HC 1224 Draft Groceries Code Adjudicator Bill

5. The types of practices identified in this report need to be regulated to create non-abusive relationships. When one party holds the power in a relationship and the other holds the risk this can lead, at best, to unbalanced transfer of risk and at worst to abuse of power that is extremely damaging and immoral. It also makes it very difficult to challenge or change the status quo if all the power is held in one place – trust is unlikely to be present. With the appropriate powers the Adjudicator has the potential to address these injustices which are impediments to the successful operation of the groceries supply chain in the long-term.

6. The Judaeo-Christian tradition emphasises the need for fairness in trade. Fair and just dealing between supermarkets and their suppliers contributes to the sustainability of all the businesses involved, ensuring a rich, varied and reliable supply of an essential part of life.

The need for the Groceries Code Adjudicator

7. Our evidence submitted to the Competition Commission Inquiry, published as Fairtrade begins at home , makes clear that a climate of fear exists in the farming supply chain and that reluctance to come forward with complaints against retailers is widespread.

8. Our firm view is that o nly a body set up for the specific purpose of monitoring and enforcing compliance with the GSCOP would be able to win the confidence of the farming supply chain, and even so this would likely take some time to establish. The independence of the enforcement body is essential and transferring powers to an existing body would be unlikely to be perceived as either independent or transparent.

9. A specialised body would be able to develop knowledge of and expertise in issues relating to overseas suppliers to groceries retailers, particularly suppliers from developing countries where the imbalance of power between retailer and supplier will be particularly acute.

10. It is impossible to forecast how much the Adjudicator will be used. Some farmers and farming businesses we speak to shrug their shoulders and put problems down as being part and pa rcel of operating in the market , despite being unhappy with the status quo . Some simply cease to trade with problem retailers. Such suppliers may not initially use an Adjudicator. Others (even large multi-million pound turnover businesses) say that they would be afraid to raise disputes with an Adjudicator for fear of being blacklisted; they would likely use an Adjudicator for anonymous complaints.

11. The demand for, and success of, an Adjudicator would very much depend on (a) whether it could accept complaints from indirect suppliers and (b) how credibly the Adjudicator established itself and won the trust of suppliers and primary producers. Our sense is that if this proper mandate, credibility and trust were established, much of the initial work of an Adjudicator could usefully centre on a small number of systemic complaints.

12. We are concerned that the establishment of the Adjudicator is proceeding so slowly. The GSCOP has been in place now since February 2010 with no enforcement body. The allocation of parliamentary time to the Groceries Code Adjudicator Bill is urgent.

Compliance with the Groceries Code to date

13. We have no quantitative evidence to offer on compliance with the Groceries Code to date.

14. However, conversations with farming businesses continue to elicit anecdotal evidence of supply chain problems. Squeezes on the profitability and indeed viability of primary producers, who find it hardest to get fair prices, remain a recurrent complaint. This is particularly relevant for the dairy sector, fresh produce and for pigs – both pork and bacon, where the price paid is below the cost of production.

15. Notwithstanding the provisions of the Code, w e continue to hear complaints about barriers to new products coming to market, or to scaling up supply, such as prohibitive payments for listing .

16. We are very concerned that, in the absence of an Adjudicator, no independent information is available about the operation of the Code. Reports provided by the retailers themselves reveal little given that the retailers have no interest in creating an environment in which complaints can safely be made about violations of the Code.

The specific provisions of the Bill

17. The Bill contains provision for the effectiveness of the Adjudicator to be reviewed after three years. We agree that the effectiveness of the Adjudicator should be reviewed regularly but an initial period of five years would be more appropriate followed by review every three years. A review after the first three years would be unlikely to give the Adjudicator long enough to prove its worth with suppliers.

The functions and powers appropriate for the Code Adjudicator

18. W e are support ive of the Bill in its entirety, with two exceptions. As noted above, we consider that the initial review of the effectiveness of the Adjudicator should take place after five rather than three years. We note below that we also consider that the Adjudicator should have the power to levy financial penalties from the outset.

19. The key activities of the Adjudicator from our perspective are the arbitration of disputes between suppliers and retailers, and the receipt of complaints and conduct of investigations in relation to breaches of the Code, especially investigations into areas of repeated complaints and recurrent concern.

20. While we recognise that single complaints in most cases can only be recorded and verified, we believe that where a single complaint clearly represents a serious and significant breach of the Code, then action should be taken without waiting for a similar complaint to be reported.

21. The provisions in the Bill allowing the Adjudicator to publish guidance on the implementation of the Code, make recommendations on improving compliance and monitor the implementation of such recommendations are essential to ensure that complaints can be made based on the current interpretation of the Code.

22. The Adjudicator should be able to include a survey of other suppliers in the sector where a complaint has been received. Proactive spot checks of suppliers in the affected sector and of the retailer may also elicit additional useful information.

The appropriate location for the Adjudicator

23. Our firm view is that a specific and independent body needs to be created to monitor and enforce compliance with the GSCOP, as recommended by the Competition Commission. Past experience indicates that the OFT was not able effectively to monitor and enforce compliance with the previous Code (SCOP) or to resolve deep-seated problems in the relations between groceries retailers and some of their suppliers.

24. While it is appropriate that that the Adjudicator should benefit from the skills and experience of the OFT, and while co-location within the OFT at this stage may be a way of achieving this, it is essential that the relationship with the OFT should be, a s the Bill sets out, on an arm’s length basis.

25. Should the Adjudicator become part of any new Competition and Markets Authority, the independence and distinct branding of the Groceries Code Adjudicator must be maintained in order to promote ongoing trust in and visibility of the Adjudicator.

Enforcement powers, penalties, appeals, and funding

26. We believe that the Bill is flawed because it does not contain provision from the outset for the Adjudicator to levy penalties on suppliers for breaches of the Code. Our view is that penalties of sufficient size to have a deterrent effect are necessary to redress the imbalance in power between groceries retailers and smaller suppliers. This would foster the confidence of smaller suppliers that something will be done in response to their complaints.

27. 'Naming and shaming' alone will not be enough. There has already been a good deal of publicity about problems in the groceries supply chain, including mention of specific supermarkets, and this has not been sufficient to bring an end to long-standing unreasonable practices.

28. Penalties should be commensurate with the offence but should also be sufficiently large as to have an exemplary effect. The turnover of the retailer should be kept in mind in determining an appropriate penalty.

29. This is not to say that ' n aming and shaming' should not be practised. Retailers might be ranked in the Adjudicator’s annual report in terms of numbers of complaints and compliance with the Code. 'Naming and faming' will be appropriate to reward and encourage good practice and compliance with the Code.

Coverage of indirect suppliers

30. The comment which we would emphasise above all others is that i t is essential that the Adjudicator should be able to receive and act upon complaints from suppliers who do not supply retailers directly but via intermediaries such as dairies, vegetable packers and meat processors. This is a vital issue for the farming community to whom we are close as a result of our network of diocesan rural officers and tenant farmers on Church Commissioners’ owned land.

31. Intermediaries and their farming suppliers bear the brunt of unfair buying practices together, because intermediaries have to pass on the price demands of retailers. Farmers make clear to us that it is retailers and not the intermediaries whom they see as at fault and responsible for uneconomic and unsustainable prices being demanded of them. The Adjudicator should be able to take complaints submitted jointly by intermediaries (as the direct supplier) and their suppliers (indirect suppliers to retailers).

Powers to investigate anonymous reports

32. Given the climate of fear about the making of complaints that we have consistently seen, it is essential that the Adjudicator should be able to receive and act upon anonymous complaints from suppliers.

Conclusion

33. We believe that the early establishment of the Groceries Code Adjudicator will serve both the farming communities that the Church serves and the long-term sustainability of the supermarkets in which we invest. We urge the Committee to give the Bill and our suggested amendments favourable consideration.

15 June 2011