Groceries Code Adjudicator

Glyn Davies Excerpts

Tuesday 17th November 2015 Westminster Hall

[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.

[Glyn Davies (Montgomeryshire) (Con)]

You should have a response to that.

[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.