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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