Supplementary memorandum submitted by
Action Aid UK
THE COMPETITION
COMMISSION'S
GROCERIES OMBUDSMAN
PROPOSAL: HOW
UK LEGAL STANDARDS
CAN PROTECT
THE RIGHTS
OF OVERSEAS
FARM PRODUCERS
AND WORKERS
Background
This note describes how the Competition Commission's
proposal for a Groceries Ombudsman will allow overseas agricultural
suppliers to enforce their rights under the Ombudsman scheme and
resolve disputes in the UK.
It should be noted that the Ombudsman proposal
offers only a partial solution to a specific problem—namely
anti-competitive procurement practices—in a specific industry.
It does not offer a comprehensive remedy for victims of human
rights violations linked to the activities of UK companies operating
in the agri-food industry or in other industries, and as such
it does not detract from the need for a UK Commission for Business,
Human Rights and the Environment, as advocated by the CORE Coalition.[77]
However, the Ombudsman is a credible proposal
that indicates how a body that allows people in developing countries
to enforce their rights quickly, easily and inexpensively in the
UK, without having to resort to court action, could work.
The Competition Commission groceries market inquiry
The Competition Commission (CC) completed a
two-year investigation into the UK grocery market in April 2008.
It found that UK grocery retailers consistently misuse their buying
power by engaging in procurement practices that transfer "unexpected
costs and excessive risks" to suppliers.[78]
Some of the procurement practices found by the
CC that are commonly used by retailers include:
— Reducing agreed prices after orders are
delivered, even when suppliers have fulfilled their contractual
obligations.
— Requiring payments from suppliers when
the retailer's profits on a product were less than expected.
— Requiring payments form suppliers for
product wastage that occurs in-store.
— Delaying payments to suppliers substantially
beyond the agreed time (which can cause severe financial distress
for suppliers).
— Refusing to give written terms to suppliers
(allowing retailers to renege on contracts).[79]
These practices were found to be widespread
despite the existence of a voluntary code of practice, introduced
in 2002, which was designed specifically to prevent the major
grocery retailers from carrying out these harmful procurement
practices.[80]
The CC's inquiry also recognised that food processors
who trade directly with retailers pass on these cost and risk
pressures to indirect suppliers further up the supply chain, such
as farmers.[81]
Furthermore, it is widely accepted by businesses,
academics and civil society organisations that excessive cost
and risk pressures are passed on to suppliers' employees in the
form of low wages, excessive hours, insecure employment and inadequate
health and safety standards.[82]
Recognising that the voluntary approach to addressing
the problem had failed, the CC will introduce a new, legally binding
Groceries Supply Code of Practice (GSCOP) that bans or regulates
a set of specific procurement practices. It also includes an overarching
provision that requires "fair dealing" at all times,
in order to prevent retailers from engaging in other damaging
procurement practices that are not covered by the GSCOP.
The Groceries Ombudsman proposal
The CC believes that the GSCOP will not be effective
without proactive monitoring and enforcement. This is because
suppliers are extremely reluctant to bring forward complaints
against retailers, for fear of damaging their commercial relationships
with them.
In recognition of this, the CC recommended the
creation of a Groceries Ombudsman to monitor and enforce the GSCOP.
The CC proposes that the Ombudsman will:
— Receive complaints relating to alleged
breaches of the GSCOP from suppliers, including indirect suppliers
such as farmers, and other third parties such as trade associations.
— Investigate bona fide complaints
regarding alleged breaches of the GSCOP.
— If necessary, withhold from retailers
the identity of suppliers who submit complaints.
— If an investigation finds breaches of
the GSCOP, issue directions to retailers to comply, which are
ultimately enforceable in the courts under the Competition Act.
— Require retailers to provide information
needed to monitor compliance with the GSCOP.
— Arbitrate formal dispute cases relating
to alleged breaches of the GSCOP brought by direct suppliers who
are willing to be identified.
— Require retailers to pay compensation
to direct suppliers who win formal dispute cases.
How the Ombudsman would protect overseas suppliers
and workers
UK grocery retailers procure huge volumes of
goods from overseas, and research shows excessive cost and risk
pressures are transferred to suppliers and their employees in
developing countries.[83]
Because the Ombudsman would enforce a set of
standards that only UK companies (rather than overseas suppliers)
are obliged to comply with, it does not infringe the principle
of territorial sovereignty.[84]
If an overseas supplier, including an indirect
supplier such as a farmer, believes they have suffered a breach
of the GSCOP, they would be able to submit a complaint to the
Ombudsman. If the complaint had merit, the Ombudsman could initiate
an investigation and if a breach of the GSCOP was found, it could
issue directions to retailers to discontinue or change the practice
that harmed the overseas complainant.
The Ombudsman could also award compensation
to direct suppliers based outside the UK who win formal dispute
cases, although there are relatively few overseas suppliers that
trade with UK retailers directly.
The Ombudsman is not designed to protect agricultural
workers, and the benefits for them would be indirect. However
they would also be significant, as the GSCOP covers procurement
practices such as:
— Last minute changes to orders, which
can result in employees being forced to work excessively long
hours or laid off without notice.
— Delayed payments, retrospective reductions
in price and other unexpected cost pressures that can cause financial
distress for suppliers and lead to lower health and safety standards,
pay cuts and job losses.
Establishing the Ombudsman
The CC has the power to introduce the GSCOP,
but not the Ombudsman. As a result, the CC sought to obtain undertakings
from retailers that would give it permission to establish an Ombudsman.
However, the "Big Four" retailers—Tesco, Asda,
Sainsbury's and Morrisons—as well as the Co-op, have refused
to sign undertakings.
This means the CC will recommend to the Department
for Business, Innovation and Skills that it takes the necessary
steps—including the creation of primary legislation—to
establish the Ombudsman scheme.
July 2009
77 MacDonald, K (2009) The reality of rights: barriers
to accessing remedies when business operates beyond borders,
London: CORE Coalition. Back
78
Competition Commission (2008), Final Report, Groceries Market
Investigation, para 3. Back
79
Competition Commission (2008), Final Report, Groceries Market
Investigation, Appendix 9.8. Back
80
The Supermarkets Code of Practice. Back
81
Competition Commission (2008), Provisional Findings Report, para
44. Back
82
Ethical Trading Initiative (2007) Purchasing practices: case
studies to address impacts of purchasing practices on working
conditions, London: ETI; Insight Investment (2004) Buying
your way into trouble: the challenge of responsible supply chain
management, London: Insight Investment; Casey, R (2006) Meaningful
change: raising the bar in supply chain workplace standards,
Cambridge, MA: John F Kennedy School of Government. Back
83
Ethical Trading Initiative (2007); Insight Investment (2004);
Casey, R (2006) op cit. Back
84
Legal advice provided to ActionAid by Jon Turner QC, Monckton
Chambers. Back
| 
