Written evidence submitted by the Church
of England Ethical Investment Advisory Group[16]
and the Church of England Mission and Public Affairs Council[17]
SUMMARY
The Church
of England has long held concerns both in its pastoral and investment
capacity about the impact of supermarkets' buying practices on
the agricultural supply chain.
We continue
to hear complaints from suppliers and believe that an Adjudicator
to enforce the GSCOP is urgently required.
We are supportive
of the Bill in its entirety, with two exceptions. We consider
that the initial review of the effectiveness of the Adjudicator
should take place after five rather than three years. We consider
that the Adjudicator should have the power to levy financial penalties
from the outset.
Key provisions
in our view are the ability to take complaints from indirect as
well as direct suppliers and the ability to take forward complaints
on the basis of anonymity.
The relationship
between the Adjudicator and the OFT (or the Competition and Markets
Authority) must be arm's length. The independence and distinct
branding of the Groceries Code Adjudicator must be maintained
in order to promote ongoing trust in and visibility of the Adjudicator.
DETAIL
1. This evidence draws on:
research by
the Church of England's Ethical Investment Advisory Group (EIAG)
in 2007 involving meetings with farmers around England;
ongoing contact
by the EIAG, the Church of England's National Rural Officer and
diocesan rural officers with farmers in England; and
EIAG shareholder
engagement with the major UK-listed supermarkets on behalf of
the national investing bodies of the Church of England.
Opening reflections
2. Food is fundamental to human existence. Food
provides the balanced nutrition that allows the human body to
function, grow and be sustained. Good nutrition protects against
disease and promotes fitness. The sharing of food in communal
ways is an essential part of a functioning society that brings
additional benefits of social interaction as well as sustenance.
The sharing of food is a most basic part of life that is reflected
extensively within the Christian tradition as in other faiths.
3. Food, an essential good, is supplied by the
private sector, but unlike other essentials such as water and
electricity, does not have a dedicated office for regulation.
This would seem to be unusual given the now well documented problems
in the operation of the supply chain and the essential nature
of food which cannot simply be considered to be just another commodity.
The creation of an Adjudicator for the groceries supply chain
would allow this significant omission to be addressed and create
a place where issues of fairness, appropriateness, justice and
responsibility can be addressed.
4. Relationships between supermarkets and most
of their suppliers represent a disparity of power, with the supermarkets
holding the balance of power over even quite large supplier businesses.
Whilst we recognise that there are many good and fair working
relationships within the groceries supply chain, we have collected
a great deal of evidence on the pernicious practices that can
take place (published by the EIAG in 2007 as Fairtrade begins
at home[18]
and submitted as evidence to the Competition
Commission enquiry on the supply of groceries to the UK market).
5. The types of practices identified in this
report need to be regulated to create non-abusive relationships.
When one party holds the power in a relationship and the other
holds the risk this can lead, at best, to unbalanced transfer
of risk and at worst to abuse of power that is extremely damaging
and immoral. It also makes it very difficult to challenge or change
the status quo if all the power is held in one place—trust
is unlikely to be present. With the appropriate powers the Adjudicator
has the potential to address these injustices which are impediments
to the successful operation of the groceries supply chain in the
long-term.
6. The Judaeo-Christian tradition emphasises
the need for fairness in trade. Fair and just dealing between
supermarkets and their suppliers contributes to the sustainability
of all the businesses involved, ensuring a rich, varied and reliable
supply of an essential part of life.
The need for the Groceries Code Adjudicator
7. Our evidence submitted to the Competition
Commission Inquiry, published as Fairtrade begins at home,
makes clear that a climate of fear exists in the farming supply
chain and that reluctance to come forward with complaints against
retailers is widespread.
8. Our firm view is that only a body set up for
the specific purpose of monitoring and enforcing compliance with
the GSCOP would be able to win the confidence of the farming supply
chain, and even so this would likely take some time to establish.
The independence of the enforcement body is essential and transferring
powers to an existing body would be unlikely to be perceived as
either independent or transparent.
9. A specialised body would be able to develop
knowledge of and expertise in issues relating to overseas suppliers
to groceries retailers, particularly suppliers from developing
countries where the imbalance of power between retailer and supplier
will be particularly acute.
10. It is impossible to forecast how much the
Adjudicator will be used. Some farmers and farming businesses
we speak to shrug their shoulders and put problems down as being
part and parcel of operating in the market, despite being unhappy
with the status quo. Some simply cease to trade with problem
retailers. Such suppliers may not initially use an Adjudicator.
Others (even large multi-million pound turnover businesses) say
that they would be afraid to raise disputes with an Adjudicator
for fear of being blacklisted; they would likely use an Adjudicator
for anonymous complaints.
11. The demand for, and success of, an Adjudicator
would very much depend on (a) whether it could accept complaints
from indirect suppliers and (b) how credibly the Adjudicator established
itself and won the trust of suppliers and primary producers. Our
sense is that if this proper mandate, credibility and trust were
established, much of the initial work of an Adjudicator could
usefully centre on a small number of systemic complaints.
12. We are concerned that the establishment of
the Adjudicator is proceeding so slowly. The GSCOP has been in
place now since February 2010 with no enforcement body. The allocation
of parliamentary time to the Groceries Code Adjudicator Bill is
urgent.
Compliance with the Groceries Code to date
13. We have no quantitative evidence to offer
on compliance with the Groceries Code to date.
14. However, conversations with farming businesses
continue to elicit anecdotal evidence of supply chain problems.
Squeezes on the profitability and indeed viability of primary
producers, who find it hardest to get fair prices, remain a recurrent
complaint. This is particularly relevant for the dairy sector,
fresh produce and for pigs—both pork and bacon, where the
price paid is below the cost of production.
15. Notwithstanding the provisions of the Code,
we continue to hear complaints about barriers to new products
coming to market, or to scaling up supply, such as prohibitive
payments for listing.
16. We are very concerned that, in the absence
of an Adjudicator, no independent information is available about
the operation of the Code. Reports provided by the retailers themselves
reveal little given that the retailers have no interest in creating
an environment in which complaints can safely be made about violations
of the Code.
The specific provisions of the Bill
17. The Bill contains provision for the effectiveness
of the Adjudicator to be reviewed after three years. We agree
that the effectiveness of the Adjudicator should be reviewed regularly
but an initial period of five years would be more appropriate
followed by review every three years. A review after the first
three years would be unlikely to give the Adjudicator long enough
to prove its worth with suppliers.
The functions and powers appropriate for the Code
Adjudicator
18. We are supportive of the Bill in its entirety,
with two exceptions. As noted above, we consider that the initial
review of the effectiveness of the Adjudicator should take place
after five rather than three years. We note below that we also
consider that the Adjudicator should have the power to levy financial
penalties from the outset.
19. The key activities of the Adjudicator from
our perspective are the arbitration of disputes between suppliers
and retailers, and the receipt of complaints and conduct of investigations
in relation to breaches of the Code, especially investigations
into areas of repeated complaints and recurrent concern.
20. While we recognise that single complaints
in most cases can only be recorded and verified, we believe that
where a single complaint clearly represents a serious and significant
breach of the Code, then action should be taken without waiting
for a similar complaint to be reported.
21. The provisions in the Bill allowing the Adjudicator
to publish guidance on the implementation of the Code, make recommendations
on improving compliance and monitor the implementation of such
recommendations are essential to ensure that complaints can be
made based on the current interpretation of the Code.
22. The Adjudicator should be able to include
a survey of other suppliers in the sector where a complaint has
been received. Proactive spot checks of suppliers in the affected
sector and of the retailer may also elicit additional useful information.
The appropriate location for the Adjudicator
23. Our firm view is that a specific and independent
body needs to be created to monitor and enforce compliance with
the GSCOP, as recommended by the Competition Commission. Past
experience indicates that the OFT was not able effectively to
monitor and enforce compliance with the previous Code (SCOP) or
to resolve deep-seated problems in the relations between groceries
retailers and some of their suppliers.
24. While it is appropriate that that the Adjudicator
should benefit from the skills and experience of the OFT, and
while co-location within the OFT at this stage may be a way of
achieving this, it is essential that the relationship with the
OFT should be, as the Bill sets out, on an arm's length basis.
25. Should the Adjudicator become part of any
new Competition and Markets Authority, the independence and distinct
branding of the Groceries Code Adjudicator must be maintained
in order to promote ongoing trust in and visibility of the Adjudicator.
Enforcement powers, penalties, appeals, and funding
26. We believe that the Bill is flawed because
it does not contain provision from the outset for the Adjudicator
to levy penalties on suppliers for breaches of the Code. Our view
is that penalties of sufficient size to have a deterrent effect
are necessary to redress the imbalance in power between groceries
retailers and smaller suppliers. This would foster the confidence
of smaller suppliers that something will be done in response to
their complaints.
27. "Naming and shaming" alone will
not be enough. There has already been a good deal of publicity
about problems in the groceries supply chain, including mention
of specific supermarkets, and this has not been sufficient to
bring an end to long-standing unreasonable practices.
28. Penalties should be commensurate with the
offence but should also be sufficiently large as to have an exemplary
effect. The turnover of the retailer should be kept in mind in
determining an appropriate penalty.
29. This is not to say that "naming and
shaming" should not be practised. Retailers might be ranked
in the Adjudicator's annual report in terms of numbers of complaints
and compliance with the Code. "Naming and faming" will
be appropriate to reward and encourage good practice and compliance
with the Code.
Coverage of indirect suppliers
30. The comment which we would emphasise above
all others is that it is essential that the Adjudicator should
be able to receive and act upon complaints from suppliers who
do not supply retailers directly but via intermediaries such as
dairies, vegetable packers and meat processors. This is a vital
issue for the farming community to whom we are close as a result
of our network of diocesan rural officers and tenant farmers on
Church Commissioners' owned land.
31. Intermediaries and their farming suppliers
bear the brunt of unfair buying practices together, because intermediaries
have to pass on the price demands of retailers. Farmers make clear
to us that it is retailers and not the intermediaries whom they
see as at fault and responsible for uneconomic and unsustainable
prices being demanded of them. The Adjudicator should be able
to take complaints submitted jointly by intermediaries (as the
direct supplier) and their suppliers (indirect suppliers to retailers).
Powers to investigate anonymous reports
32. Given the climate of fear about the making
of complaints that we have consistently seen, it is essential
that the Adjudicator should be able to receive and act upon anonymous
complaints from suppliers.
CONCLUSION
33. We believe that the early establishment of
the Groceries Code Adjudicator will serve both the farming communities
that the Church serves and the long-term sustainability of the
supermarkets in which we invest. We urge the Committee to give
the Bill and our suggested amendments favourable consideration.
15 June 2011
16 The Church of England Ethical Investment Advisory
Group (EIAG) makes recommendations on ethical investment policy
to the Church of England's three national investing bodies (the
Church Commissioners for England, the Church of England Pensions
Board and the CBF Church of England Funds). The EIAG includes
representation from the General Synod, the Archbishops' Council
and the Council for Mission and Public Affairs as well as the
investing bodies. Back
17
The Mission & Public Affairs Council of the Church of England
is the body responsible for overseeing research and comment on
social and political issues on behalf of the Church. The Council
comprises a representative group of bishops, clergy and lay people
with interest and expertise in the relevant areas, and reports
to the General Synod through the Archbishops' Council. Back
18
www.churchofengland.org/media/36540/fairtrade.pdf Back
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