Groceries Code Adjudicator

Julian Sturdy Excerpts

Tuesday 17th November 2015 Westminster Hall

[Julian Sturdy (York Outer) (Con)]

I beg to move,

That this House has considered the role and powers of the Groceries Code Adjudicator.

It is a pleasure to serve under your chairmanship, Mr Gray, while discussing a topic that has not yet been debated in depth this Parliament. Before doing so, I must draw hon. Members’ attention to my declaration of interest. Having been a Yorkshire farmer before becoming an MP, I have farming interests, but I do not have any commercial relationship that would be affected by the role of the Groceries Code Adjudicator.

I would like to place on the record my thanks to all the industry bodies and trade associations that have been in contact with my office to feed their views into this important debate. In kicking it off, I would like to voice the concerns that many in the food and farming industries share regarding certain aspects of the Groceries Code Adjudicator. The organisation has been broadly welcomed by many in the sector, but there has been some disquiet about issues concerning the adjudicator’s resources, powers, performance and overall remit, which I will discuss in turn.

As many hon. Members know, the adjudicator was established back in June 2013 to ensure that the largest supermarkets treat their direct suppliers lawfully and fairly. The adjudicator’s primary role is to ensure compliance with the groceries supply code of practice. It is worth mentioning that before the code was introduced in 2010, many farmers reported widespread unfair practices such as last-minute price cuts, being asked to guarantee the supermarket a minimum profit margin, and growers being expected to pay as a condition of being a supplier. Those unfair practices would all now be illegal under the code, but the impact of the code has been to force many food producers out of business. As a nation we have become increasingly reliant on imported food—a theme I will touch on later.

[Mr Mark Williams (Ceredigion) (LD)]

I congratulate the hon. Gentleman on securing this important debate. I do not have the pedigree of a farming background, but I represent many farmers. An increasing feature of the market has been the development of voluntary codes, such as those in the dairy and beef sectors. When he goes on to talk about remit, will he be mindful of the need to encourage the adjudicator to have the power to look at where voluntary agreements are and are not working?

[Julian Sturdy]

The hon. Gentleman makes a good point. He is absolutely right that some of the voluntary codes are working well and are successful, while others need much more work. I would welcome the codes falling under the remit of the Groceries Code Adjudicator. As I will set out, there needs to be a much wider remit for the adjudicator, especially given that the Minister will review the remit in March 2016.

To go back to the history, the Groceries Code Adjudicator oversees a sector that is worth £177 billion and employs 3.8 million people—14% of the UK workforce or one in every seven jobs in the country. It is also our largest manufacturing sector, worth almost a fifth of our manufacturing output, which is more than our car and aerospace manufacturing sectors combined.

Supermarkets are huge wealth creators in this country, and I am sure that many hon. Members present will have first-hand experience of the community work that supermarkets do in their constituencies, so this is not about being anti-supermarket, as they play a huge role in our economy and society. However, in the light of the sheer scale of the grocery industry, it is about fairness. Given the scale of the industry, it might come as a surprise that the adjudicator is employed for only three days each week and is assisted by a team of just five people. I have always been a champion of lean and efficient public bodies, but the current resources do not appear appropriate for the challenges at hand.

[Chris Davies (Brecon and Radnorshire) (Con)]

May I echo the words of my friend the hon. Member for Ceredigion (Mr Williams)? I am delighted that my hon. Friend the Member for York Outer (Julian Sturdy)has brought this debate to Westminster Hall and highlighted this very important issue. While he is on the history, can we go back a little further? He will remember, as I am sure all hon. Members do, the great anticipation that there was for a Groceries Code Adjudicator. Various Governments had promised to create that role, but it never came about. When we brought it forward, there was great anticipation among the farmers and producers in my constituency of Brecon and Radnorshire that this organisation would have real teeth to deal with the situation with the supermarkets. As my hon. Friend rightly says, supermarkets are a very important part of—

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[Mr James Gray (in the Chair)]

Order. Interventions must be brief.

[Julian Sturdy]

I thank my hon. Friend for his intervention. He is absolutely right about looking back at the history. I remember, before the 2010 general election, attending many hustings and talking about a Groceries Code Adjudicator and how it was so important that we brought that forward. I remember, as I am sure a number of hon. Members here will, speaking in the debate on Second Reading of the Groceries Code Adjudicator Bill, and warning then that, while we had to bring that forward, we had to ensure that it had real teeth to act. I feel that it has been a good step forward, but there is much more work to do, and I want to touch on that.

[Ms Margaret Ritchie (South Down) (SDLP)]

I congratulate the hon. Gentleman on initiating the debate. A number of us, including the Chair of the Select Committee on Environment, Food and Rural Affairs, the hon. Member for Tiverton and Honiton (Neil Parish), have already discussed some of these issues, but does the hon. Member for York Outer (Julian Sturdy) agree that the Groceries Code Adjudicator’s remit should be expanded in legislation to include fair and reasonable prices for producers? Many people—not solely in the dairy sector, which has a voluntary code—have been asking for that.

[Julian Sturdy]

The hon. Lady is absolutely correct. I will go on to pay tribute to the EFRA Committee and the work that it has done on this subject. I know that it has forthcoming inquiries on the topic as well. I entirely agree with her. I want to touch on the dairy sector later in my speech, but this issue goes right across the fresh produce sector, and we have to get fairness there.

I was making the point about the sheer scale of the industry and whether the Groceries Code Adjudicator has enough resources to do its job. Why does the adjudicator have a team of only five, and why is the adjudicator employed for only three days a week? Is that because there is not a real problem of the supermarkets using their massive size and resources to abuse their dominant market position? Or is the problem simply not being taken seriously enough, with the result that those are the resources available to the adjudicator?

The powers of the GCA have also been called into question. My hon. Friend the Member for Brecon and Radnorshire (Chris Davies) has touched on this. I remember making a contribution on Second Reading of the Groceries Code Adjudicator Bill, when it was not envisaged that the adjudicator would be able to fine companies from day one. I warned then that, without adequate teeth, the GCA would be like a referee without a whistle. I think that another Member in that debate said that it would be like a referee without a red card in his top pocket. The fear with all new regulatory bodies is that they are set up too cautiously and they become ineffective talking shops, unable to gain influence or authority in the sector. It was therefore a welcome development when, before the Bill’s Committee stage, the Government accepted the argument about giving the adjudicator the ability to fine retailers. Secondary legislation was introduced to give effect to the power to impose penalties on the large supermarkets of up to 1% of their annual UK turnover. That was another positive step forward—a step in the right direction—as the adjudicator requires teeth to send a strong message to the supermarkets that treating suppliers fairly is not optional.

It is deeply unfortunate, however, that the adjudicator’s ability to impose robust fines will come in after the GCA’s investigation into allegations that Tesco overstated its profits by £250 million. Should a breach of the code be found to have occurred, the only possible sanctions will be to name and shame the retailer, which is redundant at best, as the matter has already been widely reported in the media. In the light of the GCA’s limited resources and the late arrival of its powers, it is fair to ask what the adjudicator has achieved in the two years since it was established.

[Rebecca Pow (Taunton Deane) (Con)]

I, too, congratulate my hon. Friend on securing the debate. We have discussed this issue at length during the EFRA Committee’s farm prices inquiry, and it is very pertinent. I wonder whether the adjudicator is working three days a week because she does not have enough powers to fill the other days. She is legally prevented from looking for evidence, and her remit extends only to direct suppliers, which leaves out the majority of farmer suppliers, which in turn does not encourage them to bring evidence forward.

--- Later in debate ---

[Julian Sturdy]

I thank my hon. Friend for that intervention. She has hit the nail on the head: the Groceries Code Adjudicator does not have the powers to fill the whole week. But let us be serious about this. Ultimately, we must have a Groceries Code Adjudicator that has the powers to act on behalf of primary producers right across the sector. I am sure that if we deliver those powers, the Groceries Code Adjudicator will be able to fill her time right the way through the week.

To date, the adjudicator has not completed a single investigation, has not made any final decisions in arbitration cases and, as we have discussed, has not imposed any enforcement measures, financial or otherwise. The GCA is, however, to be commended for the transparent way in which it measures its own performance through the use of surveys. The key findings were that eight out of 10 suppliers said that they had experienced a potential breach of the code in the past 12 months. Unfortunately, only 38% of direct suppliers said that they would consider raising the issue with the adjudicator. Something has gone seriously wrong when the majority of suppliers have suffered problems with the code but most would not even consider raising the matter with the body in charge of protecting their welfare.

This year, the surveys show some positive developments, with a drop in the number of suppliers reporting potential breaches and a rise in the number of suppliers who would consider raising the issue with the GCA. However, serious weaknesses remain. Despite an increase in confidence in the GCA, the majority of direct suppliers still would not have confidence in the adjudicator helping them when they are in need. The reasons for the lack of confidence are, sadly, all too clear: 68% of suppliers fear retribution by the retailer should they be identified, and 45% are not confident that the GCA will maintain their confidentiality, despite being bound to do so.

The surveys ultimately raise more questions than answers. How can we make sure that the majority of suppliers have confidence in the GCA to handle their complaint appropriately? What can we do about the apparent climate of fear that surrounds the reporting of potential breaches of the groceries code? I will be inviting the GCA to discuss those matters with my colleagues at a special meeting of the all-party group for rural business next year, which I hope the Minister might attend. I hope that she will at least address those concerns today. I know that she is very experienced in this matter and I look forward to her response.

Perhaps most important is the question of extending the remit of the GCA. That has been widely supported by many in the food industry, especially in the light of the plight of our dairy farmers. Although I appreciate that the Minister will review the role and powers of the adjudicator in March next year, the truth is that many of our dairy farmers cannot wait that long. It is to be welcomed that the EU support payments to help hard-pressed dairy farmers manage their cash-flow problems started arriving in farmers’ bank accounts yesterday, two weeks ahead of schedule. I am also pleased that the Government have secured from the European Commission more than £26 million—the third largest support package among member states—to help dairy farmers affected by the global volatility in milk prices. As the Tenant Farmers Association has argued for some time, however, the GCA could play a hugely positive role in helping dairy farmers by ensuring fairness throughout the supply chain.

In January this year, I was greatly encouraged by the Prime Minister’s response to a question asked by my hon. Friend the Member for Montgomeryshire (Glyn Davies), who is here today. He enquired whether the powers of the GCA should be extended and strengthened to support the dairy industry. The Prime Minister agreed with him, saying, of the GCA:

“I also think it is time to look at whether there are ways in which its remit can be extended to make sure it looks at more of this vital industry.”—[Official Report, 21 January 2015; Vol. 591, c. 217.]

Sadly, nine months later its remit remains the same, and the plight of dairy farmers continues.

There are three crucial ways in which the remit of the adjudicator could be extended to help dairy farmers and those most in need in the fresh produce sector. First, as the British Poultry Council, the National Farmers Union and the Country Land and Business Association have made clear, the adjudicator must have the power to initiate its own investigations. Currently, it can act only on complaints. It has been suggested that in much the same way as Ofsted has the powers to investigate the performance of schools on its own initiative and at very short notice, the GCA should be able to investigate potential breaches of the code among the larger supermarkets at any time. At the moment, it appears that the adjudicator needs to be handed all the evidence and have a conclusive case against a retailer before an investigation can commence. Perhaps it would be better if the GCA could say, “I have heard enough from this area of the industry, and there is clearly a problem. I will open an investigation to make sure that the supermarkets are not abusing their dominant market position.”

Secondly, trade associations such as the Federation of Small Businesses and the Royal Association of British Dairy Farmers argue that the adjudicator needs to be able to examine the whole supply chain from the farm to the checkout. Currently, only direct supply contracts can be investigated. Although the vast majority of farm produce passes through a processor before ending up on the supermarket shelves, as the law stands the GCA cannot consider the impact of retailer activity on farmers, even though that is at the centre of the dairy industry debate.

Thirdly, although we do not want to give the adjudicator the power to fix prices, the GCA should have the power to investigate and report on the balance of pricing throughout the supply chain. That would ensure that all suppliers in the chain—the primary producers as well as the direct suppliers—were getting a fair deal. The information would also provide much-needed transparency, which would assist farmers and food producers in negotiating fair and sustainable contracts with the processors and, ultimately, the supermarkets that they serve.

I have briefly touched on the fact that there is widespread concern about the huge volatility in milk prices and the impact that that has had on the British dairy industry. As few dairy farmers sell direct to supermarkets, there have been calls, most notably from the Environment, Food and Rural Affairs Committee, for the scope of the GCA’s powers to be extended. I am sure that my hon. Friend the Member for Tiverton and Honiton (Neil Parish) will be able to update us on the Committee’s excellent work on the dairy industry and farm-gate prices.

It is not only dairy farmers who come under the remit of the GCA. As the NFU “Catalyst for Change” report makes clear, fruit and vegetable growers up and down the country describe the current environment as a battlefield. There are concerns that because of the price wars among the largest supermarkets, driven by the increasing competition from discount retailers, supermarkets are up to their old tricks. Feeling the pinch from their new discount competitors, the temptation to attempt to claw back profitability from further down the supply chain is, sadly, all too real. That will have dangerous consequences, but the GCA cannot intervene because the vast majority of farmers sell their produce through processors. The impact of that poor practice, as in the past, has been to force producers out of business, increasing our reliance on imported food. The value of British fruit and vegetable production has fallen by 14% since 2010, and imports have never been higher.

[Mr Mark Williams]

I have been listening carefully to the hon. Gentleman’s excellent speech. Does he agree that we are talking about not only an economic argument, but confidence in the industry? The theme in my constituency has been the confidence of young people whom we desperately need—the age demographic of farming is going up—to join the industry. If they do not see fair play at its most basic, they will be less inclined to join the industry.

[Julian Sturdy]

The hon. Gentleman makes a good point. We are absolutely talking about confidence in the industry—confidence for primary producers to invest in the sector and move their businesses forward, and confidence for the younger generation to get involved in the industry. He is absolutely right that the age of people running the industry is getting higher and higher, and we desperately need younger people to get in.

Food security, which I have touched on, is so important to our country. Imports of fruit and vegetables have increased by more than 650,000 tonnes in the past four years, and further decline in British food production will have serious consequences for food security and the farming sector. The GCA could have an important role in preventing supermarkets from exacerbating the problem.

Although the introduction of the GCA is to be welcomed, two years on it is clear that there is potential for the adjudicator to do so much more. The Government review will take place in only four months’ time. Will the Minister assure me and other Members here that details of the review will be published as early as possible? As I am sure she will agree, it is essential that the entire food sector has the opportunity to feed into the review, and the trade associations need time to present a strong submission. Will she assure me that submissions will be accepted from indirect suppliers, not just from direct suppliers who are currently under the GCA’s remit? Will she assure me, as the Prime Minister indicated to the House at the start of the year, that she will look at extending the adjudicator’s remit to help those right across the supply chain, including dairy farmers and fruit and vegetable producers?

A properly resourced GCA that has the right powers and acts proactively in the market has the potential to be a powerful source of fairness in a cut-throat industry. Anything less would be a missed opportunity, and British food producers and, ultimately, the end consumer would be all the poorer for it.

[Mr James Gray (in the Chair)]

Mr Shannon has inquired whether there is a time limit in this debate. There is no such time limit. None the less, I am keen to bring in the Chair of the Select Committee on Environment, Food and Rural Affairs in good time before the first of the three wind-ups. He might like to time his comments to allow that to occur.