Time to bring on the referee? The Government's proposed Adjudicator for the Groceries Code - Business, Innovation and Skills Committee Contents


Written evidence submitted by the Fairtrade Foundation

SUMMARY

  The Fairtrade Foundation welcomes the Bill, but feels it needs be strengthened to be effective.

  Indirect suppliers need greater protection, particularly as suppliers in developing countries are more likely to be in this category.

  The Adjudicator must be given greater freedom to investigate breaches.

  Complainants need greater protection from retribution.

  The Adjudicator's powers will be insufficient to act as a deterrent.

  Insufficient resources will hamper effectiveness of the Adjudicator.

  As a quasi-judicial body, there needs to be a greater degree of separation between the Adjudicator and the Executive.

Why is the Fairtrade Foundation interested in the Grocery Code Adjudicator?

The UK imports £1.3 billion worth of agricultural products from Sub-Saharan Africa, a significant proportion ending up on supermarket shelves.[20] We believe the "transfer of excessive risk and unexpected cost" from supermarkets to suppliers, as described in Competition Commission's 2008 inquiry, trickles down and has a long term effect of undermining African producer livelihoods as well as those in other developing countries.[21] Beyond hampering investment and innovation, these producers, as some of the poorest farmers in the world, are the least able to absorb the ill effects of this negative cascade. We also believe that this potentially has a negative effect on the intermediary suppliers, who find themselves squeezed between retailer demands and the need to deal with producer suppliers in a way that will secure long-term supply.

We welcome the Grocery Code Adjudicator as a means to address this systemic risk to producers in retail supply chains. However, there are concerns that the Government is being too "light touch" in its approach, creating a referee with insufficient resources or powers to deter and, when discovered, root out unfair practice that damages producers and consumers alike.

The Fairtrade Foundation is also a member of the Grocery Market Action Group and fully supports the collective submission to the Select Committee.

This submission outlines our main areas of concern:

1.  Help to protect indirect suppliers

1.1  For smallholder producers, retailers are not the only potential source of unfair treatment. Suppliers of retailers, some of whom dwarf large retailers, can also possess the buying power that may lead to excessive risk and unexpected costs being imposed. However, the Grocery Supply Code of Practice (GSCOP) and the Adjudicator will only regulate the first tier of the supply chain in the relationship between the retailer and its suppliers. It is welcome that indirect suppliers will be able make complaints to the Adjudicator, but this will be of little use, if the source of the unfair treatment is another large supplier that eventually feeds into a retailer. This risk was identified by the Competition Commission in its inquiry with a recommendation that consideration be given to the GSCOP encompassing the entire supply chain.

1.2  Suppliers based in developing countries will commonly import via intermediaries. Vertically extending the GSCOP will ensure these suppliers are treated on an equal footing. Furthermore, such an extension will remove any incentive for retailers to deliberately favour relationships with suppliers though intermediaries, in an attempt to avoid the code.

RECOMMENDATIONS

  Bring the entire UK supply chain of goods sold in large retailers under the scope of the GSCOP and thus Adjudicator.

  Failing the recommendation above, confer a clear duty on the Adjudicator to monitor the UK supply chain, as recommended in paragraph 11.295 of the Competition Commission's inquiry.[22]

2.  Greater freedom to investigate breaches of the Code

2.1  The Adjudicator's ability to launch an investigation solely on information provided by a supplier or information publicly available (clause 4(2)) will, without a doubt, exclude pertinent evidence, that reveals breaches of the code. For example, it would be impossible for the Adjudicator to take evidence from a whistleblower who is a worker in large retailer, but does not want their evidence to be public. Equally, the Adjudicator must ignore information or concerns from one retailer about another retailer.

2.2  The Government's exclusion of complaints from third parties, such as from trade associations, unions or NGOs, prevents confidential evidence, pointing to breaches of the code, from triggering investigations. Allowing such evidence would overcome one of the clear hurdles identified by the Competition Commission's chair, as the "climate of fear" that many suppliers feel they operate in, preventing them from speaking out. The Government's policy objective of stopping the Adjudicator from becoming a one-stop-shop for grievances about supermarkets could easily be remedied through a simple test of "credible" evidence, on admissible information.

RECOMMENDATION

  Add an additional criteria to clause 4(2) that can trigger an investigation of "credible evidence", whatever source it may come from.

3.  Anonymity and greater protection for complainants

3.1  The fear of commercial retaliation, as underscored by the Competition Commission's findings, has a chilling effect that prevents suppliers from making complaints. We welcome the protection afforded under clause 19 of the Bill, relating to a complainant's anonymity. Nevertheless, the risk hurdle for complainants is so great, that the Government should consider further protective measures, such explicitly outlawing retaliation by retailers through victimisation protection for suppliers.

RECOMMENDATION

  Victimisation protection for suppliers that make a complaint in good faith, preventing retaliatory action.

4.  Enforcement and deterrent

4.1  It is difficult to envisage how a negative Adjudicator ruling, even where it is forced to be published can act as a deterrent to breaking the code. Last year, in one quarter alone, large retailers spent £189 million on television advertising.[23] Whilst public image is clearly important to retailers, the publication of one bad ruling cannot counteract such year-round stream of positive self-promotion. Equally, consumers and press alike could be forgiven for perceiving breaches of the code not to be serious, since they will not carry any form of punishment.

4.2  The Competition Commission was clear in its recommendation about the powers the Adjudicator should have to fine large retailers found in breach of the GSCOP:

"We further recommend that ... BERR [now BIS] take steps to give the Ombudsman the power to levy significant monetary penalties on retailers for non-compliance with the GSCOP."[24]

The Government has not justified why it has failed to follow this clear recommendation, opting to create reserve powers to impose penalties through secondary legislation.

RECOMMENDATION

  The Adjudicator should be conferred with the power to fine large retailers found in breach of the GSCOP from inception.

5.  An Adjudicator with resources to be effective

5.1  The restriction on resources, and the inability to employ staff directly, will hamper the Adjudicator to fulfil its role, especially when compared to the resources at the retailers' own disposal. For example, a full appeal by a large retailer against an Adjudicator's ruling to a High Court has the potential to run into tens of thousands of pounds, taking up a significant proportion of the £800k budget envisaged by BIS. Whilst the revision of the levy is available, with cost recovery, fundamentally, the lack of resources may be force the Adjudicator to curtail and ration enforcement activity.

5.2  To illustrate how limited the Adjudicator's resources will be, the following table draws the comparison with the Advertising Standards Authority.
Grocery Code Adjudicator[25] Advertising Standards Authority[26]
Industry turnover£128.18 billion £3.94 billion
Core running cost£0.8 million £3.45 millio
Levy as percentage of industry turnover 0.0006%0.1-0.2%

RECOMMENDATIONS

  Remove the restriction on the Adjudicator directly employing staff.

  Fix a fair and proportionate levy on large retailers to fund the Adjudicator that is consummate with the scale of the industry it is being asked to oversee.

6.  Political independence

6.1  In carrying out its quasi-judicial function, it is desirable that the Adjudicator will be subject to a greater degree of political independence than outlined in the Bill, notably in appointment, conferring of power to fine and its abolition.

6.2  The law requires that even parking fine adjudicators hold a relevant qualification,[27] therefore it is incongruous that the Bill remains silent on the qualifications and attributes of the Grocery Code Adjudicator. Key to the body's success is an Adjudicator that has directly relevant skills to adjudicate, yet this is not stated in the Bill. The Government might be tempted to appoint an industry insider, with no adjudication skills.

6.3  A Secretary of State's ability to lay an order to confer power to fine (clause 10) and to abolish the Adjudicator (clause 17) create leeway for parties unhappy with the Adjudicator's decisions to lobby the Executive directly for the continued curbing of its powers or even full abolition.

RECOMMENDATIONS

  A greater degree of separation in Adjudicator appointment, perhaps through Judicial Appointments Commission and specifying the qualifications the Adjudicator will need.

  Introduce the appropriate arms length from the executive that is normal to quasi-judicial body, through the introduction of objective tests for both the power to fine and the possible abolition of the Adjudicator.

ABOUT THE FAIRTRADE FOUNDATION

The Fairtrade Foundation is a registered charity. Our vision is of a world in which justice and sustainable development are at the heart of trade structures and practices so that everyone, through their work, can maintain a decent and dignified livelihood and develop their full potential.

To achieve this vision, Fairtrade seeks to transform trading structures and practices in favour of the poor and disadvantaged. By facilitating trading partnerships based on equity and transparency, Fairtrade contributes to sustainable development for marginalised producers, workers and their communities. Through demonstration of alternatives to conventional trade and other forms of advocacy, the Fairtrade movement empowers citizens to campaign for an international trade system based on justice and fairness.

20 June 2011


20   "Procurement for Development: Aligning Social with Commercial Considerations in the Supply Chain", Chatham House, September 2010. Back

21   The Supply of Groceries in the UK market investigation, Competition Commission, April 2008, p 6. Back

22   The Supply of Groceries in the UK market investigation, Competition Commission, April 2008, p 234. Back

23   Quarter 4, 2010, Source:
Nielsen http://www.nielsen.com/uk/en/insights/press-room/2011-news/nielsen_retail_performancesummary-christmas2010.html  
Back

24   idem, p 230. Back

25   Source: Grocery Code Adjudicator Impact Assessment, BIS, May 2011. Back

26   Source: http://www.asbof.co.uk/resources/reports/35th_Asbof_Annual_Report.pdf Back

27   The Tribunals, Courts and Enforcement Act 2007. Back


 
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Prepared 28 July 2011