Groceries Code Adjudicator Bill [HL]

Lord Howard of Rising Excerpts

Tuesday 26th June 2012 Grand Committee

[Lord Knight of Weymouth]

I am grateful to the noble Viscount for his intervention. Clearly, the public are the consumers. I am certainly aware that not every supermarket is guilty of abusing its power. The competition between supermarkets generally has been very good for consumers but that does not mean that they should continue to be able to use that power to exploit their relationship with suppliers.

To give another example, I heard about a company which was developing an innovative low-sugar jam. It took the product to a very large supermarket because, having invested in developing this new product, it needed to get the volume of sales that could be achieved only by using one of the large supermarkets. The supermarket was very interested and said, “Leave it with us. We will give you a call.”. It gave the company a call and said, “Do come in. We want to talk to you about the low-sugar jam that you showed us.”. The supermarket called the company in just to put on the table its own product which it had developed in response to that company’s innovation. Therefore, that investment was a loss for that innovator. Similar stories of abuses of market power by some supermarkets—not all of them—are legion. I referred to the helpful briefing from the National Farmers’ Union. We have had similarly helpful briefings from the Country Land and Business Association and the Federation of Small Businesses. All were extremely supportive of the establishment of this adjudicator because they agree that we need a referee.

I know that we will go on to talk about some of these things throughout the proceedings of the Committee. In response to my intervention, the noble Viscount, Lord Eccles, said that not many farmers supply retailers directly. The NFU tells us that some do and, what is more, the Competition Commission has identified an adverse affect on competition whereby grocery retailers pass unexpected costs and excessive risks down the supply chain. Ultimately, those risks, in the form of extra costs, are passed on to producers, even when they do not deal directly with retailers.

[Lord Howard of Rising]

I must declare an interest as I have a tenant who is a direct supplier to a supermarket. The examples that the noble Lord, Lord Knight, gives us are all those of vested interests that would like to have better commercial arrangements. There is nothing whatever to stop any farmer saying to his supermarket, “I do not like your terms of trade and I will not supply you”.

[Lord Knight of Weymouth]

It is very helpful to have the contribution of the noble Lord, Lord Howard, because he has a particular view that we can leave this all to the market, which is operating perfectly. I disagree. I remember from my economics A-level that you can have perfect markets but you can also have imperfect ones and powerful players within markets who abuse their market position. I believe—as did the Competition Commission in its analysis—that that is the case here. That is where the noble Lord and I will differ as we debate these things. In the end, those suppliers will struggle to find another market. Often, they have worked with a supermarket and built up a relationship where they have been persuaded that it is worth investing in, for example, growing a product. That needs at least a 12-month timeline. The supplier or grower of that product takes on a huge risk because they have invested 12 months in advance but the contract will only give them at best three months’ notice of cancellation. They can just be cancelled on and that happens all the time. That is a difficult aspect of that market relationship.

I give another example: I know of an innovator of a new chocolate product using pomegranate dust from Afghanistan. That innovator had to invest significantly in developing the product. It is a fine product but the innovator has to recoup the cost of that investment and needs to get the product out in volumes that are only achievable using large supermarkets. The response from the supermarkets is, “Yes, we like the product. If you want us to stock it then you need to pay us to take it on. If you want a decent shelf position, you need to pay us some more money. If you want point-of-sale merchandising, you need to pay us for that as well”. That individual needs to acquire a huge amount of investment to be able to innovate. In the end, a healthy market allows new players to come into it, to innovate and introduce new supply. That is not happening very easily in this particular market because of that power relationship and the structure of how it is set up. I strongly urge the noble Viscount to withdraw his amendment and strongly urge the Committee to support proceeding with the establishment of the adjudicator.

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[Lord Borrie]

I join in the query of the noble Lord, Lord Teverson, to the Minister, which I hope she can answer, to make sure that those who can make complaints are not only individual farmers, producers or whatever but also trade associations such as the National Farmers’ Union or the British Retail Consortium.

I hope that my noble friend Lord Browne does not think I am going for him today in the various matters on which we disagree, but I am slightly worried—as I think the noble Lord, Lord Teverson, was—by the phrase in Amendment 23,

“complaint by a third party with an interest”.

If the third party is a trade association, then I suppose that parties one and two are the supplier on the one hand and the supermarket on the other. But then, what does “third party with an interest” mean? If that is the trade association, does that mean that it has to have some interest other than the fact that the supplier, who has got a real complaint, is a member of it? Is that what “interest” is meant to mean, or must it be wider than that? That is the query I put to my noble friend Lord Browne but there is also a general point about where complaints can come from. I hope that it is from as widely as possible.

[Lord Howard of Rising]

My Lords, I feel I should first finish declaring my interests: I am a farmer as well. I find it rather gripping to find the noble Lord on the other side defending the farming industry so strongly during this debate.

My Amendment 27 reflects the wording which was included in the draft Bill and limits those who can complain to parties to the transaction. If anybody else can come and stick their oar in, it is a source of endless trouble. For example—you may find this a little extreme but I am certain it would happen—if I am supplying a supermarket, my competitor thinks that I am doing well and would like to have my contract, he could put in a complaint—anonymously, of course. The supermarket would say, “Oh,” and the whole process would start. While the process was going on, my competitor could leak that it was me who complained—although of course I never did—and the result would be that when my contract came to an end there would be little incentive for the supermarket to continue with me. My competitor might do rather well, at that stage. I just give you that as an example of the sort of thing that would happen if anyone, all and sundry, could make a complaint which had to be listened to.

I ask the Minister one question. In the notes for the draft Bill, there was a comment that the adjudicator has no power to require people to provide information for the purpose of deciding whether to commence an investigation. I would like confirmation that this is still the case in the Bill as it has been presented to the Committee.