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21 Jan 2010 : Column 462

Food Industry Competitiveness

12.46 pm

The Minister of State, Department for Environment, Food and Rural Affairs (Jim Fitzpatrick): I beg to move,

Let me begin by congratulating the food sector on its progress as a successful industry that provides us with a wide range of tasty and healthy foods. The industry contributes more than £80 billion to our economy and is our largest manufacturing sector; the food and farming industries employ 3.6 million people. The industry contains high-tech and innovative companies and is well placed to meet the challenges of the future: producing more food, for more people, while minimising its environmental impact on the planet, adapting to a low-carbon future and continuing to make more efficient use of resources.

To meet these challenges, the Government's food strategy, "Food 2030", which we published on 5 January, sets out our vision of what the food system should look like in 2030. The industry welcomed this vision; I thank the National Farmers Union, the Food and Drink Federation and the British Retail Consortium for their words of support. A thriving food sector will be better placed to invest in the changes necessary to deliver that vision. The Government are committed to fostering competitive markets that work in the best interest of consumers, and the groceries supply chain is no different. By looking for ways to help make markets work better, we can enable businesses to compete freely and fairly, giving UK consumers more choice and better value.

Mr. David Drew (Stroud) (Lab/Co-op): With that in mind, when will the Government bring forward legislation on the supermarket ombudsman or support the private Member's Bill promoted by my hon. Friend the Member for Ynys Môn (Albert Owen)? The hon. Member for St. Ives (Andrew George) and I, among others, want that to be done in this Parliament rather than waiting for a future Parliament.

Jim Fitzpatrick: I am grateful to my hon. Friend for his question. If he will bear with me, I will come to that when I discuss in some detail the Government's announcement that we are in favour of an ombudsman following the conclusion of considerations by the Competition Commission, which has made a number of recommendations. The Office of Fair Trading also has a role to play. I know that he and many other Members in all parts of the House have been lobbying for this initiative for some considerable time, and it has been welcomed pretty much across the piece.

Lynne Jones (Birmingham, Selly Oak) (Lab) rose-

Jim Fitzpatrick: I will give way to my hon. Friend, but I am limited to 10 minutes and I want to get my remarks across so that as many colleagues as possible can contribute and I can respond in due course.

Lynne Jones: In advance of my Adjournment debate on Tuesday on Cadbury, and because I have to leave for a constituency engagement, may I take this opportunity to ask the Minister what lessons the Government are learning from the hostile takeover of Cadbury, which
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has meant that a well-run, debt-free company is now saddled with billions of pounds-worth of debt while those who have no interest in the long-term health of that company or any other industry have made a huge killing?

Jim Fitzpatrick: As my hon. Friend knows, that is a matter primarily for the Department for Business, Innovation and Skills, and my noble Friend Lord Mandelson and his ministerial colleagues are examining it closely. We want to ensure that the best interests of the UK economy, UK production and UK workers are to the fore in the consideration of the takeover. I am a West Ham United supporter and, having followed the football club's recent takeover, I know that anybody who is interested in any takeover of a commercial operation wants to ensure that it is as successful as possible. I know that the Cadbury-Kraft issue will evolve in the weeks and months ahead, and my hon. Friend and many other Members will take a keen interest and wish everybody success.

As I said, there has been mounting concern over recent years among various industry and lobbying groups about the power of the major supermarkets and the impact that that has on the supply of groceries, including the ability of local producers to access markets. The Government and the Office of Fair Trading shared those concerns and asked the Competition Commission to investigate the groceries market and see whether supermarket power was detrimental to consumer interests. We welcomed the commission's final report, published last year, and thanked it for its work.

The commission found that in many respects, competition between supermarkets was strong and working effectively. Competition in the groceries market provides consumers with diverse choice, good value and low prices, and that is reflected in the numbers of shoppers who choose to buy their groceries in supermarkets. However, the commission identified two adverse effects on competition-areas in which the market structure does not work in the best interests of consumers.

The first finding was that in some areas local groceries markets were dominated by single retail chains, restricting the choice available to shoppers. We are still considering our response to that. The second finding was that certain supermarkets' practices passed unacceptable risks or costs on to suppliers-mainly food manufacturers and processors-creating high levels of uncertainty about their income and so limiting their ability to invest and innovate.

The commission proposed a number of remedies and recommendations to address the adverse effects on competition identified. They included a new groceries supply code of practice-GSCOP-for all supermarkets with a turnover of more than £1 billion a year. The Office of Fair Trading will play an important role in overseeing its implementation. Additionally, the commission recommended that the Government establish an ombudsman, as my hon. Friend the Member for Stroud (Mr. Drew) mentioned, to monitor GSCOP and arbitrate disputes between suppliers and retailers.

That is a complex issue, and we have considered the recommendation carefully. My hon. Friend the Minister for Further Education, Skills, Apprenticeships and
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Consumer Affairs announced on 13 January that he agreed with the Competition Commission that there was a need for a body to enforce the code of practice independently, to prevent retailers from being able to pass excessive risks and unexpected costs on to their suppliers. To support that, it was decided that the ombudsman should also have the important power of hearing anonymous complaints.

The revised code of practice is a great improvement on the current regime. However, the power that large grocery retailers remain able to wield over their suppliers can still create pressures on small producers, especially in these difficult economic times. Ultimately, that may have an impact on consumers.

Philip Davies (Shipley) (Con): Does the Minister not accept that the best ombudsman is the customer? I have no idea about the Minister's experience of working in the supermarket industry, but does he not agree that for any supermarket to succeed, by definition it has to have good relationships with its suppliers?

Jim Fitzpatrick: The hon. Gentleman makes a very good point. It is important that the retail sector has good relationships with its suppliers, and by and large that is the case across the piece. However, in the course of the investigations into the relationship between supermarkets and producers, processors and the farming industry, it became clear that there had been some abuses. For example, sometimes there were no written contracts between the retail sector and the producers and processors, which seems very strange in this day and age. Also, prices were being changed after the event, which meant that the price that a producer or processor expected was not reflected in the cheque that came through the post from the retailers. Those abuses were taken into account, which was why the strengthened code of practice was produced and why all parties concluded that an ombudsman of some description would be appropriate to oversee the application of the new code. We were not convinced that the system was working as effectively as it could have done.

Dr. Andrew Murrison (Westbury) (Con) rose-

Nick Herbert (Arundel and South Downs) (Con) rose-

Jim Fitzpatrick: I give way to the hon. Member for Arundel and South Downs (Nick Herbert), who leads for the Opposition. If the hon. Member for Westbury (Dr. Murrison) will allow me a couple of minutes, I will give way to him if I can get through my remarks.

Nick Herbert: I am grateful to the Minister. Does he agree that the Competition Commission was clear that the absence of action would have meant suppliers innovating and investing less, and that crucially, that would not be in the interests of the consumer and could lead to higher prices in future? The chairman of the commission said recently that the economic downturn was a reason for action, not inaction.

Jim Fitzpatrick: The hon. Gentleman makes a very important point. Processors and producers needed certainty that the payment agreements and contracts that they had entered into would be honoured, allowing them to
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project what their future investment in their business or farm should be. That was not happening across the piece, and the uncertainty could have led to a number of businesses and farms going under. As he said, that could ultimately have acted to the detriment of the consumer.

Andrew George (St. Ives) (LD) rose-

Mr. Philip Hollobone (Kettering) (Con) rose-

Jim Fitzpatrick: I am wasting time explaining this, but if I can give way-

Mr. Hollobone: On a point of order, Madam Deputy Speaker. The Minister is making a very interesting speech that we are all following closely, but I am not convinced that he is aware of the extra time that he gets for allowing interventions. I wonder whether you might be able to enlighten him.

Madam Deputy Speaker (Sylvia Heal): I inform the hon. Gentleman that the Minister does not get time for each intervention in these debates. He gets one minute of additional time, but it is still up to him to determine whether he will take an intervention.

Jim Fitzpatrick: I am grateful for your explanation, Madam Deputy Speaker. I can tell the hon. Gentleman that I have had the additional time that I was allowed for the first two interventions. I have since taken two or three others, and as I said, if I have time I will certainly give way to him. However, I am not sure whether I will get through my remarks. I will have to run through them at pace.

GSCOP will come into force on 4 February, and we will quickly follow that up with a consultation on how best to enforce it, including on the structure of the ombudsman and what powers it could have. We do not anticipate that a significant impact on consumer prices or staffing levels in retail will result from the creation of an enforcement body. We will consult not on whether a body is needed-we have decided that-but on exactly how that body will operate. We will consult on its nature and role, to ensure that all interested parties can make their views heard and that informed decisions are made.

The new, tougher code and proper enforcement will mean that the grocery supply market works in the long-term best interests of consumers. The new ombudsman will help strike the right balance between farmers and food producers getting a fair deal and the interests of supermarkets. That will enable consumers to get the high-quality British food that they want at an affordable price. Helping our farmers produce as much as they can, while using fewer resources, is at the heart of the Government's food strategy, "Food 2030."

I have previously commented in the House on the relationship between retailers and farmers. GSCOP will be for companies that supply produce direct to retailers. Most fresh produce is supplied to retailers through intermediaries such as packers, processors and fresh food wholesalers rather than by farmers. Although most farmers will therefore be outside the direct scope of GSCOP, the limited value of direct purchases by grocery retailers from farmers understates the closeness of the trading relationship between primary producers
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and grocery retailers. As farmers may be members of, or shareholders in, intermediary businesses that market their produce to grocery retailers, in that respect GSCOP will provide them with some certainty.

As I have said, the industry contributes more than £80 billion to our economy and is our largest manufacturing sector. Through our "Food 2030" strategy, we will work to help ensure that it can thrive as an innovative, competitive and resilient sector, and as a sustainable source of growth and jobs. The Government are supporting the food industry not only through funding for innovation and skills but through our public procurement policies, through our "Love Food, Hate Waste" campaign to reduce waste, and by supporting the development of small and medium-sized enterprises and promoting regional foods.

Andrew George: In the circumstances, why are the Government proceeding with a further period of consultation? Office of Fair Trading referrals to the Competition Commission on this matter go back to April 1989 and the supermarkets will want to string the process out for as long as they possibly can. There have been inquiries and consultations enough. Why not simply implement the policy now?

Jim Fitzpatrick: The hon. Gentleman makes a fair point about the impatience of many of us regarding progress on this matter. However, as the hon. Member for Shipley (Philip Davies) said, there are still differences of opinion about the operation of an ombudsman. The Conservatives made a proposal on that recently, the Government are clearly outlining a different structure and responsibilities, and I am sure we will shortly hear the views of the Lib Dems from the hon. Member for St. Ives (Andrew George). The consultation will offer certainty that after the election campaign there will be an ombudsman and that all three parties will have had the opportunity to say in detail what shape and powers the ombudsman should have. They will also have the opportunity to say whether the ombudsman should be inside the OFT or an independent entity. That is what the consultation will be about.

In conclusion, the new code and its enforcement, which are the result of two intensive investigations by the Competition Commission, will ensure that markets work effectively in the interests of consumers.

1.1 pm

Mr. James Paice (South-East Cambridgeshire) (Con): May I remind the House of my interests, which are declared in the register?

I welcome the fact that at last we are having a debate on food and farming in Government time. I cannot remember the last time that happened, but I congratulate the Government on it, even if they have hung the debate on a very small hook-the one action they have taken that they believe to be in the interests of agriculture.

I shall address the issue of the ombudsman later, but the Minister began by referring to "Food 2030", which the Opposition welcome. After nearly 13 years in office, the Government have recognised that they got it wrong in their previous 12. The two previous Secretaries of State-the present and previous Foreign Secretary, indeed-repeatedly said that domestic food production
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was unnecessary and that our food security could be achieved by importing from several different countries. In that time, pork production went down by one third, and bacon and ham by a quarter. Production of poultry, vegetables, milk, eggs and most of our commodities also declined before the Government saw the error of their ways.

Mr. Shailesh Vara (North-West Cambridgeshire) (Con): Does my hon. Friend agree that one advantage of having domestic suppliers is that it guarantees the quality of the produce and helps substantially to encourage local economies?

Mr. Paice: My hon. Friend makes a very important point. Local sourcing guarantees provenance. Of course, it does not always guarantee high quality, but it certainly enables the consumer to know where a product comes from and to check the quality, which we strongly support.

Dr. Murrison: My hon. Friend knows of my interest, albeit amateur, in the pork industry. Does he agree that for consumers to exert choice they need to know from where a product is sourced? Does he share my concern that certain supermarkets are in the habit of claiming that pork is sourced in the UK, but when one looks on their shelves, one finds that their bacon is produced anywhere but the UK? Does he agree that the ombudsman needs to look into that as a matter of urgency?

Mr. Paice: I have never known my hon. Friend to do anything amateurishly, and I will come to the issue of food labelling in a few moments.

The real issue with "Food 2030" is not what is in it, but what is not in it. There are no substantive proposals to restore the prosperity of our food supply industry, and therefore assure us of food security. The first thing must be to ensure that consumers are properly informed. We must have proper, honest country-of-origin labelling, initially in the meat sector. Even the Government have come round to that, but they have blocked four different private Members' Bills that would have provided such labelling. While the Minister and the Secretary of State have been declaring their support for country-of-origin labelling, we have it on record that Food Standards Agency officials have been voting against it in meetings in Brussels. There is not a lot of substance there.

"Food 2030" says that agriculture must be supported by first-class research and development, yet the Government have been cutting funding on agricultural research for most of the past 12 years. The fundamental objective of the document is that the demand for food should be met by profitable, competitive, highly skilled and resilient farming-fish and food-businesses. It refers to the market and sharing risks, yet the Government have taken two years to respond to the Competition Commission report.

We wholly support the new code of practice-GSCOP, as it is being called-and as we announced before the Government did, we support the idea of an ombudsman. Some think it odd that the Conservative party supports an ombudsman.

Philip Davies: Hear, hear!

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Mr. Paice: I know that at least one of my Back-Bench colleagues takes that view. My hon. Friend is an aficionado of Adam Smith and he will recall that Adam Smith actually says that a true free market is one in which there are an equal number of buyers and suppliers, which, of course, is patently not the case in the grocery market. The ombudsman is about addressing a market failure, not about interfering in a free market. However, we welcome the Government's albeit belated decision to respond.

Andrew George: The hon. Gentleman says "albeit belated", but he is quoted as saying at his party's conference in October:

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