Written evidence submitted by Friends
of the Earth
Friends of the Earth welcomes the opportunity to
comment on the draft Groceries Code Adjudicator (GCA) Bill. As
one of the original organisations to request the Office of Fair
Trading to refer the grocery sector to the Competition Commission
(CC), we are pleased that, after a considerable delay since the
CC published its final report in April 2008, a draft Bill has
been published and a step towards remedying the adverse effect
on competition identified by the CC has been taken. A properly
enforced Groceries Supply Code of Practice (GSCOP) and a strong
GCA will benefit UK consumers and farmers and suppliers here and
overseas.
However, we are concerned that the draft Bill does
not contain provisions for the full remedy as outlined in the
CC's final report. Particularly we are concerned that the GCA
will not be able to initiate investigations proactively, harming
the ability to protect suppliers' anonymity and diminishing the
effectiveness of the GCA in remedying the adverse effect of competition
identified and ending the transferral of excessive costs and risks
onto suppliers. We are also concerned the draft Bill does not
give the GCA powers to impose penalties on retailers found to
be breaching the GSCOP and therefore by the lack of an effective
deterrent.
The CC conducted a thorough two-year investigation
of the grocery market and concluded that an adverse effect on
competition arises from retailers' abusive supply chain practices
and determined an effective remedy to be a strengthened Code of
Practice and an independent body to enforce it. It is therefore
not necessary to return to the consideration of whether there
is need for a GCA, and it is essential that the Government implements
the CC's remedy in full immediately.
We outline below essential duties and powers of the
GCA to enable it to function effectively.
POWERS OF
PROACTIVE INVESTIGATION
It is essential that the GCA has powers to proactively
conduct investigations and not be solely complaints-driven if
it is to effectively remedy the adverse effect on competition
identified by the CC. The GCA must be able to conduct investigations
proactively in order to improve the likelihood of identifying
any breaches of the Code and practices that transfer excessive
costs and risks, and to safeguard suppliers from any potential
retributive action from retailers should they assume a supplier
has made a complaint against them.
DUTY TO
PROTECT ANONYMITY
The GCA must have a duty to protect the anonymity
of suppliers who make complaints in order to avoid retributive
action from retailers and overcome the well-known "climate
of fear" in which suppliers operate and which has previously
acted as a barrier to the successful implementation of the earlier
Supermarket Code of Practice.
EVIDENCE FROM
INDIRECT SUPPLIERS
AND THIRD
PARTIES
We are pleased that the draft Bill includes powers
to receive and act on information from indirect suppliers as well
as direct suppliers—this is essential because if only intermediaries
are able to make complaints, this will damage the effectiveness
of the GCA in stopping any retailer practices that transfer excessive
costs and risks onto suppliers, as intermediaries are able to
pass on any unfair terms of trade that they receive from retailers
to their own suppliers. It is also essential that the GCA is able
to act on information provided by third parties, who may have
access to valuable evidence but as currently set out would have
no means to submit this to the GCA.
PENALTIES AND
POWERS TO
IMPOSE FINES
There must be clear sanctions and penalties on retailers
found to be breaching the GSCOP. The GCA must have the powers
to impose fines on retailers proportionate to the size of the
retailer and the breach identified. Fines must be large enough
to act as an efficient deterrent. While we support public "naming
and shaming" of retailers, we do not believe reputational
damage will act as a sufficient deterrent on its own, as evidenced
by previous publicity regarding abusive practices yet continued
unfair exercise of buyer power.
REGARD TO
ADDITIONAL SUPPLY
CHAIN PRACTICES
THAT TRANSFER
COSTS AND
RISKS
In addition to monitoring compliance with the GSCOP
and the specific practices referenced, the GCA should also have
a duty to have due regard to new anti-competitive practices that
may emerge which transfer excessive costs and risks to suppliers.
RESOURCES
The GCA must be fully resourced in order to carry
out its duties effectively. Relying on secondments from the Office
of Fair Trading does not imply this will be the case.
COSTS OF
THE GCA
We agree that the costs of the GCA incurred in general
operations and in relation to an investigation or dispute should
fall to the designated retailers. As CC research has shown, the
costs of the GCA are extremely small compared to overall turnover,
and it should have no effect on consumer food prices. We support
the intention for larger retailers who breach the GSCOP should
pay more.
In conclusion, strong enforcement of the GSCOP is
not only in the best interests of suppliers and farmers, but as
concluded by the CC in its original findings, it is in the best
interests of consumers. Only by implementing a proactive GCA with
powers to act on information from third parties, protect anonymity
and impose fines, will a further costly and time-consuming market
investigation be avoided in the future.
16 June 2011
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