Any of our business? Human Rights and the UK private sector - Human Rights Joint Committee Contents

Supplementary memorandum submitted by Action Aid UK



  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 citBack

84   Legal advice provided to ActionAid by Jon Turner QC, Monckton Chambers. Back

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Prepared 16 December 2009