Groceries Code Adjudicator Bill [HL]

Baroness Parminter Excerpts

Tuesday 22nd May 2012 Lords Chamber

[Baroness Parminter]

My Lords, in the 1940s it was typical for people to spend between one-fifth and one-third of their income on food. Now it is only about one-tenth, but much of what we spend on food, in retail shops such as supermarkets, does not make it back to the producer. Companies and growers chase greater and greater volume to cover the overheads imposed by the all-powerful customers. Commercial unethical practices are commonplace in the food chain, but with the level of dominance achieved by the supermarket it is an invidious process and prospect for a supplier to complain. Moreover, as margins become thinner, there is a worrying resulting underinvestment in creating sustainable and resilient farm businesses. For these reasons, I welcome the announcement in the Queen’s Speech of an independent adjudicator to act as an ombudsman with authority and confidentiality to investigate and hold large retailers to account, as has been promised.

The Competition Commission has highlighted widespread examples of abuse, but this is not just limited to the usual suspects, with cases being reported of even the most socially responsible supermarkets demanding hundreds of thousands of pounds from suppliers. Take just one sector: horticulture. Vegetable and fruit growing is intensely competitive and the market is dominated by the oligopoly supermarkets. These major customers have been very successful in passing overhead costs back up the chain to suppliers, and margins are dangerously thin—with 1% on turnover being typical. This is contributing to a major and worrying underinvestment in horticultural research. With the rising tide of obesity and health problems, we want more people to eat more fruit and vegetables, but if we are to make fresh produce more comparable in cost to calorific and less healthy food we must have good research funding.

We know that more people want to buy British fruit, which is convenient and affordable. Indeed, one major retailer is looking to source 50% of its fruit from the UK by 2020, when presently it sources only 10%. We know that rising temperatures in the UK, as identified in the UK 2012 climate change risk assessment, could be an opportunity for growing more blueberries, apricot, grapes and peaches here.

However, how can you invest for the future when margins are that tight? It is to be hoped that the groceries code adjudicator can play some part in overcoming some of the abuses in the system and thus help deliver some of the necessary research and investment to secure resilient farm businesses. To do that the groceries code adjudicator needs strong powers. I find it disappointing that the Government have decided against putting the powers to impose fines into the Bill. To do so would have echoed the views of the 2011 report by the House of Commons Business, Innovation and Skills Select Committee. I am sure that we will debate during the passage of the Bill the holding back of automatic powers to fine, although I accept that the Bill gives the adjudicator the power to impose fines if Ministers agree that other remedies are not working.

In the absence of such an automatic power to fine, the ability to name and shame is the most potent stick that the adjudicator has. It must be used well. The adjudicator’s annual report needs to be transparent about which businesses it has found wanting, and to do so in a way that allows for meaningful public scrutiny. The Explanatory Notes to the Bill make it clear that the annual report should contain information that is useful to the Office of Fair Trading in monitoring the groceries supply order and to the Secretary of State in reviewing the adjudicator and the users of the groceries code generally. I would like to see added clear information of the use to consumers and to the groups that champion their rights so that consumers can make informed choices about where they choose to shop.

I welcome the Bill and the proposals that the Government will regularly review the performance and effectiveness of the adjudicator in undertaking its role. This is a complex industry with a non-binary food chain in many cases, and the Government are right to keep the door open to amending the scope, power and function of the adjudicator in future.

One area that I hope might be looked at in such a review is more incentives to reward compliance with the code. This issue has been echoed across the House by the noble Lords, Lord Grantchester, Lord Razzall and Lord Haskel. Forcing supermarkets that burden the office of the adjudicator with a large number of complaints to play a larger proportion of the adjudicator’s fixed costs could be a very valuable way to incentivise supermarkets to adhere to the code and minimise the number of complaints made. This is surely what everyone on all sides of the House wants.