To support enterprise, fairness and food the government should extend the Groceries Code Adjudicator
October 23, 2017
During the autumn, Ministers are expected to announce their plans for the future of our Groceries Code Adjudicator, sometimes called the “Supermarkets’ Ombudsman”. Extending the remit of this successful regulator, on which the government has been consulting, is a much-needed step that would support enterprise, competition and fairness in the groceries sector – from field to supermarket shelf.
The Groceries Code Adjudicator (GCA) was established in 2013 to prevent supermarkets purchasing unfairly from their suppliers. Specifically, it enforces a legal code that bans many practices that powerful businesses can use to dump risk and cost onto the smaller businesses that make up suppliers. For instance, supermarkets are no longer able to delay paying suppliers, make deductions from suppliers’ invoice price, or change crucial details of their orders at the last minute, damaging and exploitative practices that can have a hugely detrimental impact on many businesses.
Through listening to supplier complaints and investigating bad practice, the Adjudicator is slowly having an impact on the number of businesses selling to supermarkets that are subjected to illegal purchasing practices.
However, the GCA’s remit is currently limited to the trading relationships between our biggest 10 supermarkets and their direct suppliers – a group of roughly 3000 businesses.
This means that the bulk of the groceries supplier sector, including the clear majority of farmers, are vulnerable to being subjected to unfair risks by the businesses to which they sell their produce. This gap in regulation is being exploited.
I have spoken to farmers that sell to supermarkets via an intermediary like an abattoir, packer or processor. This means that they are outside the remit of the GCA and currently without support when they are subjected to abusive purchasing practices. These include unilateral deductions to invoices, a blanket refusal to discuss contractual terms, and the threat of being delisted if they complain. In one particularly alarming example, a buyer asked the farmer to supply a different variety of fruit after the crop had been planted, and on finding that such a change would not be possible cancelled the original order. Practices of this kind create serious obstacles for food manufacturers and farmers both in the UK and overseas. They bear down particularly hard on smaller businesses and new entrants to the sector, setting higher barriers to entry, and ensuring the UK food market is less dynamic and productive than it could be.
This situation is not sustainable, and undermines competition and business development in the food sector to the detriment of both consumers and producers. Unfair purchasing practices make it impossible for suppliers to predict their income month-to-month, and means that there is less investment, and therefore less innovation, in this sector than would otherwise be the case. In the worst cases, competent businesses are driven to bankruptcy. Recent statistics indicate at least 400 UK food businesses have been placed under severe financial stress by unfair purchasing practices since 2013. Meanwhile, some overseas suppliers are less willing to sell to the UK, as they know they will get a fairer deal elsewhere. Other effects of this status quo include food waste, demand for cheaper and more insecure labour, and a reduction in food quality.
At a time when the Brexit process is compelling the UK to re-examine its fundamental economic position, and engendering a renewed focus on earning our living by selling to the world, we simply cannot afford to have business growth, innovation and competition in such a vital sector constrained in this way.
Allowing abusive practices to continue in supply chains is tantamount to the government accepting an uncompetitive groceries sector which ultimately will be dominated by the small handful of businesses that are big enough to stand up to the powerful retailers.
So what needs to be done?
The Competition Commission foresaw this situation. Back in 2008, when it proposed the establishment of the GCA in the first place, it also recommended that if ‘excessive risk and unexpected cost’ continued to be transferred up the supply chain, then the government should extend the remit of the GCA to cover the whole supply chain.
This would be a sensible measure that carries several advantages:
1. The GCA knows the sector, and has built up trust from suppliers. It has four years’ worth of experience investigating unfair purchasing practices in food supply chains, and it makes sense that it should apply that insight to indirect suppliers too
2. By completing the existing regulatory framework, it would provide a level playing field for every food supplier
3. It has support from MPs across party lines, as well as from a range of unions, civil society and farming organisations including the NFU, the Tenant Farmers Association and Traidcraft
I hope that the government will be announcing plans for extending the Groceries Code Adjudicator in the coming. Far from being unnecessary government interference, this would be an emphatically pro-business measure that would ensure the market functions more effectively for the benefit of consumers and producers alike.
This opinion piece was originally published on ConservativeHome on 23rd October 2017: https://www.conservativehome.com/platform/2017/10/julian-sturdy-to-give-farmers-a-fair-deal-the-remit-of-the-groceries-code-adjudicator-should-be-extended.html