Groceries Code Adjudicator

Jim Shannon Excerpts

Tuesday 5th March 2024 Commons Chamber

[Mr Alistair Carmichael (Orkney and Shetland) (LD)]

Having seen the House run through business at such a blistering pace, we can now all settle back and enjoy the next four hours and six minutes as we consider the matter of the Groceries Code Adjudicator. I assure the House that it is some years since I made my living by speaking for six-minute units in the legal profession, so we may manage to knock off the odd six minutes here or there. I remind the House of my entry in the Register of Members’ Financial Interests.

Yesterday we were here in rather greater numbers for a wider debate on agriculture. I spoke then about the importance of food manufacture and processing to the local economy in the northern isles. Today we paint on a somewhat broader canvas with issues of wider concern, but what is important for the agricultural industries throughout the United Kingdom will always be important for us in the northern isles.

In recent years, farmers in my constituency and elsewhere have found themselves caught in a pincer. They have seen their input costs—particularly the costs of fuel and fertiliser—rise sharply, while the price that they are able to get for their produce at the farm gate has continued to be depressed by the operation of the market in which they are often required to operate. Farmers have, to put it bluntly, found themselves squeezed in the middle.

I think it worth reminding ourselves of how we came to this point. The genesis of the Groceries Code Adjudicator was an inquiry by what was then the Competition Commission—now, I guess, the Competition and Markets Authority. That inquiry took many years of pressure to be held, and its report led to the creation of the groceries supply code of practice, which was, in turn, followed by the Groceries Code Adjudicator Act 2013. It was a long, slow and painful process to get even to that stage. I remember the conversations that I had with colleagues in 2013, as a Minister in the coalition Government, about how the adjudicator would operate and whether it would be sufficient. I think we all knew that, at some point or other, we would need to revisit the matter, but we were certainly pragmatic about it, and took the view that what we were getting in 2013 was better than nothing.

[Jim Shannon (Strangford) (DUP)]

I commend the right hon. Gentleman for securing this debate on a massive issue that affects us all. Hailing as I do from a farming constituency, I have a deep and intricate interest in the defence of farmers’ prices and income. My real fear is that the harder farmers struggle to eke out their pay, the less likely future generations will be to pursue farming, being isolated and working night and day for less than minimum wage. Does he agree that we need to defend the pay scales, through an enhanced adjudicator power, to secure the viability of the job as an occupation for the future?

[Mr Carmichael]

I do. I felt that a debate focused on the Groceries Code Adjudicator was timely and essential because the relationship between the producer and the retailer is critical. Unless we get that relationship right, there will be no future; many generations, one after the other, have made the decision to go into agriculture, but it will simply not be worth it. As many of our environmental objectives rely on agriculture, the reduction of agriculture and the change we are seeing in the countryside will ultimately be counterproductive to achieving those environmental gains.

I understand Governments’ reluctance and caution about interfering in the operation of a market—we all know that the law of unintended consequences is never far away—but 10 years since the adjudicator’s creation, it is surely obvious that the way in which it is working, measured by its outputs, is simply not good enough, and that reform is required. On the basis of the debate we had in the Chamber yesterday, the good news for the Government is that there is already a fairly broad consensus in the House, both from people representing rural seats and those representing urban seats, about what that reform should achieve.

The Competition Commission’s report identified what was essentially a dysfunctional market. On the one hand, we have a handful of behemoth purchasers: 95% of the food consumed in this country comes from 12 retail companies. On the other hand, we have thousands of small businesses—farmers, processers and others. We have all heard the stories over the years about the influence of the supermarkets. Of course, big food manufacturers such as Kraft Heinz can compete—they can engage with supermarkets on something like an equal footing—but for the farmers and processers in my constituency and those of other Members, it is a very different story.

The hard commercial fact is that farmers require access to supermarkets to grow their business, but once they have access to those supermarkets, the risk is that they become dependent on it. At that point, it is the supermarkets that can dictate the terms and conditions on which trade is done. Of course, that is a matter of contract, but as any lawyer could tell us, when it comes to taking action to enforce or arbitrate on the basis of a contract, that contract is only as good as the resources behind it. It seems that even 10 years after the creation of the adjudicator, it is still necessary for farmers and processers to say that supermarkets should be required to buy what they say they are going to buy, pay the price that they say they are going to pay, and pay it on time. The fact that we still hear that message is the simplest basis on which I can illustrate the need for reform.

At the moment, our farmers find themselves in a perfect storm. Leaving the European Union brought with it the repatriation of agricultural policy, as well as a number of trade deals with other countries in other parts of the world. The changes to agricultural support risk reducing the amount of food produced on the land; at the same time, we see land given over to other, non-food-producing purposes, such as the creation of renewable energy resources or the process of growing trees—rewilding. Those trade agreements open up our markets to imported food. If that food is not produced according to the same welfare and environmental standards that we expect our farmers to meet, it will inevitably lead to an imbalance in price, which makes it more difficult for our farmers to compete on price. At a time when we see huge pressure on family budgets as a consequence of a massive spike in the cost of living, consumers will increasingly buy on the basis of price. It seems to me that we are putting ourselves in a place where our own farmers are least able to compete on the basis that consumers are most likely to buy on.

If the Government are sincere in wanting to keep productive farming and a proper, functioning market, the relationship between the farmer and the retailer is absolutely critical—it is more important than ever. I was struck when listening to the debate yesterday how many of the participants spoke about subsidies for farmers. The hard truth of the matter is that these subsidies have never properly been subsidies for farmers; they have been subsidies for consumers, because they have allowed farmers to sell their produce at a price that simply would not be economic in any free market. The people who have benefited from these farm subsidies have ultimately been the consumers and the large corporates—the supermarkets—that have been supplying them.

The world is very different today from the one in which the adjudicator was created 10 years ago. There are changes that I would like to see, around which consensus was apparent yesterday. The first difficulty in the way in which the adjudicator’s functions and office were created is that the remit given to them misses out on the early parts of the supply chain. It does not cover producers who supply processers, or smaller retailers. As with the Groceries Code Adjudicator, the code of practice surely requires to be extended to include processers, hospitality and manufacturers.

As well as the remit given to the adjudicator, the resourcing of that office also requires to improve. It is difficult to see how we can possibly hope for an adjudicator to exercise meaningful control over the big supermarkets—who, incidentally, fund its operation through a levy—if the cost of a single investigation is greater than its annual budget. Remember also that when it comes to the dialogue between the regulator and the supermarkets, the supermarkets will not be under-resourced and they have every interest and every means to ensure that they put forward the most favourable case they can possibly create. Just as there is an inequality of arms between supermarkets and farmers, so there is an inequality of arms between the supermarkets and the regulator.

Also, the code applies only to direct suppliers, which are now the 14 largest retailers. There is no protection, as things are currently structured, for those who would be indirect suppliers, so any supermarkets or other large retailer that wishes to avoid enforcement or coming under the attention of the Groceries Code Adjudicator can do that quite simply by purchasing the goods through intermediaries.

The Agriculture Act 2020 allowed the Department for Environment, Food and Rural Affairs to create statutory codes of conduct. I am aware that a consultation being carried out by the Government on contractual relationships in the fresh produce industry finished on 22 February. I expect that that is still being considered by Ministers, but I hope it will be possible to hear some indication from the Minister today of when we might see the outcome of that consultation. As we consider the reform of the adjudicator’s office, we must ask one simple question: is there an overall strategy at play? It seems to me that different avenues of influence are possible and that, as part of the review, the compatibility of the codes of conduct under the 2020 Act and the office of the adjudicator requires to be examined.

Bluntly, I do not care how we tackle this. The vehicle for change is irrelevant, as far as I am concerned. It is the outcome, the change that we are able to achieve, that matters to me. The concern that is most frequently expressed to me is a pretty fundamental one—namely, that the code does not cover pricing. Few things illustrate that better than the way in which the dairy industry has been affected by supermarket activities in recent years, but when we speak to producers in just about every sector, we get the same story every time.

The strands of Government policy that we have at the moment—the removal of support for production through the new agricultural policy for England, which, as I said yesterday, has a knock-on effect for agriculture in other parts of the United Kingdom, and the improvement of food security—will only both be achieved if British farmers receive a fair price for the food that they produce. If we do not achieve that, then removing the direct support for food production from our subsidy system will leave us with no option but to import ever more of our food. The carbon consequences of the production of that food—reference was made yesterday to its being produced in Central and South America in ground that would previously have been rainforest or whatever else—and its transportation would run counterproductive to other stated Government policies.

It is in the round that we see the importance of regulating properly this relationship, and it is now a matter of urgency. Recent research demonstrated that 49% of farmers in the United Kingdom fear they could be out of business next year, 61% identify supply chain unfairness as something that has an adverse effect on their mental health, and 23% of dairy farmers doubt that they will continue into 2025. Action needs to be taken. There is a willingness in this House to take meaningful action to deal properly with this relationship, which in itself will have a significant effect on the future economic and social viability of our rural communities producing good-quality food for people in all our communities to consume. Who would not want that?