|Previous Section||Back to Table of Contents||Lords Hansard Home Page|
What assessment they have made of the effect of increased concentration in the supermarket sector and of practices in that sector on (a) the viability of the British-based food supply chain; (b) the terms and conditions of their own workers and those of supplying companies; and (c) the environmental impact of distribution systems; and whether they have any plans for a further inquiry into the sector. [HL1506]
Lord Bach: The supermarket sector was the subject of a wide ranging investigation by the Competition Commission during 1999-2000. In its report, published in October 2000, the commission identified a number of practices which, when carried on by any of the major supermarkets, adversely affected the competitiveness of some of their suppliers with the result that the suppliers were likely to invest less and spend less on new product development and innovation, leading to lower quality and less consumer choice. The commission considered that this was likely to result in fewer new entrants to the supplier market than otherwise. It also considered that certain of practices gave the major buyers substantial advantage over other smaller retailers, whose competitiveness is likely to suffer as a result, again leading to a reduction in consumer choice. It concluded that the exercise of some of these practices by the largest supermarkets operated against the public interest.
The commission recommended as a remedy the establishment of a code of practice which would put relations between supermarkets and their suppliers on a clearer and more predictable basis. The Office of Fair Trading (OFT) subsequently drew up a code of practice which entered into force in March 2002.
More generally, the commission noted that in a competitive environment it would expect most or all of the impact of various shocks to the farming industry to have fallen mainly on farmers rather than on retailers; but the existence of buyer power among some of the
10 Oct 2005 : Column WA85
main parties had meant that the burden of cost increases in the supply chain had fallen disproportionately heavily on small suppliers such as farmers.
Although the commission's investigation did not encompass the terms and conditions of supermarkets workers or those of supplying companies it did consider the employment effects of opening new supermarkets. It found no consistent and quantifiably harmful impact on retail employment at the local level. National data indicated that gains in retail productivity between 1991 and 1995 had helped to absorb extra sales with broadly stable levels of labour. The commission noted that if fewer full-time and more part-time jobs were available this will have disadvantaged some, but proved attractive to others. The commission did not believe there had been any significant net loss of employment, but noted that if there had, it was not on a sufficient scale to justify interference in the process of change.
The issue of buyer power, and its impact on suppliers, was also considered by the commission in its September 2003 report on the various bids for Safeway. In this context, the commission identified a number of adverse effects that would flow from the acquisition of Safeway by Asda, Sainsbury's or Tesco. One of these was that as a result of the further imbalance in the respective bargaining positions of Asda, Sainsbury's or Tesco and its suppliers, there would be a further general weakening of some suppliers' positions. In some cases, levels of investment in new products or manufacturing techniques would tend to be lower or slower than would otherwise have been the case, with adverse effects on products innovation and diversity. The commission went on to note that the acquisition by Morrisons might be expected to have a limited adverse effect as a result of the increased imbalance in its bargaining power vis-à-vis suppliers, with similar but more limited effects.
In July 2004 Defra published research by London Economics which analysed trends in retail/farm gate price spreads, (that is, the difference between the price paid to the producer and the retail price) with particular reference to concentration in the retail market. The research found little evidence of trends in these price spreads being associated with increased concentration in the UK retail market.
The Government have made no specific assessment of the impact of increased concentration in the supermarket sector and of
10 Oct 2005 : Column WA86
practices in that sector on the terms and conditions of the employees either of supermarkets or of their suppliers. However, in 2004 Defra commissioned research designed to measure the demand for temporary workers in the agriculture, horticulture and primary processing industries, and the role of gangmasters in meeting that demand. This research was commissioned in response to a recommendation by the EFRA Select Committee in the report of its inquiries into the activities of gangmasters in the agriculture industry. The research report included an independent assessment by the researchers of how the changing nature of the food chain has influenced employment patterns and practices in agriculture, horticulture and primary processing industry. The researchers reported that both retailers and their suppliers have benefited from improved co-ordination and co-operation within the food chain. The researchers also reported the view expressed by some within the food chain that greater integration can lead to poor and illegal employment practices. Defra has provided copies of the report to the EFRA Select Committee. We will also be placing copies in the Library of the House.
The environmental and social impact of food distribution systems was researched in a Defra-commissioned study by AEA Technology to assess the validity of "food miles" as a key performance indicator of the food industry's sustainability. The study into this complex area found that the external costs associated with UK food transport are just over £9 billion per year. Of this, £5 billion is attributed to the costs of congestion, of which half is attributed to the activities of the food industry and half to shopping trips by consumers in cars. The study took full account of trends in transport logistics and retailing, including consolidation within the industry. The Government have challenged the food industry in the draft food industry sustainability strategy being developed in partnership with the sector to reduce the external costs of its domestic food transportation by 20 per cent. by 2012. Copies of the research findings, which were published on 15 July 2005, have been placed in the Library of the House. No further research on this issue is currently being planned.
The OFT considered the need for a further investigation of the grocery market in its March 2005 report Supermarkets: The code of practice and other competition issues. After considering comments on the findings of this report, the OFT announced in August 2005 that that there was no case for the referral of the grocery market to the Competition Commission for investigation or for a market study. However, the OFT will continue to refer acquisitions by supermarkets which are likely to give rise to a substantial lessening of competition to the Competition Commission or to obtain undertakings in lieu.
The Government believe it is in supermarkets' own interest to agree fair and equitable arrangements for dealing with their suppliers, which will ensure the sustainability of a UK-based supply chain. The Government are considering whether there is further action that they can take to help bring this about.
|Single/Basic, non-aged personal allowance for a man with no children||Taxable income above which the highest rate is charged||Highest rate of income tax charged||Financial year average retail price index||Single/Basic, non-aged personal allowance for a man with no children at|
|Taxable income above which the highest rate is charged at 2004-05 prices|
|2005-06||4,895||32,400||40.00||note 3||note 3||note 3|
|Next Section||Back to Table of Contents||Lords Hansard Home Page|