Groceries Code Adjudicator Bill [Lords]

Kerry McCarthy Excerpts

Monday 19th November 2012 Commons Chamber

[Jo Swinson]

I thank my hon. Friend for his question. If the Secretary of State decides that an order needs to be made to allow financial penalties, it is important to know that that would grant the power generally, not on a case-by-case basis, and, as a result of the amendment accepted in the other place, we believe that that could be done within six months. It would be fairly rapid if it was determined that things were not working.

I know as a result of interventions and, indeed, correspondence with the Department that some stakeholders and Members feel that financial penalties should be available immediately. What I would say is that the supermarkets operate in a fiercely competitive marketplace, so major supermarkets are, rightly, very careful about their reputations. As an illustration, in 2010 the four biggest supermarkets—Tesco, Asda, Sainsbury’s and Morrisons—spent £385 million on advertising, which is an indication of the importance that they attach to their brands and what they have to invest to promote them. They are fiercely protective of them and I think that they are likely to take very seriously the impact on their reputation of having to publish their breaches or take out an advert in the trade or national press.

[Kerry McCarthy (Bristol East) (Lab)]

Is it not the case that the Competition Commission inquiry back in 2008 found that more than a decade of adverse media reports on supermarket supply chains had done little to prevent them from engaging in unethical practices? The media are already reporting the abuses, so I do not see how naming and shaming would make much difference.

[Jo Swinson]

It is important to bear in mind that this will be an independent adjudicator who will conduct an investigation that will consider all the evidence before coming to a conclusion about specific supermarkets and what they have or have not done. General concerns about the supermarket supply chain have not left consumers in quite the same position of being able to take action, unless, for example, they decide to stop shopping at supermarkets altogether. The Bill is likely to drive change. Consumers have been involved in a variety of movements whereby their concerns about certain issues have driven change in the behaviour of suppliers. Indeed, that was the case with milk prices this summer. Drawing on my personal experience, before I was a Minister I took complaints about misleading advertisements to the Advertising Standards Authority, so I know very well the power of a negative finding, the publicity that goes with it and how companies take it seriously and are very keen to avoid such an occurrence.

--- Later in debate ---

[Kerry McCarthy (Bristol East) (Lab)]

As has been said, it has taken a long time for the Bill to come before the House. It has recently been through extensive scrutiny in the other place and, before that, by the Select Committee on Business, Innovation and Skills and the Select Committee on Environment, Food and Rural Affairs. I am glad that we are now finally in the position to debate the Bill properly in this place. I have received many postcards on this issue going back as far as before the general election, during the time of the previous Labour Government. I remember the Minister of State, Department for Environment, Food and Rural Affairs, the hon. Member for Somerton and Frome (Mr Heath), in his previous role in the Liberal Democrats, urging the then Government to make great haste with the Bill, and perhaps criticising us for being a little bit tardy. I accept that we are where we are now, and I am grateful that we have finally got here, even if it has been rather slow.

As has also been mentioned, the Bill received considerable support from organisations such as the Fairtrade Foundation, Traidcraft, ActionAid, Friends of the Earth and even the National Farmers Union, which perhaps does not always sit in partnership with those other organisations. So there is a lot of public support.

In 2008, when the food and farming Minister, the hon. Member for Somerton and Frome, was official spokesperson for the Liberal Democrats, he called for an ombudsman with teeth. I share colleagues’ concern, however, that the Bill might not meet that test, particularly regarding the reserve powers provision giving the adjudicator the power to issue fines. Under the Bill, the adjudicator will not immediately have that power. It will be subject to future review. I agree with colleagues in the other place that in this respect the Bill is clunky, over-bureaucratic and drawn out. We do not want to wait several years for the adjudicator to have the power to issue fines. We have waited long enough. The evidence of compliance with the groceries code suggests that firm action—or at least the threat of firm action—against major retailers will be a useful weapon for the adjudicator to wield, so the Bill must enable the adjudicator to issue fines from the outset.

The Under-Secretary of State for Business, Innovation and Skills, the hon. Member for East Dunbartonshire (Jo Swinson), talked about the power to name and shame, and seemed to place great faith in the power of negative findings to persuade supermarkets to change their behaviour. The competition inquiry in 2008, however, showed that more than a decade of adverse media reports on how supermarkets dealt with their supply chains and their relationship with farmers had done little to change their business practices or prevent them from engaging in what many would regard as unethical practices.

The Minister referred to consumer pressure, arguing that if a retailer was named and shamed, consumers might take their business elsewhere. I think that consumer pressure is incredibly powerful, as we have seen in the recent debate about whether companies such as Starbucks pay tax in the UK—it puts pressure on companies, makes them rethink their policies and sends their public relations machines into overdrive—but I am not convinced that a supermarket having a certain contractual relationship with its suppliers would be enough to send shoppers elsewhere, and certainly not in significant enough numbers to affect supermarkets’ business practices. I am unconvinced, therefore, that consumer pressure will play a major role.

The power to fine ought to be reserved now, rather than invoked later. I might be wrong, but I think that the Department for Business, Innovation and Skills has accepted that compliance with the groceries supply code of practice would be less in the absence of fines, which are a standard measure in most regulated industries, and would be used only as a last resort and only with strong evidence. The argument, then, that fines would pass significant costs on to consumers or lead to a raft of long and burdensome appeals is greatly overstated.

I want to focus on the vital contribution the Bill can make to reducing food waste across the supply chain. As some Members will know, I introduced a Food Waste Bill earlier this year dealing with the other end of the supply chain—with consumers not wasting food and supermarkets making food available for donation and to organisations such as FoodCycle, FairShare and the many food banks that sadly have grown up around the country, rather than letting it go to landfill. Obviously, the Bill deals with the other end of the supply chain. None the less, this is a useful opportunity to flag up some of these issues again.

Retailers and manufacturers waste a staggering 3.6 million tonnes of food per annum. Some of that can be directly attributed to how supermarkets do business with their suppliers. The Competition Commission’s 2008 report concluded that supermarkets were guilty of transferring unnecessary risks and excessive costs on to their suppliers. One practice is when supermarkets agree a price for a product with their supplier but, when sales are less than predicted and prices need to be reduced, require the supplier to share the burden of reduced revenue.

Then there are the notorious take-back agreements, under which supermarkets return to the manufacturer or farmer produce they fail to sell, including when the former have made forecasting errors. When I was looking into the issue of food waste, I found that forecasting errors by supermarkets were a major factor. If supermarkets have supplies ordered from farmers sitting in their distribution centres, but the same produce is not selling in their stores, the produce ordered goes to landfill or, at best, is used in anaerobic digestion. A supermarket might tell a manufacturer a week in advance that it needs 100,000 sandwiches or however many pounds or kilos of potatoes, but if, on the day, it decides it does not need them because it does not expect to sell as much as it predicted, that leaves the supplier with a pallet-load of sandwiches or sacks of potatoes that it cannot sell.

Worse still, many of these products will already have been produced with the supermarket’s own brand. Supermarkets often forbid the manufacturers from selling on the food, insisting that it be sold to them exclusively. Neither do they allow them to give such food to charity, because of erroneous concerns that they might end up on market stalls, for example, which they think could damage the prestige of the brand. That is particularly an issue with premium products. All that pushes up suppliers’ costs

I want to touch on a matter that, as far as I am aware, the Bill does not deal with. The hon. Member for South Thanet (Laura Sandys) talked about “ugly food”. Supermarkets demand perfect vegetables and produce from farmers these days. This is an issue. It is entirely up to Tesco or Sainsbury’s whether they want to sell perfect apples, but the fact that farmers are not allowed to sell the remaining produce to other people—it is still a practice, I think—needs to be addressed. It is true that the groceries code prohibits some of these practices—for example, large retailers are not now allowed to vary supply agreements retrospectively, except in specific circumstances, or to make suppliers pay compensation for wastage or forecasting errors—but there is no specific duty on large retailers to comply. That is why we need a groceries code adjudicator to enforce the code. Otherwise, the only mechanism for redress is for an individual to bring a complaint under the dispute resolution procedure or to bring a case before the courts under contract law. As the British Brands Group concludes in its briefing on the Bill, which has been sent to most MPs:

“This simply will not happen in most cases, due to the prevailing ‘culture of fear’ and the high level of dependency of supplier on each of the large retailers”.

That is why the Bill is necessary and why it is important that third parties are able to report breaches under the anonymity provisions, which I am glad are now included in the Bill.

I want to touch briefly on low pay in supermarkets. A report this year from the Fair Pay Network has shown that the big four supermarkets—Sainsbury’s, Asda, Morrisons and Tesco—which collectively are the second-largest employer in the UK after the NHS, are paying their staff poverty wages, while making huge profits and raising executive salaries. Only one in seven supermarket workers earn the living wage, yet supermarkets award their chief executive officers between £3.2 million and £6.9 million a year. Given that differences are made up through in-work benefits, such as tax credits, supermarkets again find themselves in the morally hazardous situation of not having to take responsibility for their actions, which would otherwise have resulted in reduced spend in their supermarkets and would have hit their profits.

I appreciate that that issue needs to be taken up in another arena, but I wanted to raise it anyway. Nearly two thirds of children in poverty live in working families where the parents earn less than the living wage, and, as we have heard, many families who are in work still have to resort to food banks because of rising food prices. These issues are all interconnected. So, although I welcome the Bill, I consider it only a small part of tackling the issues around food production in this country. I shall not venture into the territory of the common agricultural policy—I am sure that the Minister and everyone else will be glad to hear that—but it is obviously another factor.

It is great that we have had the opportunity to discuss the matter and to put these issues on the agenda, but we have a long way to go and many more problems to address before we really tackle the issue of food production in the UK.