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The hon. Member for Stroud (Mr. Drew) then came into the debate. He was broadly, indeed strongly, supportive of the Bill. The only part of his argument on which one or two of us might depart was his comments about modern front-row forwards in rugby. I suspect that he was being sweetly naive in assuming that some of the
more dark arts that have been practised for a long time by the front-row union have been reduced in any way. I suspect that they are going on, but in a modified form since the advent of camera use.
I was pleased to hear from my hon. Friend the Member for Christchurch (Mr. Chope), because he spoke up strongly in favour of consumers. The hon. Member for Ynys Môn also said that he is a supporter of supermarkets as well as of consumers and supermarket suppliers, and it is worth reiterating the point that supermarkets have driven down prices for us all. They have expanded choice and quality over many years, and they are, in general, in an incredibly competitive sector which I suspect all hon. Members use regularly. It would be rather double-dealing of us to pretend that they do not offer something that is tremendously important not only to us personally but to pretty much every one of our constituents. It is very easy to demonise them while forgetting that the reason they are so successful is that a great proportion of our voters shop in them every week.
It is also true, as my hon. Friend the Member for Christchurch pointed out, that supermarkets have built up a notable supply base in many areas over a great deal of time. There has been much discussion in this debate about the negative effects of the strong negotiating tactics used by supermarkets in some sectors, but that is by no means universal. I hope that it will be widely accepted that in the prepared foods and ready meal sector, a strong supply base has been built up in close partnership with the supermarkets. Indeed, the sector would not have been anything like as successful as it now is without that kind of very close partnership and trust between supplier and grocery chains.
Albert Owen: In the spirit of the consensus in which the hon. Gentleman is making his comments, let me ask whether he has read the excellent report by Professor Roger Clarke of the Cardiff business school, who looked into this issue in his report, "The Impact of a Groceries Ombudsman on Consumers' Best Interests". In the report, he acknowledges the benefits that supermarkets bring to consumers but, as I highlighted in my speech, he also says that if we had an ombudsman to increase fairness and to regulate the market properly, there would be greater innovation from suppliers, which would give greater choice and value to the consumer.
John Penrose: I thank the hon. Gentleman for his intervention. It is for precisely the reasons he has just given that my party supports the principle of having an ombudsman, and I was just trying to make the point that many consumer benefits have resulted from the way in which supermarkets have developed over time. However, we could still do better. The Competition Commission's report makes that very clear. I think that the report that he has just quoted was among the input to the Competition Commission report that was accepted by the commission and adopted as part of the report. That logic is very robust.
The hon. Member for Llanelli (Nia Griffith) made some supportive comments and made the point very cogently that no matter what prior experiences some of us might have had within our families in previous generations-I think that she mentioned her grandmother who had been involved in dairy farming-we have to live in the modern world. It is therefore important that we set up an architecture of institutions that will work to ensure that will cover the things that the grocery ombudsman will do in the modern world. So, she was also strongly supportive.
I return to the two issues that I mentioned at the start of my remarks-large suppliers and whether the grocery market ombudsman should be in or out of the OFT. I accept the point made by hon. Member for Ynys Môn that these issues should be discussed in more detail in Committee. If the Bill reaches that stage, we will have an opportunity to explore the best way of dealing with them. Let me put on the record my party's starting point on this issue. We would be quite nervous about having a grocery market ombudsman who sought to protect large oil companies, or large international or multinational suppliers such as Coke or Pepsi, many of which are a great deal larger than Morrisons, Sainsbury's or any of our British supermarkets. We would be very nervous about an ombudsman who sought to protect such suppliers from our domestic supermarkets. We do not think that it would be intelligent or necessary for the ombudsman to do that, and we would therefore want adequate safeguards in the Bill, should it get to Committee, to make sure that the ombudsman would be focused on the smaller end of the supplier spectrum, which is inherently more vulnerable simply because those suppliers do not have the kind of bargaining power that they would need if they were to go toe to toe with an organisation the size of Tesco or Morrisons, for example.
I am reminded of a story that is not quite an urban myth-probably a rural myth-that circulates widely in my constituency about a local company, Yeo Valley, which is a successful organic dairy and yoghurt producer. It supplies most of the major supermarkets and it has thrived by not being beholden to any one of them by ensuring that not too large a proportion of its business goes to Tesco, Sainsbury's or any of the others. If any of them try to use muscular negotiating tactics, it is able to withstand them because it has diversified its customer base. It has done that very successfully, and so that is a good model. The story that circulates locally-I have no idea whether it is true, but it illustrates my point-is that when a supermarket buyer turned up at Yeo Valley and said, "Now, look here, we need to reduce the price that we pay you for your yoghurts," the chief executive of Yeo Valley called his distribution centre and asked it "Will you please call back the lorries that are currently on their way" to that company's depot "because it can't pay for the goods?" Apparently, there ensued a rather rapid climbdown from the supermarket's buyer for the simple reason that he knew that Yeo Valley could afford to do that. There is a point to be made about not trying to protect people who do not need protection and about not trying to protect people against bad negotiating tactics at the expense of people who are capable of producing good negotiating tactics, such as my constituent from Yeo Valley.
Mr. Roger Williams: The hon. Gentleman makes an important point, but some small producers supply bigger processors. I am thinking about the report that the Environment, Food and Rural Affairs Committee will soon produce on Dairy Farmers of Britain. I do not want to pre-empt the report's findings, but one thing is certain-that group has gone bust, and that has caused huge problems for very small milk producers. Does the hon. Gentleman agree that we need to look at the whole food industry, including both small producers and larger processors?
John Penrose: The hon. Gentleman's intervention illustrates my point. It is important to protect people who are vulnerable to over-muscular negotiating tactics but we must not try to extend protection to companies that are either large enough not to need it or to those that are just making bad decisions. There are other reasons why companies go bust. I would not want to comment on the case that the hon. Gentleman mentions, but we do not want to start intervening when a dairy processor, or any other intermediary, goes bust for other reasons, because at that point we are on a slippery slope; that is the thin end of a very large wedge.
It is important for us to limit the role of the grocery market ombudsman so that it applies purely to companies that need protection from over-muscular negotiating tactics, and for us not to try to protect those companies from other follies, or other mistakes that they make, which are part of the normal risks of doing business.
Philip Davies: My hon. Friend is making some very good points that appear to be in direct opposition to the Bill. He talked about the thin end of the wedge, but by supporting the Bill-albeit tentatively, it seems-he is supporting a thin-end-of-the-wedge approach, because in many different industries big companies negotiate contracts with smaller companies in the same sector. If my hon. Friend is saying that we need an ombudsman in the food retail industry, surely we will at some point need an ombudsman to deal with big companies negotiating with smaller companies across all industries.
John Penrose: I thank my hon. Friend for that intervention and for the chance to clarify what I was saying, as I was clearly not as translucent as I should have been. We support the principle of the grocery market ombudsman, but I was trying to put down a marker for Committee, should this Bill make it to Committee, that there are issues that will need to be greatly clarified and solidified. Without that, the Bill could be quite dangerous.
My hon. Friend is right to point out the dangers of the thin end of the wedge. The distinction between the market that we are talking about and any of the others to which he alluded is that there has been a Competition Commission report on the former, and that report said that there was a specific set of problems. As to whether he is willing to accept the conclusions of that report, I doubt it, as I have listened to his earlier remarks. It is
important to say that I would not wish to extend the principle to any market that had not been the subject of a Competition Commission report that reached similar conclusions; I agree with him that such a move would be an extremely dangerous thin end of a wedge, and could give rise to grave concerns in all parts of the House.
The second point-we have already discussed it, so I will not take up too much of the House's time on it-is the question of whether the ombudsman should be in or outside the Office of Fair Trading, or at arm's length from it but within it, or whatever. It seems from the remarks of the hon. Member for Ynys Môn that we are substantially agreed on the importance of independence; there were nods all round when we discussed the matter in his speech, so I will not belabour the point. I should just say that I suspect that there is quite a lot of detailed discussion to be had-again, in Committee-about how we achieve that independence. There may be some discussion about the best kind of institutional architecture to achieve the aim on which we are all agreed. That is a point for another day.
I hope that it is now clear that the Conservative party is in favour of the measure in principle. There are a few items of detail to consider, but they are very important; I am sure that the hon. Member for Ynys Môn, who is the promoter of the Bill, does not expect a blank cheque from anybody. However, we are broadly supportive. We think that the move is good and will advance the cause of both supermarket suppliers and consumers, if done in the right way, and we therefore look forward to the Bill making progress.
Philip Davies (Shipley) (Con): It is a pleasure to follow my hon. Friend the Member for Weston-super-Mare (John Penrose), who made some telling points-points by which I was heartily encouraged. I was certainly more encouraged by his speech than by some of the earlier contributions.
We have already been round the houses somewhat in a topical debate that took place on the issue on 21 January. However, with your permission, Mr. Deputy Speaker, I would still like today to make some of the points that I made in that debate. I am used to many of my contributions falling on stony ground, but to say that that speech clearly fell on stony ground would be an understatement, so it appears necessary to reiterate some of the points.
It seems that a depressingly familiar approach has been taken. We stand in this House pontificating about things of which we have absolutely no knowledge. That appears to have been done in spades this morning. The hon. Member for St. Ives (Andrew George) made the point that the Competition Commission had looked into the issue in more detail than I had. He may or may not be right about that; other people can judge. However, although in this debate I have no interest to declare, I would like to think that I have some experience to declare, having worked for a supermarket chain for 12 years before entering Parliament. I would like to think that I do have some knowledge of the industry.
I would also like to think that I have some knowledge of the problems to which hon. Members referred, given that my stepfather was a dairy farmer who went out of business because it was no longer financially viable for
him to continue dairy farming. I would like to think that I have some knowledge of that side of the equation, too. It is for others to decide whether the Competition Commission looked into the issue in more detail than I have done, but I hope that hon. Members will acknowledge that I do at least have some knowledge of the supermarket industry; given some of the contributions made, it would appear that some hon. Members who have spoken do not.
We need to start with basics. I do not know what it is about this country, but we seem to have an obsession with knocking anybody or anything that happens to be successful. If anything is successful, we want to cut it down to size and pull it to pieces. The supermarket industry is one of the most impressive industries in this country. We should be immensely proud of it; it has achieved so many things, including for consumers by lowering price. In fact, the Competition Commission itself said:
"Food prices declined, in real terms, by around 8 per cent between 2000 and August 2007...This decline in real food prices is likely to have delivered significant benefits to consumers as shopping bills for the same basket of goods would now be lower in real terms than was the case seven years ago."
Mr. Roger Williams: If the hon. Gentleman looks at those figures, he will find that the decline in farm-gate prices was far greater than the decline in retail prices, and that leads one to suppose that the supermarkets were maintaining or increasing their margins while putting pressure on the smaller producers.
Philip Davies: The hon. Gentleman is completely wrong about that. Anybody who knows anything about the supermarket industry, and particularly those who have worked in it, know that it is one of the most-if not the most-competitive industries in this country. My time working for Asda showed me that it was based on a particularly simple formula: increase volumes and reduce margins. What the hon. Gentleman said is therefore completely and utterly wrong. What supermarkets have been doing year after year is reducing their margins and increasing their volumes. That is what has delivered lower prices.
Milk is a prime example. Perhaps the hon. Gentleman will tell us what huge profit margin he thinks supermarkets have when selling milk. Actually, they do not have a huge profit margin; milk is one of the most competitive products sold in supermarkets. Profit margins for supermarket retailers on products such as milk are very low indeed, if not non-existent. The idea that farmers are suffering on the back of huge profit margins for retailers is simply wrong.
John Penrose: Without wishing to intervene in the discussion about milk-that topic has been very fully debated, not just here but in many other forums-perhaps one of the reasons why there is a disconnect between what my hon. Friend is saying and what was said in the previous intervention is that there are, of course, other players in that supply chain. I am thinking particularly of some of the dairy firms. There is a degree of finger-pointing going on between supermarkets and some dairy firms, on the subject of who exactly is getting this notional extra margin that everyone thinks may be out there somewhere. Everyone is saying, "It's not me, guv; it's the other lot."
Philip Davies: My hon. Friend is right. I reiterate that people should not presume that just because the farmers have struggled on a particular product, the consequence is that the supermarket has a huge profit margin on that product. There are, as he says, others involved.
Albert Owen: What the hon. Member for Weston-super-Mare (John Penrose) said in his intervention is right. An ombudsman would not point the finger, but look to see where the problem lay and could deal with it. That is the point. If the hon. Member for Shipley (Philip Davies) had listened to my opening remarks, he would know that I talked about the whole supply chain, not just the supermarkets, and I was not simply knocking the supermarkets. If there is an injustice in the supply chain, it should be rectified. I am sure he cannot disagree with that.
Philip Davies: The only possible worthwhile consequence of an ombudsman is that the suppliers will be paid more than they are now. If that is not the consequence of an ombudsman, there seems to me to be no point in anyone here proposing one. In view of the small profit margins that supermarkets run to, any increase that goes to any part of the supply chain will inevitably be passed on to the consumer.
A ludicrous argument has been perpetuated today, most notably by the hon. Member for St. Ives, who suggested the apparently painless panacea of a grocery ombudsman-the cost will be X million pounds a year-which will be of great benefit to the supplier, to the supermarket chain and to the consumer. What kind of drivel is that? The system cannot possibly have all those consequences.
If, in a debate in the House, hon. Members were to say, "I want to see suppliers paid more by supermarkets, and I think that is a legitimate aim," and if they acknowledged that that would lead to an additional cost to the consumer and/or to the supermarket, we would at least be having a frank and honest debate, and I could agree or disagree with that. But for people to stand up and say, "We're going to have an ombudsman that will cost X amount of money, and the supplier will benefit, the supermarket will benefit and the consumer will benefit," is treating everybody as if they were utter idiots. That scenario is just not possible. It is some kind of dream world.
I urge hon. Members to be clear about the consequences of setting up an ombudsman and to have the courage of their convictions. If they believe in the principle of an ombudsman to give more money to suppliers from retailers, they should at least be open and honest about what the full consequences of that policy would be.
I was making the point that in this country, we seem to want to knock successful industries. It is important to realise why supermarkets have become so successful. Like other successful businesses, supermarkets have become successful for one main, overriding reason-they look after their customers. Every business that is successful has achieved that status because it looks after its customers and looks after its staff. Any organisation that looks after its customers and its staff will be successful. All failed businesses have two things in common-they do not look after their customers or their staff.
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