the suppliers, we are asking the supermarkets to do that. Secondly, in relation to developing countries, we have been in talks with supermarkets such as Asda about how they can source their produce from those countries at a fair price. We will continue to push that as quickly as possible."-[Official Report, 4 February 2009; Vol. 487, c. 844.]
This is an important matter. We are entering a crucial stage in the negotiations. Clearly, many organisations that are suppliers of supermarkets are looking out to see what the Government will do. It is very rare that a Government reject the clear recommendations of a competition authority, which has a responsibility to fulfil its statutory duty by assessing a particular case independent of the Government. The Competition Commission has acted in a responsible manner in this case.
I have several questions for the Under-Secretary. What discussions has he or his colleague, the Minister of State, had with BIS, with regard to the Competition Commission's request that the Government implement its recommendation? Has the Minister or his Department discussed the matter with other Departments, such as the Department for Environment, Food and Rural Affairs, or with their contacts in developing countries, which clearly have an interest in the matter? What assessment has his Department made of the benefits that an ombudsman would bring to suppliers in developing
countries? In what circumstances would the Government ever reject the recommendations of a competition authority, such as the Competition Commission, when it has engaged in such lengthy inquiries into such an important matter? Will his Department make a statement, in parallel with BIS, in the first week of November to indicate how that Department's decision will impact on suppliers from developing countries?
11.17 am
The Parliamentary Under-Secretary of State for International Development (Mr. Michael Foster): I begin by congratulating the hon. Member for St. Ives (Andrew George) not only on securing this important debate at such short notice, but on his long-standing interest in development-an interest you share, Mr. Streeter. I welcome the opportunity to make a few observations on his comments.
Around the world, 2 billion people depend on agriculture for their livelihoods. The fragility of the world food system was highlighted during last year's food price crisis. When those price increases came through, they trapped an estimated 150 million additional people in poverty and pushed the number of hungry people to more than 1 billion worldwide. We urgently need to support poor farmers and consumers to deal with fluctuating markets and survive the current global economic downturn.
The UK supermarket sector, as the hon. Gentleman has so clearly demonstrated, has a critical role to play in that. It is worth more than £100 billion a year, and its purchasing decisions make a huge difference to the livelihoods of producers in developing countries. So far, the UK has led the way in developing African horticulture to supply our markets. Altogether, British consumers spend more than £1 million a day on fruit and vegetables from Africa, and there is an important debate, because of that flow of goods, about the interaction between development and environmental sustainability.
I will take this opportunity to speak about the argument relating to food miles, because the hon. Gentleman has an interest in that area as well. As a Department, we make it clear that, with about 1 million farmers in Africa and their families relying on the fruit and vegetable trade in the UK and depending upon their earnings to get their children through school and to care for them when they are sick, it is important that UK customers do not make their purchasing decisions on the basis of food miles alone.
The distance that food has travelled is an incomplete argument about how sustainable the food that we eat is, and it is important for customers to recognise that when they make ethical consumer choices. In Kenya, for example, small-scale farmers bring their beans to the Kaviani sheds in Machakos district. Each week they sow, weed and pick green beans, and each week they earn an income of around £20, which they can invest in their children's education.
One of the problems in Africa is not so much the availability of food but its affordability. People literally do not have enough money to purchase the food that they need. Exporting commodities, typically food such as the Kenyan beans, is an essential part of any economic growth strategy to increase incomes and reduce poverty. It is the same for small-scale farmers who produce
coffee and sell it on international markets. They do so to be able to buy food locally for themselves. The hon. Gentleman made an important point.
The hon. Gentleman referred to the groceries supply code of practice. When it comes into force in February 2010, it will help to ensure better outcomes for both producers and consumers in the international grocery market. It will achieve that by ensuring that supply agreements are in writing and incorporate the code. The number of designated retailers will increase from four to 11, and they must have trained compliance officers. Certain practices will be prohibited, and the new code will ensure that disputes are resolved through fair and legally binding independent arbitration.
We are still assessing the Competition Commission's proposal to establish an ombudsman to monitor and enforce the code of practice. The proposal raises several complex issues, and we need to consider its potential impact on consumers and the wider economy. We intend to make a decision on that later this year.
The Competition Commission believes that the benefits of effective enforcement and monitoring by an ombudsman would accrue from future investment and innovation due to increased confidence on the part of suppliers. However, we think that the evidence relating to the argument about those benefits is insufficient at present, which is why we want to do a more careful analysis to inform a future decision. An ombudsman would, of course, generate additional costs that would be borne by the retailers, but our view is that, although such costs are likely to be passed on to consumers, they would not constitute a material increase in consumer prices.
Little is known about the potential impact of either the code of practice or an ombudsman on developing countries. Frankly, analysis has not been undertaken on the issue. It is reasonable to consider that, in theory, the code will provide benefits such as increased investment for developing countries, as it would in the UK supply chain. However, in practice, the number of suppliers in developing countries who would engage with and make use of the code of practice or an ombudsman would be relatively low, so that the benefits would likely be insignificant. We think that the Government can operate in a more effective way to improve the livelihoods of poor farmers in developing countries.
Andrew George: I certainly appreciate the Minister's point that an ombudsman could have a low impact, but even if very few complaints were pursued through the supermarket code of practice, the existence of an ombudsman and the code, if they have real teeth, would have a widespread impact. As he says, the cost could easily be borne, particularly by a sector that is posting the largest profits in its corporate history.
Mr. Foster: I understand the hon. Gentleman's point, and I assure him that, over the coming weeks, the Government will keep in contact with him on this issue, which he has pursued with vigour for some time, so that we can deal with his concerns.
I should like to put on the record the commitment that my Department has to ensuring that agriculture and food security are given the highest attention not just in the UK but internationally. In the White Paper that we launched in July, we set out our commitment to provide more than £1 billion to fight hunger and to
increase food production in the poorest countries. We will provide at least £1 billion a year to support growth and trade over the next three years.
In the White Paper, we laid out a commitment to increase our support for fair and ethical trade fourfold over the next four years. At the weekend, we announced a commitment of £12 million over the same period for Fairtrade. We therefore hope that, by 2013, we will have doubled the number of individual producers accessing the benefits of fair trade. At present, 2.2 million people will directly benefit. We hope that that benefit will extend to their families and affect some 7.5 million people all told.
Andrew George: I very much appreciate what the Minister is saying about fair trade and extending the work of the Fairtrade Foundation, which is extremely welcome, but I wish to get back to the point of this debate: the implementation of the supermarket code of practice, which will happen anyway, because the Competition Commission has the power to introduce it. The question remains, and we have only days to consider it, as to whether his Department will exert pressure to ensure that BIS looks seriously at the commission's recommendation to establish an ombudsman. There is an indication in what he has said that it may not, but it would surely be a first if there were a failure to implement the recommendation of an important commission.
Mr. Foster: The hon. Gentleman may have misinterpreted what I said. Of course we will have discussions with BIS. My point was that we do not have sufficient evidence to show the direct impact of an ombudsman on developing countries. Although there is a logical argument to be made, and we will make it, we do not have the depth of evidence required to prove the impact of an ombudsman on developing countries. That was the point I was making.
Our work on fair trade will produce other benefits in boosting the impact on the developing world. We expect that the global sales value of fair trade certified products will treble over the next four years. We think that that is a fair way of doing business.
The hon. Gentleman mentioned bananas. There was a major piece in one of the Sunday papers on banana prices. I have discussed the matter with the Fairtrade Foundation and wish to put on the record for interested consumers who may be following this debate or reading Hansard that those supermarkets that have gone 100 per cent. fair trade on their bananas have committed to not joining what I consider to be an unhelpful price war. Something that I did not realise some 30 years ago when I used to stack bananas on shelves was that they were often used by supermarkets as loss leaders to get customers into their shops.
We will continue to support ethical trading initiatives, as we have since 1999, and to work with the food retail industry to develop responsible supply chains that will provide equitable opportunities for small and poor producers and enable them to connect with the market.
The food retail industry challenge fund will help retailers design new business models that will bring millions of farmers into fairer and more profitable trading relationships with UK consumers. We made available a fund of some £2 million to make partnerships work for the benefit of farmers, particularly in Africa.
Helping poor farmers to increase their crop yields, giving them the support that they need to trade their goods internationally and ensuring that they can earn a fair price are all fundamental to helping lift millions of people out of poverty. I reassure hon. Members that DFID will continue to work with Governments and businesses around the world to support poor farmers and their communities.
11.30 am
City of London
[Christopher Fraser in the Chair]
2.30 pm
Mr. John Grogan (Selby) (Lab): Mr. Fraser, it is a great pleasure to serve under your chairmanship, although I fear that we are both absentees from the Select Committee on Northern Ireland Affairs this afternoon. I hope that the Chairman will forgive us.
About two years ago, I went on a course entitled "An introduction to the City", organised by the excellent Industry and Parliament Trust. During week 4, one of our number-there were meant to be 10 of us there-was missing. That person turned out to be my hon. Friend the Member for Burnley (Kitty Ussher). We inquired as to her whereabouts and found that she had been made Minister with responsibility for the City after just three weeks on the course. I did not receive similar preferment; I just got a certificate at the end of the period.
I am glad that my hon. Friend the Member for Portsmouth, North (Sarah McCarthy-Fry)-the successor to my hon. Friend the Member for Burnley as Exchequer Secretary to the Treasury-will be replying to the debate. Her rise has been similarly meteoric. At one stage in the summer, for one week, she was in the Department for Communities and Local Government and, having solved all the problems there, was rightly promoted into the Treasury. I suspect that her meteoric rise will continue. She is a tweeter on Twitter with 400 followers and it would be the height of my political career if today's debate got a little mention in a tweet later on.
Yesterday, in the Library, an hon. Member asked me, "Why are you interested in the City? What is behind this debate?" I could have mentioned the Industry and Parliament Trust course that I attended, or my economics degree-half an economics degree; I got the other half in history-but I should have said that the City has an impact, for good and bad, on the whole of our economy. That is as true for a northern Member of Parliament as for any other MP in the country. The City has much to take pride in, including its history and the fact that, every day of the working week, 340,000 people pile into the City, which has a resident population of only 8,000. The City should take great pride in underwriting ventures across the world, providing seed corn and capital to entrepreneurs starting up new ventures and businesses in each generation. Equally, the relatively mundane business of making markets, providing liquidity and dealing in foreign exchange all have their value in a market economy. Some of my best friends work in the City.
Another virtue of the City in recent years is social mobility, of a kind. The background of people who work in the City has been transformed in the past 20 or 30 years, since the big bang. I chair the all-party group on Ukraine, which has led me to a new understanding of the internationalism of the City and how people from all round the world work there, contributing to all sorts of firms and often returning to work in their home countries with an understanding of Britain and our economy. All those things are to the good.
I am an avid reader of the Financial Times and have been since my first Labour party meeting at the age of 15. I sat through the meeting and, at the end, one of the older members of the party-there were only about 10 there-who was well into his 70s beckoned me over
and asked what paper I read. I told him that I read The Guardian and he asked why. I knew that he did not have much of an education himself, so I thought, wrongly, that perhaps he was saying that I should read The Mirror or something like that. But he said, "The Guardian is biased." I asked what he meant and he told me that he always read the Financial Times, which was his paper of choice. He said, "It has to tell the truth because the political and economic elite read it, so this is the paper you should read, my boy." I have to say that although I have stuck to The Guardian-there is something about reinforcing our own prejudices, is there not?-I also read the Financial Times occasionally. Over the summer, it has indeed been the paper for people to read if they have any interest in the City.
Lord Turner of Ecchinswell, chairman of the Financial Services Authority, made a remarkable speech earlier this summer questioning the social usefulness of parts of the City. I realise that I am quoting him selectively, but let me read a couple of lines from his speech. He said:
"Parts of the financial services industries need to reflect deeply on their role in the economy, and to recommit to a focus on their essential social and economic functions, if they are to regain public trust".
"there are good reasons for believing that the financial industry, more than any other sector of the economy, has an ability to generate unnecessary demand for its own services-that more trading and more financial innovation can under some circumstances create harmful volatility against which customers have to hedge, creating more demand for trading liquidity and innovative products; that parts of the financial services industry have a unique ability to attract to themselves unnecessarily high returns and create instability which harms the rest of society."
That remarkable speech was given in the Mansion House. He got to some of his audience, because they started criticising him in The Daily Telegraph in the days following the speech for the way he tied his bow tie. Apparently, he is a clip-on man. I am a clip-on man as well.
Mr. Mark Field (Cities of London and Westminster) (Con): Without talking too much about ties, I have to admit that I, too, am a clip-on man.
On social usefulness, surely one of the biggest problems that we face, and one reason for the catastrophe in financial services, is the sub-prime market. From the mid-1990s, in the United States of America, it was those who thought there must be more social usefulness in relation to financial services who tried to persuade a huge group of people who should not have had financial products to go that way. Much as Lord Turner may have concerns about social usefulness, when politicians or those with an interest in politics try to impose social usefulness in this area, it can often go awry.
Mr. Grogan: The hon. Gentleman makes a fair point, but we should not let the City alone be interested in the City. As I will mention in a moment, quite a few of the reports on the City in this generation have been written largely by City practitioners. A wider group of people should be involved in things like the Bischoff report, for example, which was commissioned by the Treasury, because in that way we get a more holistic view of social usefulness.
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