Groceries Code Adjudicator
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Julian Sturdy (York Outer) (Con)
I beg to move,
That this House has considered the role and powers of the Groceries Code Adjudicator.
It is a pleasure to serve under your chairmanship, Mr Gray, while discussing a topic that has not yet been debated in depth this Parliament. Before doing so, I must draw hon. Members’ attention to my declaration of interest. Having been a Yorkshire farmer before becoming an MP, I have farming interests, but I do not have any commercial relationship that would be affected by the role of the Groceries Code Adjudicator.
I would like to place on the record my thanks to all the industry bodies and trade associations that have been in contact with my office to feed their views into this important debate. In kicking it off, I would like to voice the concerns that many in the food and farming industries share regarding certain aspects of the Groceries Code Adjudicator. The organisation has been broadly welcomed by many in the sector, but there has been some disquiet about issues concerning the adjudicator’s resources, powers, performance and overall remit, which I will discuss in turn.
As many hon. Members know, the adjudicator was established back in June 2013 to ensure that the largest supermarkets treat their direct suppliers lawfully and fairly. The adjudicator’s primary role is to ensure compliance with the groceries supply code of practice. It is worth mentioning that before the code was introduced in 2010, many farmers reported widespread unfair practices such as last-minute price cuts, being asked to guarantee the supermarket a minimum profit margin, and growers being expected to pay as a condition of being a supplier. Those unfair practices would all now be illegal under the code, but the impact of the code has been to force many food producers out of business. As a nation we have become increasingly reliant on imported food—a theme I will touch on later.
Mr Mark Williams (Ceredigion) (LD)
I congratulate the hon. Gentleman on securing this important debate. I do not have the pedigree of a farming background, but I represent many farmers. An increasing feature of the market has been the development of voluntary codes, such as those in the dairy and beef sectors. When he goes on to talk about remit, will he be mindful of the need to encourage the adjudicator to have the power to look at where voluntary agreements are and are not working?
Julian Sturdy
The hon. Gentleman makes a good point. He is absolutely right that some of the voluntary codes are working well and are successful, while others need much more work. I would welcome the codes falling under the remit of the Groceries Code Adjudicator. As I will set out, there needs to be a much wider remit for the adjudicator, especially given that the Minister will review the remit in March 2016.
To go back to the history, the Groceries Code Adjudicator oversees a sector that is worth £177 billion and employs 3.8 million people—14% of the UK workforce or one in every seven jobs in the country. It is also our largest manufacturing sector, worth almost a fifth of our manufacturing output, which is more than our car and aerospace manufacturing sectors combined.
Supermarkets are huge wealth creators in this country, and I am sure that many hon. Members present will have first-hand experience of the community work that supermarkets do in their constituencies, so this is not about being anti-supermarket, as they play a huge role in our economy and society. However, in the light of the sheer scale of the grocery industry, it is about fairness. Given the scale of the industry, it might come as a surprise that the adjudicator is employed for only three days each week and is assisted by a team of just five people. I have always been a champion of lean and efficient public bodies, but the current resources do not appear appropriate for the challenges at hand.
Chris Davies (Brecon and Radnorshire) (Con)
May I echo the words of my friend the hon. Member for Ceredigion (Mr Williams)? I am delighted that my hon. Friend the Member for York Outer (Julian Sturdy)has brought this debate to Westminster Hall and highlighted this very important issue. While he is on the history, can we go back a little further? He will remember, as I am sure all hon. Members do, the great anticipation that there was for a Groceries Code Adjudicator. Various Governments had promised to create that role, but it never came about. When we brought it forward, there was great anticipation among the farmers and producers in my constituency of Brecon and Radnorshire that this organisation would have real teeth to deal with the situation with the supermarkets. As my hon. Friend rightly says, supermarkets are a very important part of—
Chris Davies
Yes, Mr Gray. The supermarkets are very important, but so is this adjudicator and so indeed are suppliers. When we look at the history, we see that we need to strengthen—
Julian Sturdy
I thank my hon. Friend for his intervention. He is absolutely right about looking back at the history. I remember, before the 2010 general election, attending many hustings and talking about a Groceries Code Adjudicator and how it was so important that we brought that forward. I remember, as I am sure a number of hon. Members here will, speaking in the debate on Second Reading of the Groceries Code Adjudicator Bill, and warning then that, while we had to bring that forward, we had to ensure that it had real teeth to act. I feel that it has been a good step forward, but there is much more work to do, and I want to touch on that.
Ms Margaret Ritchie (South Down) (SDLP)
I congratulate the hon. Gentleman on initiating the debate. A number of us, including the Chair of the Select Committee on Environment, Food and Rural Affairs, the hon. Member for Tiverton and Honiton (Neil Parish), have already discussed some of these issues, but does the hon. Member for York Outer (Julian Sturdy) agree that the Groceries Code Adjudicator’s remit should be expanded in legislation to include fair and reasonable prices for producers? Many people—not solely in the dairy sector, which has a voluntary code—have been asking for that.
Julian Sturdy
The hon. Lady is absolutely correct. I will go on to pay tribute to the EFRA Committee and the work that it has done on this subject. I know that it has forthcoming inquiries on the topic as well. I entirely agree with her. I want to touch on the dairy sector later in my speech, but this issue goes right across the fresh produce sector, and we have to get fairness there.
I was making the point about the sheer scale of the industry and whether the Groceries Code Adjudicator has enough resources to do its job. Why does the adjudicator have a team of only five, and why is the adjudicator employed for only three days a week? Is that because there is not a real problem of the supermarkets using their massive size and resources to abuse their dominant market position? Or is the problem simply not being taken seriously enough, with the result that those are the resources available to the adjudicator?
The powers of the GCA have also been called into question. My hon. Friend the Member for Brecon and Radnorshire (Chris Davies) has touched on this. I remember making a contribution on Second Reading of the Groceries Code Adjudicator Bill, when it was not envisaged that the adjudicator would be able to fine companies from day one. I warned then that, without adequate teeth, the GCA would be like a referee without a whistle. I think that another Member in that debate said that it would be like a referee without a red card in his top pocket. The fear with all new regulatory bodies is that they are set up too cautiously and they become ineffective talking shops, unable to gain influence or authority in the sector. It was therefore a welcome development when, before the Bill’s Committee stage, the Government accepted the argument about giving the adjudicator the ability to fine retailers. Secondary legislation was introduced to give effect to the power to impose penalties on the large supermarkets of up to 1% of their annual UK turnover. That was another positive step forward—a step in the right direction—as the adjudicator requires teeth to send a strong message to the supermarkets that treating suppliers fairly is not optional.
It is deeply unfortunate, however, that the adjudicator’s ability to impose robust fines will come in after the GCA’s investigation into allegations that Tesco overstated its profits by £250 million. Should a breach of the code be found to have occurred, the only possible sanctions will be to name and shame the retailer, which is redundant at best, as the matter has already been widely reported in the media. In the light of the GCA’s limited resources and the late arrival of its powers, it is fair to ask what the adjudicator has achieved in the two years since it was established.
Rebecca Pow (Taunton Deane) (Con)
I, too, congratulate my hon. Friend on securing the debate. We have discussed this issue at length during the EFRA Committee’s farm prices inquiry, and it is very pertinent. I wonder whether the adjudicator is working three days a week because she does not have enough powers to fill the other days. She is legally prevented from looking for evidence, and her remit extends only to direct suppliers, which leaves out the majority of farmer suppliers, which in turn does not encourage them to bring evidence forward.
Julian Sturdy
I thank my hon. Friend for that intervention. She has hit the nail on the head: the Groceries Code Adjudicator does not have the powers to fill the whole week. But let us be serious about this. Ultimately, we must have a Groceries Code Adjudicator that has the powers to act on behalf of primary producers right across the sector. I am sure that if we deliver those powers, the Groceries Code Adjudicator will be able to fill her time right the way through the week.
To date, the adjudicator has not completed a single investigation, has not made any final decisions in arbitration cases and, as we have discussed, has not imposed any enforcement measures, financial or otherwise. The GCA is, however, to be commended for the transparent way in which it measures its own performance through the use of surveys. The key findings were that eight out of 10 suppliers said that they had experienced a potential breach of the code in the past 12 months. Unfortunately, only 38% of direct suppliers said that they would consider raising the issue with the adjudicator. Something has gone seriously wrong when the majority of suppliers have suffered problems with the code but most would not even consider raising the matter with the body in charge of protecting their welfare.
This year, the surveys show some positive developments, with a drop in the number of suppliers reporting potential breaches and a rise in the number of suppliers who would consider raising the issue with the GCA. However, serious weaknesses remain. Despite an increase in confidence in the GCA, the majority of direct suppliers still would not have confidence in the adjudicator helping them when they are in need. The reasons for the lack of confidence are, sadly, all too clear: 68% of suppliers fear retribution by the retailer should they be identified, and 45% are not confident that the GCA will maintain their confidentiality, despite being bound to do so.
The surveys ultimately raise more questions than answers. How can we make sure that the majority of suppliers have confidence in the GCA to handle their complaint appropriately? What can we do about the apparent climate of fear that surrounds the reporting of potential breaches of the groceries code? I will be inviting the GCA to discuss those matters with my colleagues at a special meeting of the all-party group for rural business next year, which I hope the Minister might attend. I hope that she will at least address those concerns today. I know that she is very experienced in this matter and I look forward to her response.
Perhaps most important is the question of extending the remit of the GCA. That has been widely supported by many in the food industry, especially in the light of the plight of our dairy farmers. Although I appreciate that the Minister will review the role and powers of the adjudicator in March next year, the truth is that many of our dairy farmers cannot wait that long. It is to be welcomed that the EU support payments to help hard-pressed dairy farmers manage their cash-flow problems started arriving in farmers’ bank accounts yesterday, two weeks ahead of schedule. I am also pleased that the Government have secured from the European Commission more than £26 million—the third largest support package among member states—to help dairy farmers affected by the global volatility in milk prices. As the Tenant Farmers Association has argued for some time, however, the GCA could play a hugely positive role in helping dairy farmers by ensuring fairness throughout the supply chain.
In January this year, I was greatly encouraged by the Prime Minister’s response to a question asked by my hon. Friend the Member for Montgomeryshire (Glyn Davies), who is here today. He enquired whether the powers of the GCA should be extended and strengthened to support the dairy industry. The Prime Minister agreed with him, saying, of the GCA:
“I also think it is time to look at whether there are ways in which its remit can be extended to make sure it looks at more of this vital industry.”—[Official Report, 21 January 2015; Vol. 591, c. 217.]
Sadly, nine months later its remit remains the same, and the plight of dairy farmers continues.
There are three crucial ways in which the remit of the adjudicator could be extended to help dairy farmers and those most in need in the fresh produce sector. First, as the British Poultry Council, the National Farmers Union and the Country Land and Business Association have made clear, the adjudicator must have the power to initiate its own investigations. Currently, it can act only on complaints. It has been suggested that in much the same way as Ofsted has the powers to investigate the performance of schools on its own initiative and at very short notice, the GCA should be able to investigate potential breaches of the code among the larger supermarkets at any time. At the moment, it appears that the adjudicator needs to be handed all the evidence and have a conclusive case against a retailer before an investigation can commence. Perhaps it would be better if the GCA could say, “I have heard enough from this area of the industry, and there is clearly a problem. I will open an investigation to make sure that the supermarkets are not abusing their dominant market position.”
Secondly, trade associations such as the Federation of Small Businesses and the Royal Association of British Dairy Farmers argue that the adjudicator needs to be able to examine the whole supply chain from the farm to the checkout. Currently, only direct supply contracts can be investigated. Although the vast majority of farm produce passes through a processor before ending up on the supermarket shelves, as the law stands the GCA cannot consider the impact of retailer activity on farmers, even though that is at the centre of the dairy industry debate.
Thirdly, although we do not want to give the adjudicator the power to fix prices, the GCA should have the power to investigate and report on the balance of pricing throughout the supply chain. That would ensure that all suppliers in the chain—the primary producers as well as the direct suppliers—were getting a fair deal. The information would also provide much-needed transparency, which would assist farmers and food producers in negotiating fair and sustainable contracts with the processors and, ultimately, the supermarkets that they serve.
I have briefly touched on the fact that there is widespread concern about the huge volatility in milk prices and the impact that that has had on the British dairy industry. As few dairy farmers sell direct to supermarkets, there have been calls, most notably from the Environment, Food and Rural Affairs Committee, for the scope of the GCA’s powers to be extended. I am sure that my hon. Friend the Member for Tiverton and Honiton (Neil Parish) will be able to update us on the Committee’s excellent work on the dairy industry and farm-gate prices.
It is not only dairy farmers who come under the remit of the GCA. As the NFU “Catalyst for Change” report makes clear, fruit and vegetable growers up and down the country describe the current environment as a battlefield. There are concerns that because of the price wars among the largest supermarkets, driven by the increasing competition from discount retailers, supermarkets are up to their old tricks. Feeling the pinch from their new discount competitors, the temptation to attempt to claw back profitability from further down the supply chain is, sadly, all too real. That will have dangerous consequences, but the GCA cannot intervene because the vast majority of farmers sell their produce through processors. The impact of that poor practice, as in the past, has been to force producers out of business, increasing our reliance on imported food. The value of British fruit and vegetable production has fallen by 14% since 2010, and imports have never been higher.
Mr Mark Williams
I have been listening carefully to the hon. Gentleman’s excellent speech. Does he agree that we are talking about not only an economic argument, but confidence in the industry? The theme in my constituency has been the confidence of young people whom we desperately need—the age demographic of farming is going up—to join the industry. If they do not see fair play at its most basic, they will be less inclined to join the industry.
Julian Sturdy
The hon. Gentleman makes a good point. We are absolutely talking about confidence in the industry—confidence for primary producers to invest in the sector and move their businesses forward, and confidence for the younger generation to get involved in the industry. He is absolutely right that the age of people running the industry is getting higher and higher, and we desperately need younger people to get in.
Food security, which I have touched on, is so important to our country. Imports of fruit and vegetables have increased by more than 650,000 tonnes in the past four years, and further decline in British food production will have serious consequences for food security and the farming sector. The GCA could have an important role in preventing supermarkets from exacerbating the problem.
Although the introduction of the GCA is to be welcomed, two years on it is clear that there is potential for the adjudicator to do so much more. The Government review will take place in only four months’ time. Will the Minister assure me and other Members here that details of the review will be published as early as possible? As I am sure she will agree, it is essential that the entire food sector has the opportunity to feed into the review, and the trade associations need time to present a strong submission. Will she assure me that submissions will be accepted from indirect suppliers, not just from direct suppliers who are currently under the GCA’s remit? Will she assure me, as the Prime Minister indicated to the House at the start of the year, that she will look at extending the adjudicator’s remit to help those right across the supply chain, including dairy farmers and fruit and vegetable producers?
A properly resourced GCA that has the right powers and acts proactively in the market has the potential to be a powerful source of fairness in a cut-throat industry. Anything less would be a missed opportunity, and British food producers and, ultimately, the end consumer would be all the poorer for it.
Mr James Gray (in the Chair)
Mr Shannon has inquired whether there is a time limit in this debate. There is no such time limit. None the less, I am keen to bring in the Chair of the Select Committee on Environment, Food and Rural Affairs in good time before the first of the three wind-ups. He might like to time his comments to allow that to occur.
Jim Shannon (Strangford) (DUP)
Thank you, Mr Gray; that is very helpful.
It is good to speak in this debate, and I thank the hon. Member for York Outer (Julian Sturdy) for giving us a chance to contribute. This is an issue for us in Northern Ireland, which is why—although my hon. Friend the Member for Upper Bann (David Simpson) is absent just now—we have three Members from Northern Ireland present. My hon. Friend and the hon. Member for South Down (Ms Ritchie) are members of the Environment, Food and Rural Affairs Committee so they have input to this issue as something that concerns them. I declare an interest as I chair the all-party parliamentary group for eggs, pigs and poultry. The APPG may dwell more on the issues of the laws that come from Europe, but one of the issues that came up at our launch just two weeks ago was that of fair prices. Although Members have referred to the dairy industry, many other sectors of agriculture and farming have problems with that as well.
It is nice to see the shadow Minister and the Minister in their places. We have been here together in debates on at least two different subjects—health and defence. We are now debating agriculture and the Groceries Code Adjudicator; the Minister has a wide interest.
Competition is a healthy part of society, contributing to economic growth, ensuring competitive prices and driving innovation, but sometimes the system that ensures competition is broken. Sometimes competition is not working as it should. That is a clear issue for us. With just four retailers taking 85% of the market, it is clear that competition in the groceries sector is not working. Farmers say that they are not getting their prices, they are working long hours and they are the ones getting squeezed. All the evidence indicates that that is the case. To break the domination and get competition working again, action is needed. Today is a welcome opportunity to discuss that potential action, and to ensure that we take action that works and does not have negative unintended consequences.
Recently across the country and across my largely rural constituency of Strangford, we have seen the impact of the abuse of purchasing power by major supermarkets. The major supermarkets are very important as they push out the product matter, but it is also important that they have local people to supply them. Many of those supermarkets claim, “We buy so much of our products locally.” It is okay to buy it locally, but they have to give the producer a fair price. Farmers are on the brink, with some even contemplating suicide—these are hard times—over the position they had been forced into by abusive monopolies. Unfair trading practices are referred to in the background notes. That is one of the issues.
Ms Ritchie
My constituency neighbour will know, as I do, that agricultural produce is critical to our local economy. In that vein, does he agree with me, and with the conclusion of the Ulster Farmers Union, that the Groceries Code Adjudicator should have more power to tackle unfair trading practices, particularly in the dairy sector but also in the red meat and vegetable sectors? That would have an impact on his constituency.
Jim Shannon
As always, I am pleased to have accepted an intervention. I note the hon. Lady’s wise words, which outline clearly the issues for my constituency and her constituency, in referring to the unfair trading practices.
We have to value the benefits of supermarkets, as I said earlier. The Competition Commission views the country’s supermarkets as delivering
“a good deal for consumers”.
However, the commission did warn about the impact on suppliers if current practices were to continue—that continuing to produce a quality product at a cheaper than cheap price is unsustainable. It said that
“the transfer of excessive risk and unexpected costs by grocery retailers to their suppliers through various supply chain practices if unchecked will have an adverse effect on investment and innovation in the supply chain, and ultimately on consumers.”
In the background information sent to us by the National Farmers Union, there are three examples. Just last week on the TV—I think it was early on Tuesday morning last week—there was a clear illustration of this. A farmer, who I think was from Norfolk, was producing parsnips for Morrisons and had been doing so for years, but he was not getting his price and the company was continuously squeezing him. The problem for him was that it had got to a stage where it was unsustainable. Last week a TV programme carried the story. Morrisons had not replied over a six-week period. Ultimately, he was saying, “I cannot continue after years of the product being purchased at low profit.” This had an impact on him, as he had young sons. He needed to ensure that everything for him was beneficial and cost-effective, but it was not. Whether it is Morrisons, the Co-op or Tesco, those issues need to be addressed. Action must be taken. Relevant powers need to be given to the new ombudsman or eventually to a body that takes responsibility for this issue.
The Competition Commission’s proposed ombudsman would enforce compliance with the groceries supply code of practice. Perhaps the Minister will tell us what extra powers the ombudsman will have to bring supermarkets into line and ensure that they do what they should do. We have to strike the right balance between addressing the abuses of purchasing power by monopolies and allowing legitimate businesses to operate with as little Government interference as possible. That is appropriate, given the serious detrimental impact to suppliers. As I have already outlined, the grocery retailers will be prohibited from making retrospective adjustments to terms and conditions of supply, which are issues that have a direct impact on them.
It is my understanding that the Groceries Code Adjudicator would not have to have, or seek to have, any role beyond what is necessary to monitor and enforce the code of practice. However, with the right approach, and with the teeth that Government can give it, we can, as the hon. Member for South Down and others have said, make the change, make farmers more profitable and help them, as they produce a quality product that in many cases leads the world. They need that profit and that money to continue to be producers.
Neil Parish (Tiverton and Honiton) (Con)
It is great to serve under your chairmanship, Mr Gray. I thank my hon. Friend the Member for York Outer (Julian Sturdy) for securing the debate—in fact, he could be considered a young farmer in this day and age. It is great to see him here fighting the corner for agriculture as well as for his constituency. It is good to follow the hon. Member for Strangford (Jim Shannon). Northern Ireland has particular problems because it needs to export much of its food. All products—dairy, beef, lamb and poultry—are under pressure, so this debate is timely. I will not go into the history of the adjudicator as my hon. Friend the Member for York Outer did that very well.
I am unashamedly going to make a speech that is pro-farming and pro-food production. We produce some of the best food in the world with some of the highest welfare standards, but that often adds cost to the food we produce. We have massive retailers, which are good for consumers. They can have a good war with each other and drive prices down, but as they drive the prices down, the suspicion is—it is not always the case—that the farmer and the processor pay for those low prices in the shop. If Tesco has a price war, the price comes down; I just wonder, for Wiseman or whoever supplies Tesco, whether the farmers are getting a good price from the Tesco direct milk contract. Are the processors then being squeezed? Are the other parts of that milk contract—cheese, butter and yoghurt—then being affected? All those things are appropriate and we need to look into them.
We want to produce more and more food in this country. We are becoming less self-sufficient every year, but we should be more self-sufficient every year. I have every faith in the Minister to ensure that we are more self-sufficient in food. The only way that will happen is if the farmer and the producer are paid a full price. The Groceries Code Adjudicator needs to be able to go into a retailer, whoever it might be—a bit like a spot check—and check that it is not using unfair practices to keep the commodity price or the price that is paid to the producer down. It could be milk, beef, lamb or perishable products. With perishable vegetables, the farmer or the grower is even more vulnerable because there is no way of storing much of that produce. Often the large retailers know that and they will drive the price down until it is uneconomic to produce.
The Groceries Code Adjudicator has powers. She appears before the Select Committee next month, so we will be able to put these questions to her directly. Five members of the Select Committee are here this afternoon, which shows the importance we attach to this subject. Is the Groceries Code Adjudicator using her powers sufficiently? Is she resourced enough? I echo my hon. Friend the Member for York Outer in saying that I do not usually come to Westminster Hall to demand more bureaucracy and more money, but if we are to take on these massive retailers, which have billions of pounds-worth of trade, we need someone who is resourced enough to be able to go in and stand up to them.
Few processors are feeding milk, beef, lamb and poultry into Tesco, Sainsbury’s and Morrisons, or whoever it might be, so if there is a complaint, the retailer knows very well where it has come from. Suppliers are therefore not likely to make a complaint. Whistleblowers and people with a real complaint must be able to come forward and must be protected. If the big retailers are using their muscle unfairly, the Groceries Code Adjudicator should have the power to come down on them in an even heavier fashion, because 1% of the turnover of Tesco or Sainsbury’s is quite a fine. Such a fine would send a message to the rest of the retailers that they need to behave properly.
Mr James Gray (in the Chair)
Order. I am keen for the wind-ups to start, so the intervention should be very brief.
Rebecca Pow
We have heard much about the 25-year plan for the future of great British food and farming, not just for Taunton Deane, where I come from, but for the whole of Britain. Is it not important that we give the Groceries Code Adjudicator teeth, so that she can be part of that 25-year plan and help to enable everything that we want for our home-grown food?
Neil Parish
I could not agree more. Greater production in this country would mean that we did not have to import so much food. That would be good for our balance of payments, and it would be good not only for farmers but for our processing industry—all this can help to build the industry. We are therefore looking forward to the Minister proposing greater powers and more resources for the Groceries Code Adjudicator so that she can look into more of these large retailers to ensure that the farmer, the grower and the processor get a fair deal.
Stuart Blair Donaldson (West Aberdeenshire and Kincardine) (SNP)
It is a pleasure to serve under your chairmanship, Mr Gray. I congratulate the hon. Member for York Outer (Julian Sturdy) on securing this debate on an issue that is important to many of my constituents and to the constituents of Members on both sides of the House.
I am sure all Members would agree that the Groceries Code Adjudicator is well intentioned but its powers do not go far enough. In particular, it is insufficiently responsive to a failing supply chain. Earlier this year, the Scottish Government’s Cabinet Secretary for Rural Affairs, Food and Environment, Richard Lochhead, wrote to the Secretary of State for Environment, Food and Rural Affairs, stating:
“I have long been pressing the UK Government to widen the Groceries Code Adjudicator’s remit and powers so that she can shine a spotlight on contracts between primary producers and processors, as well as processors and retailers.”
In conjunction with that, Mr Lochhead has continued to press the milk prices crisis with the adjudicator. There has been huge volatility in dairy prices over the past two years, and no fewer than 19 Scottish dairy farmers have gone out of business this year. Dairy is the most visible area in which the GCA’s remit does not go far enough. The GCA has no remit to investigate prices; it may investigate only the relationship between the largest supermarkets and their direct suppliers. The fact that the code extends only to retailers with a turnover of more than £1 billion and deals only with direct suppliers is unacceptably restrictive, as the vast majority of farmers supply the market through processors.
As few dairy farmers sell direct to supermarkets, consideration should be given to extending the scope of the GCA’s powers to provide a mechanism to tackle the problem. Dairy farmers who deal with large retailers often receive substantially less than the cost of production for their milk. Dairy producers cannot be expected to subsidise retailers in that way. It is not in the long-term interests of either our food security or our consumers to push dairy farmers out of business. That is why I echo the recommendation of the Environment, Food and Rural Affairs Committee’s report on dairy prices that the Government should give urgent consideration to how the GCA’s remit could be amended.
Expanding the role of the GCA would give it the powers that it should have, and indeed that many people already think it has. That is reinforced by the words of the adjudicator, Christine Tacon:
“I think very many farmers thought I was going to be there to get involved with price. I have been asked to get involved in the price of beef and milk and fleece. None of these can I get involved with: first, because I cannot get involved on price, and secondly they are very rarely direct suppliers themselves.”
That restrictive remit seems to be hampering the work of the GCA. Ms Tacon has also said:
“I continue to spend a great deal of my time explaining the remit of the GCA. This has hampered my ability to pursue important work that is within my remit…. The continued misrepresentation of my role is of great concern to me and I am keen to resolve this issue swiftly.”
I suggest that expanding the GCA’s remit would help to resolve that issue.
As has been mentioned, the GCA must have the power to initiate her own investigations, rather than only being able to act on complaints, as is currently the case, and she should be able to do so at any time. The GCA also needs to be given a role to look at the whole supply chain, rather than only being able to investigate direct supply contracts. That would finally bring the vast majority of farm produce into her remit. Finally, she should be able to investigate and report on the balance of pricing throughout the supply chain. That would bring transparency and help farmers and others in their negotiations with the retailers. Farmers across the UK are vital contributors to the rural economy and to the sustainability of our nation. They deserve a better deal and fairer pricing. I urge the Government to consider the points raised in this debate and broaden the remit of the Groceries Code Adjudicator.
Bill Esterson (Sefton Central) (Lab)
I add my congratulations to the hon. Member for York Outer (Julian Sturdy) on securing this debate, which has been remarkable because we have had unanimity across multiple parties. I am fascinated to hear how the Minister will deal with the overwhelming demand for improvement in the remit of the Groceries Code Adjudicator that has been clearly expressed by all Members who have spoken today. I can only agree with many of their comments.
The Groceries Code Adjudicator was set up by Act of Parliament in 2013 following complaints by suppliers, smaller retailers and commentators about unfairness in retailing. A code of practice was introduced in 2001 and in 2008 the then Competition Commission recommended the creation of a statutory body to oversee and enforce a strengthened code. The Labour Government launched a consultation in February 2010, and the coalition Government responded by announcing plans for an adjudicator to enforce the groceries supply code of practice.
Many people raised concerns at the time about the watering-down of the role from the recommended ombudsman to an adjudicator, and those comments have been echoed by a number of Members today. It is perhaps no surprise that we have returned to that point because, as the hon. Gentleman said, an adjudicator working three days a week with a team of five will struggle to look after 300,000-plus suppliers in the retail supply chain. The expectations go way beyond the adjudicator’s ability to deliver.
Major retailers operate in a competitive market. To gain market share, the supermarkets loss-lead milk, bread and other products and they have promotions on many individual lines. When retailers cut prices, the question can arise of who pays and what the knock-on effect will be—a point made well by the Chair of the Select Committee, the hon. Member for Tiverton and Honiton (Neil Parish). Retailing runs on tight margins, so the pressure to cut costs in the supply chain is understandable. Ensuring that such pressure does not unfairly affect suppliers is a key responsibility of the adjudicator. There is a voluntary code of conduct in the dairy industry, and the Competition and Markets Authority also has responsibility to help smaller suppliers.
To be fair, since the Groceries Code Adjudicator was set up the number of suppliers saying that they have problems with retailers has fallen. The adjudicator says that she believes that being in post has on its own acted as a deterrent, and that the existence of the office has alone made a difference. However, many suppliers still say that they are unfairly treated by large retailers.
We have heard about anonymous complaints and suppliers’ concerns about retribution if they are identified. Again, the Chair of the Select Committee made the strong point that it is all too easy to identify who a complainant might be. The adjudicator has said that a lack of trust is a barrier to suppliers who might have complaints. Suppliers all want the ability to raise concerns free from the fear of reprisals. I am sure that the Minister would agree that minimising the danger of retaliation by retailers is essential if the adjudicator is to be effective. Will she comment on the adjudicator’s inability to investigate where there is a possibility that a complainant’s identity might become known to the retailer, and how she might improve how that aspect of the adjudicator’s role is carried out? The way the adjudicator is set up acknowledges that particular problem without solving it.
According to the Department for Business, Innovation and Skills, there are 7,000 direct suppliers, all of which are covered by the adjudicator, and a further 300,000-plus indirect suppliers, which are not. That issue has arisen again and again in this debate, and Members want it to be addressed, as those smaller suppliers are excluded from the remit of the Groceries Code Adjudicator. The adjudicator has made it clear that she has a small office and spends much of her time explaining what she can and cannot do. She has also made it clear that she cannot possibly cover the 300,000 suppliers in the supply chain, unless of course the scale of operations is dramatically altered, as is being demanded in this debate.
The Government said in their response to the previous Government’s consultation that they wanted to act in consumers’ long-term interest. I am sure that all of us agree with that now, when the adjudicator has been in post for some years, but the reality is that a system where there is quarterly reporting to the stock market and a very short-term approach, and where management are judged on short-term results, either quarterly or annually, leads to actions that can have drastic effects on suppliers throughout the supply chain. Short-term actions can also have long-term consequences. If producers are unable to stay in business due to unfair business practices by major retailers, main suppliers or both, we may lose good producers. If we lose good producers of quality goods, consumers will ultimately lose out.
The Chair of the Select Committee made the point that we have some of the finest food and standards in the world, and we want to retain those, but if our short-term actions threaten them, consumers will lose out in the end, which is no good to anyone. If the actions of retailers lead through the supply chain to that end, retailers will lose choice as well, thus losing out themselves. It is in nobody’s interest for such things not to be sorted out.
I will not go into the issue of dairy pricing in too much depth, other than to say that it is a particularly important issue. Only 3% of dairy suppliers supply direct to supermarkets, so there is a special case to be made. There is also a special case to be made for supporting the dairy industry in the longer term. In fact, the Secretary of State spoke in January of doing all that she could to ensure resilience in the dairy sector. If only the same vote of confidence and support had been given to the steel industry, I am sure that steelworkers would feel much better. [Interruption.] The Minister waves me away with that dismissive air she does so badly.
Bill Esterson
I am sure that the Minister will have a response.
What is needed in the sector is a level playing field that benefits consumers, suppliers and retailers in the long term. The Minister should ensure that the adjudicator and others, including Ministers, intervene in the short term to ensure long-term success. The adjudicator review is due in March. I hope, as I am sure do all Members who have spoken, that when the review is concluded, changes will be made that address the concerns raised here and by those in the supply chain on behalf of business and consumers. I look forward to hearing her response.
The Minister for Small Business, Industry and Enterprise (Anna Soubry)
It is, as ever, a pleasure to serve under your chairmanship, Mr Gray. I sat through some of the previous debate and was looking forward to this one on the basis that my job would not be as difficult as that of the Minister in that one. I fear that I was mistaken. As you have heard, Mr Gray, everybody has ganged up on me. [Hon. Members: “Aww.”] I am not complaining particularly, because I think I have robust rebuttals to some of what has been said.
Given that, as ever, I have 10 minutes, the usual rules will apply. My hon. Friend—he is my hon. Friend—the Member for Strangford (Jim Shannon) will know my rules, which are that if I do not answer any questions or points raised by hon. Members from whatever party, they will of course receive an answer in a letter. It is always good to say that, because I can simply put off the more difficult ones to another time by putting the answers in a letter.
Being serious, and with great respect to everyone who has spoken—particularly my hon. Friend the Member for York Outer (Julian Sturdy), whom I congratulate on securing this debate—I think that there are some fundamental misunderstandings about the Groceries Code Adjudicator. I will be even more controversial, and a little churlish, by saying that I am sure that the adjudicator is looking forward to appearing before my hon. Friend the Member for Tiverton and Honiton (Neil Parish) and his Committee. Clearly, nobody else here has met Christine Tacon. I have had the great pleasure of meeting her. She is a lady who takes no prisoners, and she is forthright not only in her views but in defence of the great work that she does. She is a formidable player, and in her we have an excellent first adjudicator.
I point out the following facts. The Groceries Code Adjudicator and her team are funded wholly by a levy on the 10 designated retailers, as outlined by my hon. Friend the Member for York Outer. The levy for 2015-16 has been set at £1.1 million, but the important point is this: the adjudicator decides for herself what her resource requirements will be for each year, based on her assessment of forthcoming work. They are approved by the Department for Business, Innovation and Skills, and then the amount is levied on the retailers. She is very much in charge.
I was looking at the Groceries Code Adjudicator website only today. I noted that in her report published today on her work over the last three months, she says, for example, that she has just appointed a new compliance officer. I urge hon. Members to read her three-monthly report to see the great advances that she is making. There is also scope to bring in additional resource if required, for example to help with investigation work. The adjudicator is satisfied that she has adequate resources and with the process for agreeing those resources with BIS. She has made that clear. It is up to her: if she is not satisfied, or thinks that she does not have enough, she can say so. If we agree, and there is no reason why we would not, she can increase the levy on those supermarkets. She has those powers.
The adjudicator also has powers to initiate her own investigations where she has reasonable grounds to suspect a breach of the code. That can be based on, but is not restricted to, information from direct and indirect suppliers, whistleblowers and the public domain. I argue that despite the complaints made by some, she has the ability to take complaints from other sources. In addition, it is clear from the Groceries Code Adjudicator Act 2013 and the guidance that the investigation threshold is determined by the adjudicator herself, which means she can be proactive in her approach.
Neil Parish
The point I was making was not so much about whether the adjudicator is able to take these complaints but that those who are making the complaints are too identifiable by the big retailers and therefore are not prepared to come forward.
Anna Soubry
I have a rebuttal for that somewhere, because I am told that regarding whistleblowers—the clue is in the title, I suggest—the adjudicator has a statutory duty to protect confidentiality. That addresses the fear factor among suppliers. Also, the National Farmers Union has a scheme that allows suppliers to make anonymous reports of code breaches via an online form on its own website. The NFU is exactly the type of third party that can take up a complaint on behalf of somebody in the manner that my hon. Friend would like. I thank my officials for that information.
Several hon. Members rose—
Chris Davies
I thank the Minister for giving way. May I say, very briefly, that the collective discussion we have had and the collective request we have made are not about making a complaint against the adjudicator? It is just that her powers do not go far enough.
Anna Soubry
I will deal with that one as well, if I may, because I am reliably informed that the problem for the adjudicator is that, as has been identified, she has no power to address matters falling outside the code, for the following reasons. First, the Government cannot change the code. As hon. Members have made clear in their speeches about the history of the establishment of the Groceries Code Adjudicator, the code came about from the work of the Competition and Markets Authority, arising from an investigation that it conducted into competition. Forgive me for saying so, but once again the clue is in the name and the history: it was all about unfair competition. I must say to the hon. Member for West Aberdeenshire and Kincardine (Stuart Blair Donaldson) that it was never about pricing. If there are to be changes to the code, they can be made only by the CMA.
Also, with great respect to everybody, the 2013 Act was passed by a previous Parliament; it was what Parliament decided. The Government could give the adjudicator additional statutory duties outside the code, but that would involve amending primary legislation and it would have to be debated in Parliament. There is nothing wrong with that, but just so everybody understands: new legislation would be needed.
Ms Ritchie
As part of such a review, would the Minister consider allowing the adjudicator more freedom within legislation to launch investigations on her own initiative?
Anna Soubry
The adjudicator already does that, as I have said, but it must be within the terms of the code, and those terms do not include pricing. I have huge sympathy for the dairy industry—in fact, I think it is important that I say that my mother’s family were dairy farmers and my partner is a non-executive director of Morrisons. I just want to put all my background on the table, so to speak, in case anyone listening to or reading this debate queries my own background. As everyone here knows, I am my own woman; nobody influences me—and some would complain about that. Of course, I always listen to hon. Members and the good arguments that they make, but I am my own woman, whatever my family’s interests may be. Although I am sympathetic to the plight of the dairy farmers, the Groceries Code Adjudicator is not the way to fix the problem.
Steel has been mentioned, but the problem with the steel industry is much the same as the problem with the milk industry at the moment: there is a flood of cheap steel and a flood of cheap milk, which is why prices have fallen. And of course, as everybody knows, when we make the case in whatever part of the agriculture sector it might be and we complain about tumbling prices and the problems that they create for our wonderful British farmers and their excellent products, the problem is that it means we go against the interests of many of our constituents and the other people who buy food at low prices. Of course, if prices were to rise for the farmer, the person who would pay the extra money is the consumer. And full credit to those supermarkets that have said, “We are going to put more money on, because we want to support our dairy farmers.”
Sadly the clock is against me, but it is really important that everybody realises that the Groceries Code Adjudicator’s remit cannot be extended without primary legislation, which would mean going into a different area. It was certainly thought at the time the adjudicator was established that this was the right route to go down.
I apologise that I have not been able to deal with all the excellent points that have been made, but I assure you, Mr Gray, that, as has been asked of me, we will publish details of the review. I look forward to Christine Tacon, who is excellent, giving evidence to the Environment, Food and Rural Affairs Committee, which can make a full inquiry into her work.
Question put and agreed to.
Resolved,
That this House has considered the role and powers of the Groceries Code Adjudicator.