Groceries Supply Code of Practice

Debate between Julian Lewis and Christina Rees

Monday 22nd January 2024 Westminster Hall

[Christina Rees]

I agree completely with the points made by my hon. Friend.

The first significant issue to explore is that of intermediaries within the food supply chain. The code has brought many positives, including the removal of back-door illegal practices. Although the code has overseen improved practices, it does not cover the relationships that intermediaries have with either farmers or retailers. Its explicit purpose is to regulate supermarket behaviour to bring value and choice for consumers; it is not, and was never, about producers. The use of intermediaries has the potential to allow retailers to circumvent the code.

When I was preparing for the debate, I heard directly from farmers and about how such practices create problems for them. They rarely have a written contract, so a request for 100,000 lettuces during the first week of September could turn into a downgrade to 70,000 lettuces if the sun suddenly disappears and salads become less favoured than soups. That leaves the farmer with 30,000 unpurchased lettuces and a considerable threat to their business. There are perfectly sensible reasons for intermediaries to exist—in particular in the meat supply chain, where a farmer would not sell a whole carcase to a single retailer, and therefore a processor or intermediary sells different parts to different customers—but the potential for unfair and unsustainable practice is significantly increased without regulation.

A second issue to consider is pricing. Much of the criticism of the code centres on the fact that it does not cover pricing in the food sector, and the issue is exacerbated by the frequent misconception that it does. However, pricing was never covered by the code and the legislation does not allow for its regulation. Coercion by retailers has also had an impact as the cost of a product is squeezed beyond break-even as retailers put pressure on farmers to reduce their prices to allow them to factor in costs such as packaging, marketing and overheads. Instances of such practices have declined, but still pose a problem in achieving a fair price.

We must also look into the imbalance of power and risk. Pricing can illustrate the problem of unequal power and risk within the food supply chain. In 2008, the Competition Commission inquiry found that grocery retailers were transferring excessive risks and unexpected costs to their suppliers. Furthermore, examples such as the one I mentioned previously—when the size of a produce order is suddenly scaled back—illustrate the inequitable distribution of risk, with the grower shouldering most of the burden while the retailer can quickly adapt an order according to market forces without the same risk.

The response to that was the creation of the code and enforcement by the GCA. Several mandatory reviews by Government, as well as supplier surveys, have shown significant improvements in supplier-retailer relations during the past decade or so. Despite that fact, fear remains in the industry. Many call on the GCA to make greater use of its powers to issue fines.

Some suggest that the GCA is hugely under-resourced. It is widely recognised that the cost of a single investigation is greater than its entire annual budget. The result is a perception that the GCA is toothless. The GCA’s opinion is that it is effective within the current parameters of the law, and it is not for it to say whether those parameters should be expanded. However, it is acknowledged that additional funding and powers would be needed to expand the remit of the GCA. The most common criticism of the code and the GCA is that they do not cover the whole supply chain, which means that they apply only to direct suppliers of the 14 biggest retailers, including Tesco, Morrisons, Sainsbury’s and Aldi. That leaves indirect suppliers unprotected, including many small farmers and primary producers. The Competition Commission predicted that problem back in 2008 and suggested two responses: to extend the code and the GCA to cover indirect suppliers or to introduce complementary codes to cover intermediaries and primary producers. Both options, though, ignore the issue of how such codes and regulators are funded so, finally, we must explore the issue of a regulator being both adjudicator and arbitrator.

The GCA is funded via a levy on 14 retailers. This is not uncommon for sector regulators, which are almost always funded via the organisations they oversee. However, that can leave them open to criticism of unfair practice and of not being hard enough on retailers. Although collaboration and arbitration are often useful ways of working, it can be argued that such circumstances pose a challenge if a situation requires the regulator to become an adjudicator and enforce fines. The GCA’s opinion is that the code is flexible enough to deal with a range of issues, including online sales, and that amending it might make it too rigid. When farmers are direct suppliers, the three issues raised by the petitioners are clearly covered and regulated.

What reforms are needed? It can be argued that the criticism levied at the code and the GCA is somewhat unfair as most issues, such as pricing and intermediaries, are simply not covered by the existing legislation and procedures. However, that does not preclude the fact that the issues exist and need to be dealt with. To that end, several reforms have been suggested and need exploring, including expanding the number of retailers covered by the code by lowering the threshold for compliance from £1 billion in turnover to £500 million, preventing retailers circumventing the code by purchasing through intermediaries, increasing the powers and remit of the GCA to cover issues such as pricing and processes, and setting up separate regulators with separate obligations.

The groceries supply code of practice is a vital tool that can either support or hinder the wellbeing of our farmers. It is our responsibility to advocate for reforms that ensure fairness, transparency and sustainability in the supply chain.

[Sir Julian Lewis (New Forest East) (Con)]

Like many other Members here, I was not aware of this issue until several constituents contacted me. Does the hon. Lady know whether there is any mechanism whereby small farmers and other suppliers can report it to the regulator when they are put in this difficult situation as a result of promises to make purchases not being kept? I do not see how the regulator can regulate if they do not have adequate information about where suppliers are being let down.

[Christina Rees]

The right hon. Gentleman makes a very important point. Applications are made to the adjudicator, but there is a certain amount of confidentiality involved, and sometimes the farmers reporting want to remain anonymous, so some reporting is done behind the scenes. However, I thank him so much for his intervention; as always, he makes a very valuable point, and it would be interesting to hear what the Minister says about it.

By advocating for reform, we not only support our farmers but contribute to building a more resilient, ethical and sustainable food system for generations to come. Furthermore, a reformed code should prioritise sustainability and ethical practices. Our farmers are not only responsible for feeding the population but for stewarding our environment. It is imperative that the code encourages and rewards environmentally friendly and sustainable farming practices, which could include provisions for fair compensation for using sustainable farming methods, and penalties for practices that harm the environment.

Additionally, the reforms should incorporate measures to address the issue of market access. Farmers, particularly small and local producers, often face barriers that limit their ability to access a diverse range of markets. The groceries supply code of practice can be reformed to encourage retailers to seek out and support local farmers, fostering a more diverse and resilient agricultural system.

In conclusion, although the groceries supply code of practice was established with good intentions, it requires significant reform to provide better support for those who toil tirelessly to bring food to our tables. It is imperative that we acknowledge the challenges faced by our farmers and work towards creating a more equitable and supportive system. We must reform the code to ensure a fair distribution of power and risk in the supply chain. This could be achieved through the establishment of a transparent and accountable framework, possibly involving a new regulator, separate from the GCA, that promotes fair pricing, timely payments and equitable contractual relationships. By empowering farmers with the tools that they need to negotiate fairly, we can foster a more balanced and sustainable agricultural sector. Let us stand together in solidarity with our farmers and work towards a future in which their invaluable contributions are acknowledged, respected and fairly compensated.

While I was preparing for this debate, I met the petitioners and many stakeholders, and I would be pleased if the Minister could explain his Government’s position on the code and give his opinions regarding the issues I have raised. I also invite him to meet me and the petitioners, so that we can explore these issues in greater depth.