Supplementary written evidence submitted
by the NFU
1. Following our oral evidence to the Committee
on 28 June, it was suggested that quantitative evidence of the
extent of current problems with supply chain relationships in
the groceries sector, specifically with reference to breaches
of the Groceries Supply Code of Practice (GSCOP), would be welcome.
In view of this, we are pleased to provide the following supplementary
evidence to the committee.
2. For the duration of our involvement with this
issue, going back to the original investigation referral by the
OFT in 1999, the greatest obstacle to understanding the true extent
of unfair commercial practices by groceries retailers has been
the unwillingness of suppliers to speak frankly about their experiences.
This has been described as the "climate of fear", whereby
groceries suppliers, despite suffering from breaches of the GSCOP,
feel that making a complaint would result in commercial reprisals
and potential loss of business.
3. It is, therefore, difficult to provide an
accurate assessment of the extent that the GSCOP is being breached,
or that similar practices have been on-going since the conclusive
evidence contained in the Competition Commission's study. While
some suppliers are willing to speak anonymously about their experiences,
it is impossible to know how many suppliers who have suffered
a breach are staying silent on the issue. In the absence of an
Adjudicator who can guarantee anonymity, it is likely to be a
significant number.
4. The NFU believes unfair commercial practices
by retailers, many of which are contrary to the code, remain widespread
and common. This is because of consistent and regular anecdotal
evidence provided by suppliers to NFU officeholders and advisers.
However, in the absence of an Adjudicator who can take evidence
from third parties, and because of the climate of fear mentioned
above, there is little reason for a supplier to do more than provide
the NFU with anecdotal evidence.
5. The NFU represents farmers and growers across
England and Wales. Some supply directly to retailers. Many do
not. All are affected by uncompetitive practices, as increased
costs among manufacturers and processors are almost always passed
down the supply chain to primary producers. This is why effective
enforcement of the GSCOP is vital for our members, even if the
commercial relationship they have with a customer is not itself
covered by GSCOP. This is also why a lot of evidence of breaches
of the code is by its nature anecdotal. Producers may have a strong
indication, through informal discussions with their customers,
that retailers are breaching the code. But they themselves may
not have the relationship with the retailer, and so cannot possess
hard evidence of breaches. This does not mean the evidence they
can provide would not be of huge interest to the Adjudicator.
6. There are, therefore, difficulties for an
organisation representing producers, rather than direct suppliers
specifically, in gathering quantitative evidence assessing the
current extent of breaches of the code. However, we appreciate
that the committee is keen to understand the depth of the problem
of non-compliance with GSCOP, and to this end we make the points
below.
7. During his evidence to the committee, Terry
Jones of the Food and Drink Federation made reference to a CIAA
and AIM survey of suppliers' experience with their customers,
conducted in December 2010/January 2011, and including a large
number of UK companies. We understand that the committee has been
provided with details of the survey's findings, and we have also
seen the results of the study. We believe they strongly support
our assertion that retailers are consistently undertaking commercial
practices which are in breach of the code of conduct. In particular
we note that, in the UK, three quarters of respondents said they
were confronted with de-listing threats to obtain unjustified
advantages, and 70% had witnessed universal deductions on invoices
without sound business reasons. Despite this high level of unfair
behaviour, which would now be contrary to the code, only 3% said
they had taken action beyond discussion with their customer. We
believe this provides convincing evidence that suppliers are simply
unwilling to escalate potential breaches of the code for fear
of commercial reprisals.
8. Turning to the NFU's own experience, NFU President
Peter Kendall has said, specifically for the purposes of the committee's
inquiry, "I speak to members every day of the week. In the
key sectors where they have direct, or indeed indirect but nevertheless
close, relationships with retailers, such as dairy, livestock
and horticulture, I hear complaints about retailer behaviour on
an almost weekly basis, sometimes more often. It is not difficult
to come to the view that certain practices are widespread and
common, and are in breach of the Groceries Supply Code of Practice.
Trying to put a figure on the number of primary producers affected
is not easy, particularly as many indirect suppliers suffer from
this behaviour without being directly subject to it. However,
since the Competition Commission reported in 2008 I would estimate
that over half of all our members in some of the sectors I previously
mentioned have at one time or another been subject to retailer
practices, either directly or indirectly, that almost certainly
contravene the code. At the very least it deserves close examination
by an independent body."
9. Philip Hudson, the NFU's Head of Food and
Farming, has advised farmer and grower members for 21 years. He
has said "Up to and since the code was introduced I have
been repeatedly made aware of retailer behaviour, which would
be in breach of the current code. In my previous role as chief
adviser to the NFU's horticulture members, it became clear to
me that a majority of growers have, at one time or another, been
subject to unfair commercial practices by retailers. This is a
situation that persists to this day, and there's no doubt that
we're dealing with the sort of behaviour that would be in breach
of the current code of practice."
10. In summary, the lack of quantitative evidence
of breaches of the GSCOP is symptomatic of the current problems
in the groceries supply chain. It is extremely hard to gather
evidence of breaches as those suffering from them are unwilling
to speak up in all but the most private of conversations. This
is made more difficult for an organisation like the NFU, whose
members, despite suffering the consequences of breaches of the
code as indirect suppliers, are not themselves party to the supply
agreements in question. However, it is clear from the Competition
Commission's 2008 report that these practices exist and are damaging
to the groceries sector, resulting in lack of innovation in the
supply chain, which ultimately reduces consumer choice. Even if
suppliers are unwilling to report on them themselves, it is vital
that they are uncovered. This is why the Competition Commission,
the NFU, and many other organisations have made it absolutely
clear that the only way to effectively monitor and enforce the
GSCOP is to put in place watertight safeguards to protect the
anonymity of complainants. An Adjudicator empowered to launch
investigations where it has reasonable grounds for doing so, exactly
as the OFT is able to do under the Competition Act 1998, will
go some way to achieving this.
7 July 2011
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