Scrutiny of the Agriculture Bill Contents

4Fairness in the supply chain

38.Part 6 of the Bill addresses fairness in the supply chain and introduces fair dealing obligations for first purchasers. The Government explained that:

Primary agricultural producers in the UK tend to be small, individual businesses operating without strong links between them. By contrast, operators further up the supply chain–processors, distributors and retailers–tend to be highly consolidated businesses that command substantial shares of the relevant market. This disparity makes primary producers vulnerable to unfair trading practices. It often forces them into contractual relationships which impose on them commercially harmful terms, but to which they have no commercial alternative and in respect of which there is no legal protection. […]

Clause 25 provides the Secretary of State with the power to make regulations to introduce obligations that promote fair contractual relationships between farmers and the first purchasers of their products. As the issues faced by different farming sectors vary considerably, the clause includes powers to introduce sector-specific codes, as well as general powers to improve principles of fair contractual practice across the whole industry.66

39.The Bill sets out an exhaustive list of obligations that might be imposed, including written contracts specifying pricing mechanisms, payments and the quality and quantity of products provided.67 The power to make regulations “will not be exercised in respect of any commercial arrangements within the GCA’s [Grocery Code Adjudicator] remit”, i.e. where the first purchaser of agricultural products is a retailer with an annual turnover exceeding £1 billion.68 The Government explained that “it is widely recognised that the GCA has improved the relationship between large grocery retailers and their direct suppliers, and the first statutory review of the GCA found that it is an exemplary modern regulator”.69 However, because “the majority of farmers do not supply supermarkets directly”, they are “[not] covered by the GCA and can be exposed to unfair trading practices”.70 Rather than extend the remit of the GCA, the Government proposed, in the explanatory notes rather than the Bill, that the Rural Payments Agency (RPA) would be responsible for enforcement and that:

If the situation arose where a farmer felt that their contract was in breach of a statutory code that farmer would be able to approach the enforcement body, who would determine whether the first purchaser had complied with its fair dealing obligations. If it wasn’t compliant the first purchaser would have an opportunity to amend the contract to address the issues, and if they didn’t do so within a set period of time (set out in secondary legislation) it would be possible to impose a fine or a requirement to pay compensation on the first purchaser.71

40.While many, such as the NFU, welcomed the powers to impose obligations on first purchasers of agricultural products, academics from Queen’s University Belfast considered that “to deal with the issue of unfair trading practices, the whole of the food supply chain should be under the same requirements to aim at creating a certain balance between the different actors of the food chain”.72 Nick Allen from the British Meat Processors Association also preferred to have “one set of rules right the way through the supply chain”.73 David Christensen, representing Arla Foods UK, was wary of changes that would affect Arla’s farmer cooperative model.74

Enforcement of fair dealing obligations

41.Despite mixed views on the proposed fair dealing obligations, there was near unanimous agreement that the RPA was not the appropriate body for enforcement. George Dunn from the TFA considered the suggestion “derisory”.75 The NFU stated that the RPA “does not currently carry out the type of qualitative assessment that would be necessary to establish the fairness or otherwise of agricultural contracts”.76 David Christensen, Arla Foods UK, stated that “there needs to be a degree of cultural change within the RPA towards the way they work with farmers” and that “loading more workload and power on to them” was not sensible.77 We too were critical of the RPA in our 2018 Report on the Performance of the Rural Payments Agency.78

42.Most witnesses agreed that the GCA was a more appropriate enforcement body with relevant expertise.79 However, Minette Batters, NFU, acknowledged that the GCA lacked capability due to resources and added that “it would have to be an enhanced and very different-looking Groceries Code Adjudicator that is fit for the future […] you would have to enhance the role and the remit “.80

43.Christine Tacon, the GCA, explained that one similarity between the Bill’s proposals and the Groceries Code was that:

The Explanatory Note indicates that any new regulations might provide for first purchasers of agricultural products to have a written contract. Where agricultural producers supply the regulated retailers directly, the Order already requires a written supply agreement to be in place.81

She also highlighted possible areas of divergence:

Clause 25 (Fair dealing obligations of first purchasers of agricultural products) provides that the Secretary of State may make regulations for the purpose of promoting fair contractual dealing by the first purchasers of agricultural products. In some cases, the first purchasers of those products might be retailers designated under the Order [the Groceries (Supply Chain Practices) Market Investigation Order 2009] and it would be helpful to make clear which protection is applicable;

The Explanatory Note to the Bill indicates that any new regulations might for example specify that the notice period to be given before varying a contract may not be less than three months. While there is no further detail and this is just given as an example, setting a minimum notice period in this way would go further than the Code and would mean that direct suppliers to regulated retailers might be treated differently depending on whether or not they were agricultural producers;

The Explanatory Note indicates that it is envisaged that enforcement of any new regulations would be the responsibility of the Rural Payments Agency and further indicates that: ‘If the situation arose where a farmer felt that their contract was in breach of a statutory code that farmer would be able to approach the enforcement body, who would determine whether the first purchaser had complied with its fair dealing obligations.’ There is no further explanation of this idea, but as it stands it is different from the regulatory framework established for the GCA.82

44.The Minister’s objections to giving the GCA an enforcement role were that:

There are seven people at the GCA and it has a very narrow remit with the ten83 major supermarkets. It is funded by a levy on the supermarkets. If farmers would like the GCA to do it and they wanted that to be upscaled, the implication is that there would be a levy on farmers in order to pay for that. The model has been set up specifically to do supermarkets and it works well for that. […]

Obviously, the RPA will have reputational flack because of the difficulties of administering a dysfunctional EU scheme, which it has to do. The RPA also has a lot of expertise in many areas. It implements a school milk scheme for the EU; it runs carcass classification in all our abattoirs, so if you have new requirements on carcass classification and abattoirs, the RPA already has people there and is best placed to do that. […]

Christine Tacon [the GCA] has been very clear, as you know, that she thinks the success of its model is that it has a very narrow remit and is built around improving the relationship with those ten84 major supermarkets.

[…] our view is that the RPA is already doing this work, so it is best placed to take it on, and that the GCA is a successful model that we should not ruin by throwing too many other additional responsibilities on it.85

45.We are pleased that the Government is introducing measures to improve fairness in the supply chain for farmers and producers. However, we do not consider that the Rural Payments Agency (RPA) is the appropriate body to oversee and enforce fair dealing obligations; it does not have the confidence of farmers and lacks relevant expertise.

46.The Groceries Code Adjudicator (GCA) is a more logical entity to oversee fair dealing obligations than the RPA. In addition, we see no reason why fairness in the food supply chain should be governed by two separate processes and enforcement bodies. Fair dealing obligations of first purchasers of agricultural products, as specified in the Bill, should be the responsibility of the Groceries Code Adjudicator, whose resources and remit should be expanded accordingly. The levy on large retailers that funds the GCA’s work should not be a barrier; it could be expanded so that purchasing organisations in the supply chain whose annual turnover exceeds a set amount would contribute towards it.