Written evidence submitted by Wm Morrison
Supermarkets plc
1. INTRODUCTION
1.1 Morrisons is the fourth largest food retailer
in the UK with more than 450 stores and an annual turnover in
excess of £16 billion. We are closer to source than any other
major food retailer, sourcing 100% British fresh meat and buying
direct from farmers and growers. We have a unique "vertically
integrated" model, operating our own abattoirs, food manufacturing
facilities and pack houses. As a result we are not just one of
the UK's major food retailers, but food manufacturers as well.
1.2 Since 2009, we have operated the
Morrisons Farm at Dumfries House, Ayrshire. The Morrisons Farm
is designed to provide the company first-hand experience of the
challenges that farmers face, and is part of our UK-wide farm
research programme aimed at helping to build a sustainable British
farming industry.
1.3 Morrisons understands the pressures facing
small suppliers and the concerns over the perceived power of supermarkets.
We rely on a secure supply base to help us deliver a diverse range
of quality, affordable products to our customers. It is therefore
in our interests to uphold fair and stable supply chain relationships.
2. NEED FOR
THE GROCERIES
CODE ADJUDICATOR
2.1 We are proud of the strong relationships
we have with our direct suppliers (thousands of whom are farmers
and growers, owing to our unique model) and have invested in extensive
training of our buying teams to ensure compliance with the Groceries
Supply Code of Practice (GSCOP). Since the code came into force
in February 2010, a very small number of alleged breaches have
been brought to our attention. These cases have all been resolved
to the satisfaction of suppliers without recourse to independent
arbitration (which we offer to suppliers as required by GSCOP).
2.2 Our position, informed by recent experience,
remains that the consumer interest would be better served by allowing
the GSCOP to become properly established before creating a new
body to oversee it. However, we recognise the cross-party support
that exists for an Adjudicator. This submission therefore focuses
on operational aspects of the GCA, and in particular:
the need for
clear and early guidance on the threshold for GCA investigations;
and
concerns surrounding
the power of the GCA to accept complaints from indirect suppliers;
and to deal with complaints anonymously.
3. THE FUNCTIONS
AND POWERS
OF THE
ADJUDICATOR
3.1 It is difficult to properly assess the impact
of the Adjudicator under the current terms of the Bill. Clause
13 provides that, within six months of being established, the
Adjudicator must publish guidance on (1) the criteria for deciding
whether to carry out investigations, (2) the practices and procedures
for investigations and (3) the criteria for using enforcement
powers. This guidance is fundamental to the scope and operation
of the GCA. It
will help to determine the Adjudicator's workload, and consequently,
the financial and regulatory burden for retailers.
3.2 We believe it is imperative that this guidance
is published before the GCA comes into operation, to allow for
proper scrutiny of the threshold for investigations and to enable
all parties to understand how the GCA will operate.
4. THE APPROPRIATE
LOCATION FOR
THE ADJUDICATOR
4.1 The OFT already has a number of obligations
to monitor and enforce compliance with GSCOP. Morrisons is of
the view that to support the aims of better regulation, the Adjudicator
should be integrated into the OFT initially, and then the proposed
Competition and Markets Authority.
5. ENFORCEMENT
POWERS, PENALTIES,
APPEALS, AND
FUNDING
5.1 Morrisons does not oppose the Adjudicator's
enforcement powers in so far as it can make a recommendation or
require information to be published. We welcome both that the
Government has taken a cautious view of the Adjudicator's right
to levy financial penalties, which would add delay and complexity
to dispute resolution, and that the Secretary of State is obliged
to consult broadly before making an order to grant such a power.
5.2 One of Morrisons' main concerns about the
GCA is the potential for the office to grow out of control at
the expense of grocery retailers, and ultimately to the detriment
of consumers. Not only is clear guidance important. We believe
the Adjudicator should focus its resources on small suppliers
who may be less well equipped to resolve disputes falling within
the GSCOP. Encouraging complaints from multinational suppliers
about their competitors' conduct is unlikely to benefit the consumer
interest.
5.3 If full cost recovery is the preferred mechanism
for funding the GCA, then we support the "broad intention"
of Clause 20 (Levy funding) to require large retailers to pay
sums relative to the proportion of complaints upheld against each
one. We believe that those retailers with the best record should
contribute the least.
5.4 We support the principle outlined in Clause
11 (Recovery of investigation costs) that where a supplier has
made a complaint which was found to be vexatious or wholly without
merit, the Adjudicator may require that supplier to pay some or
all of the costs of a resulting investigation. However, we note
that "this is intended to be a high threshold" and are
concerned that the cost of the majority of complaints will fall
on large retailers, regardless of whether or not they are upheld.
5.5 If the cost of a vexatious complaint is not
passed on to the complainant, it would be borne by all retailers
regardless of their record or behaviour. This pooled risk underlines
the importance both of clear and early guidance on the trigger
points for investigations, and tight budgetary control.
5.6 Given that it is the large retailers who
will be funding the GCA, we are disappointed in the lack of consultation
with retailers on the Adjudicator's budget. Appropriate scrutiny
and annual review of the GCA budget should be enshrined in the
legislation to ensure that costs are reasonable and proportionate,
and to prevent unnecessary costs being passed to the retailer
and, ultimately, the consumer. Governance in all respects must
be clear and transparent.
6. COVERAGE OF
INDIRECT SUPPLIERS
6.1 There are potentially thousands of indirect
suppliers who may wish to make complaints to the GCA, which will
each need to be checked and answered. This will push up the cost
of the GCA, which will be met by all retailers, regardless of
whether there has been any breach.
6.2 The GSCOP is concerned only with certain
aspects of the bilateral relationship between suppliers and designated
retailers. Given that a breach of the GSCOP will directly affect
the parties to a contract, it is difficult to see how an indirect
supplier could be better placed to identify any infringement if
neither party of the original contract adjudges an infringement
to have taken (or potentially to have taken) place.
7. POWERS TO
INVESTIGATE ANONYMOUS
REPORTS
7.1 Notwithstanding questions of due process,
granting the GCA the power to investigate anonymous reports compromises
the checks and balances which might otherwise ensure that the
Adjudicator is not conducting enquiries based on an incorrect
or misleading basis.
7.2 Clause 19 (Confidentiality) prohibits the
Adjudicator from disclosing information about an arbitration if
this would identify a party, either directly or by deduction.
However, the Explanatory Notes for Clause 5 (Investigations: information)
state that: "It is unlikely that the sources specified in
Clause 4 [information provided by the supplier…or that which
is publicly available] would be sufficient in themselves to make
findings at the conclusion of an investigation. In particular,
the Adjudicator is likely to need to obtain information from the
relevant large retailers." It is unclear how these two statements
can be reconciled.
7.3 Any request for information would have to
be so broad as to multiply greatly the volume of information required
from the retailer in order to protect a complainant's identity.
This would impose a significant bureaucratic burden on retailers
and greatly delay the resolution procedure, which could prove
to the detriment of the complainant.
17 June 2011
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