Written evidence submitted by Traidcraft
EXECUTIVE SUMMARY
1. We welcome the GCA as a body with the potential
to reduce the harm caused to farmers and workers in developing
countries through transfer of "excessive risks and unexpected
costs"[32]
onto supermarket suppliers. This however will require careful
attention during the establishment of the GCA and the setting
of its powers and parameters.
2. We believe that an effective GCA with sufficient
resources and powers should be established in this Parliamentary
session. We make recommendations below with regard to:
how the GCA
should be assessed;
investigations,
arbitration and information from third parties;
enforcement
powers, penalties, appeals, and funding; and
staffing and
location.
BACKGROUND
3. Traidcraft is one of the leading Fair Trade
brands in the UK, fighting poverty though trade by direct trading,
capacity building, policy analysis and campaigning. Traidcraft's
interest in the Groceries Code Adjudicator (GCA) comes from our
extensive understanding of the development and commercial challenges
which poor producers face in accessing sustainable markets, gained
through our work as both a business and an NGO. Traidcraft plc
is a company importing fair trade products with a turnover of
£15 million; in addition £3.8 million worth of Traidcraft-licensed
products were sold in supermarkets in 2009-10 enabling us to compare
supermarkets' purchasing practices to those we experience from
other customers. The work of Traidcraft Exchange in developing
countries gives us first hand experience of the impact that supermarket
practices have on workers and farmers in their supply chains.
THE NEED
FOR THE
GCA
4. The Competition Commission undertook a thorough,
two-year investigation of the Groceries market and its recommendations
should be implemented in full, particularly since none of the
parties involved appealed the findings. The most pertinent finding
for the establishment of the GCA is that supermarkets "transfer
excessive risks and unexpected costs onto their suppliers".
Another key point to consider for the design of the GCA is the
climate of fear that the Competition Commission found exists within
the supplier community, which prevents them from raising concerns
despite experiencing problematic terms of trade from major retailers.
COMPLIANCE WITH
THE GROCERIES
CODE TO
DATE
5. There is evidence to suggest that abusive
purchasing practices continue. The European Trade Associations
CIAA and AIM presented in a public forum the results of an independently
run survey of 686 suppliers from across the EU, including the
UK. This found that in 2009 suppliers experienced on average six
types of unfair practices and that this cost them 0.5% of their
sales turnover. Nearly two thirds of suppliers took no action
due to a fear of commercial sanction on the part of the retailer.
6. The delay in establishing the GCA has negatively
impacted on compliance with the Groceries Code. With no monitoring
and enforcement of the code since its establishment (contrary
to the recommendations of the Competition Commission), the "transfer
of unexpected risks and unnecessary costs onto suppliers"
by retailers continues unabated.
7. We recommend that, as there is cross-party
support for the Adjudicator and everyday more producers are pushed
into financial crisis, the draft Bill be enacted in this Parliamentary
session.
HOW THE
EFFECTIVENESS OF
THE GCA IS
MEASURED
8. The effectiveness of the GCA should not be
based solely on "process indicators" and assessment
against the GSCOP, but also on reduction in harmful practices.
How the GCA is assessed will substantially influence the activities
which they will undertake, so it is important that the correct
issues are assessed. Clause 16(4)(a) covers process indicators
such as how many investigations it launches. If trust is not built
up quickly between the GCA and suppliers, there could be no complaints
and therefore no investigations; this may lead to the GCA office
being scaled back whilst the same problems remain. Clause 16(4)(b)
assesses the enforcement of the GSCOP. However the wording of
this criterion does not take into account that many of the requirements
of the code have caveats which mean that the GSCOP could be a
vague standard to test the effectiveness of the GCA against.
9. We recommend that the GCA should also be assessed
against the extent that the transfer of "excessive risks
and unnecessary costs" to suppliers by large retailers is
reduced and that this criterion is added to Clause 16(4).
INVESTIGATIONS, ARBITRATION
AND INFORMATION
FROM THIRD
PARTIES
10. Traidcraft agrees that the Adjudicator should
start an investigation when they "have reasonable grounds
to suspect that a large retailer has breached the GSCOP".
11. Limiting the sources of information to trigger
an investigation is unnecessary and makes the job of the Adjudicator
harder. There is a substantial climate of fear amongst the supplier
community, which means that they will only come forward if they
are confident that they can remain anonymous. If it is known that
one source of information needed to trigger an investigation needs
to come from a direct or indirect supplier, then this may result
in a witch hunt being undertaken by a retailer to find out who
tipped the Adjudicator off, and reduce the likelihood of suppliers
contacting the GCA. Clause 4(2) can be deleted, since it is unhelpful
to specify sources of information; Clause 4(1) provides the standard
to trigger an investigation.
12. The Bill correctly identifies that the GCA
needs to prioritise patterns of poor practice applied by retailers
to several of their suppliers. The climate of fear means that
it is unlikely individual suppliers will want to come forward,
let alone expecting several suppliers to come forward and contact
the GCA. Limiting the sources of information which can trigger
a complaint is also unwise since third parties may have information
which could be usefully provided to the GCA, which is not in nature
suitable to be put into the public domain. If Clause 4(2) is not
going to be deleted it is suggested that a third option is provided
directing the GCA to also be able to receive submissions from
third parties.
13. If the GCA is going to limit the sources
of information it can receive to trigger an investigation, it
is welcomed that indirect suppliers, ie second, third, forth tier
suppliers are able to contact the GCA.
14. Once the investigation has started we welcome
the ability of the GCA to obtain relevant information from any
person. Since the government recognises the usefulness of third
parties in being able to provide information during an investigation,
it would also be useful to the GCA to be able to receive that
information prior to starting an investigation as part of its
process for assessing if there is "reasonable suspicion"
of a breach of the GSCOP.
15. Other regulatory authorities obtain information
from third parties, providing a precedent for the GCA. For example
the Financial Services Ombudsman receives complaints from for
example the Citizens Advice Bureau.
16. The GCA could also benefit from receiving
information from a wider range of sources, including third parties,
when arbitrating.
ENFORCEMENT POWERS,
PENALTIES, APPEALS,
AND FUNDING
17. The GCA should be able to "require"
or "direct" a retailer to undertake certain actions
if they are found to be in breach of the GSCOP, rather than only
make recommendations Clause (8)(1). As the Bill commentary indicates
"there is no express sanction for failure to comply with
a recommendation, but failure might be taken into account in a
future arbitration or investigation"; there is nothing to
stop recommendations being ignored. As retailers "transfer
excessive risks and unexpected costs" onto their suppliers
because it is in their business interests to do so, they are unlikely
to implement the Adjudicator's recommendation if they do not have
to.
18. The Competition Commission's Groceries Market
Investigation final report (April 2008) proposed that an Adjudicator
(referred to then as an ombudsman) should have the ability to
levy fines from the outset. Traidcraft therefore recommends that
the government sets up the GCA with the power to apply fines from
the start.
19. It is not clear how the GCA will monitor
if their recommendation to a retailer has been implemented (Clause
(8)(2)). The GCA must have adequate information-gathering powers,
after an investigation has finished to verify compliance, including
reviewing information which is commercially confidential and therefore
unsuitable for the public domain.
20. Compensation to single or groups of suppliers
should be considered as part of the package of enforcement options
available to the GCA. A breach of the GSCOP is likely to have
led to suppliers incurring losses. The recent CIAA/AIM survey
indicated that the average cost to suppliers was 0.5% of sales
turnover implying in some cases that the losses are not insignificant.
STAFFING, AND
APPROPRIATE LOCATION,
OF THE
GCA
21. Traidcraft recommends that the most suitable
candidates, who do not have conflicts of interest, are recruited
to fulfil the functions of the GCA. It seems inappropriate to
limit the pool of candidates to staff from the OFT.
22. The Competition Commission found during their
2006-08 investigation that the Office of Fair Trading (OFT) had
failed to act to enforce breaches of the Supermarket Code of Practice
for a number of reasons, and so proposed that a dedicated and
independent body such as the GCA be set up to monitor and enforce
the GSCOP. In addition, it is important that the GCA is able to
focus on the retail sector, and its suppliers. It would therefore
be unwise for the GCA to be housed in the OFT.
22 June 2011
32 2008 Competition Commission "Groceries Market
Final report". Back
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