Groceries Code Adjudicator

Kevin Hollinrake Excerpts

Tuesday 5th March 2024 Commons Chamber

[The Parliamentary Under-Secretary of State for Business and Trade (Kevin Hollinrake)]

It is a pleasure to serve with you in the Chair, Mr Deputy Speaker. This debate is very important to me personally. My father was a hill farmer, and I represent a rural constituency with many farmers who are experiencing many of the pressures that the right hon. Member for Orkney and Shetland (Mr Carmichael) referred to; indeed, he described them as a perfect storm. I congratulate him on securing the debate and on all the work he does in this area, of which I am only too aware. He mentioned the pressures that farmers and those in the farming community face making a living, and the competition for land from different land uses, with which we should be careful in ensuring that we have food security as well as energy security and the other things that we need to retain in this country.

The right hon. Gentleman is of course familiar with the Groceries Code Adjudicator, but it might be worthwhile setting out exactly what it is there to do, how it can help get a fair deal for farmers, and what else we are doing to ensure that that is the case. The role of the GCA is to enforce the groceries supply code of practice. It does so by providing advice and guidance to both suppliers and large retailers on matters relating to the code, arbitrating in disputes between large retailers and their direct suppliers, investigating issues to ascertain whether there has been non-compliance with the code, and imposing sanctions and other remedies for breaches of the code.

The code applies to the 14 largest grocery retailers in the UK, which have an annual turnover in groceries of £1 billion or more. As the right hon. Gentleman rightly pointed out, the code was put in place following a detailed market investigation by the Competition Commission between 2006 and 2008, which found that direct suppliers of groceries to large supermarkets faced unfair risks that adversely affected competition and, ultimately, consumers. The code regulates designated retailers’ interaction with their direct suppliers, including some but not the majority of farmers.

While the code prevents the unilateral variation of supply agreements, such as on wastage and forecasting errors, and requires retailers to pay invoices on time, it does not cover prices agreed between a retailer and a supplier, which, as the right hon. Gentleman says, are a matter of commercial negotiation. However, the code does help ensure that negotiations are conducted fairly and transparently, and the GCA has an interest in ensuring that negotiations on cost price pressures do not lead to non-compliance with the code.

Of particular note are the GCA’s seven golden rules, which all the regulated retailers have signed up to and which safeguard the requirements of the code in discussions about price and cost pressures. There is strong evidence to show that the GCA has been highly effective since it was established in ensuring compliance with the code and changing the behaviour of retailers to ensure fairness for suppliers.

Stakeholders have expressed a positive view of the GCA and their input has helped inform the statutory review of the performance of the GCA that the Government conduct every three years. Indeed, I met many of those suppliers and they spoke very clearly about the benefits of the GCA that they see. Those suppliers represent many of the primary producers referred to by the right hon. Gentleman.

The third such review concluded in July 2023 and I hope the right hon. Gentleman’s constituents felt able to submit their views. The review considered publicly available evidence and the responses submitted by 71 stakeholders, including from 27 individual suppliers and their representative bodies, and 30 other trade associations, organisations and individuals. Most of the suppliers who responded to the review said they believed the impact of the GCA on the groceries market had been positive as retailer behaviour had improved. They also said the adjudicator had addressed the previous imbalance of power and made the grocery market fairer to operate in. For instance, in 2014, just after the GCA was set up, four out of five direct suppliers responding to the GCA’s first annual survey said they had experienced an issue with the code. That is now down to one in three, and the issues that concern suppliers are down in practically all cases. Suppliers, including small and medium-sized enterprises, feel better protected against any poor behaviours from retailers following the best practice put in place by the GCA. In 2022, more than two thirds of direct suppliers felt that retailers covered by the code conducted relationships fairly.

Overall, there is a consistently high level of awareness among suppliers of the GCA and the code. I have met the current adjudicator, Mark White, several times and have been extremely impressed by his pragmatic approach to ensuring the compliance of the designated supermarkets, which has helped to stop problems escalating and reduced the need for time-consuming and expensive formal dispute resolution.

I am aware that some Members have asked whether the GCA has the necessary powers and resources. I know that Mark White believes his current powers provide the necessary tools to enforce the code and change retailer behaviour. He is also responsible for determining the level of resources that he needs and setting the levy of regulated retailers to fund his work. While Ministers are responsible for approving the proposed levy, the Government have always accepted the adjudicator’s levy business case and will of course give careful consideration to future requests.

[Mr Carmichael]

I am pondering the words the Minister has used. I think he is right that the adjudicator does have the powers to investigate and enforce the code of practice, but there are still big areas that are not covered, and that comes to the concern that farmers, producers and processors have.

[Kevin Hollinrake]

I am not ignoring the right hon. Gentleman’s concerns at all. I recognise them and, as I said earlier in my speech, the vast majority of the market in terms of primary producers is not covered by the code. I will come on to that shortly. The right hon. Gentleman will be aware that there would be challenges in the GCA being the custodian or overseer of thousands upon thousands of business contracts, with the complexity and bureaucracy that would flow from that, which neither of us would wish to see. That would, of course, result in an impact on prices as well. I will address that later.

We recognise that, despite the GCA’s effectiveness and successful interventionist approach, we have not yet stamped out all unfair practices. The impact of the recent cost price pressures in the food sector has demonstrated how external factors can affect relationships and behaviours. As such, we recognise the continued need for the GCA’s role in ensuring fair treatment of suppliers to supermarkets through enforcement of the code. We are aware that some poor practices are affecting producers across several agricultural sectors not covered by the code and that primary producers, such as farmers, have felt unfairly treated. The Government also want farmers to get a fair price for their products—that was the opening and closing argument of the right hon. Gentleman—and we are committed to tackling contractual unfairness that can exist in the agrifood supply chain.

Powers in the Agriculture Act 2020 enable the introduction of statutory codes and contractual practice to protect farmers. Those codes would apply to any businesses purchasing agricultural products directly from farmers, including processors, consolidators and other intermediaries, providing greater certainty for farmers by ensuring that clear terms and conditions are set out in contracts. That will seek to improve the negotiating position of farmers to achieve fairer prices and greater transparency and accountability in supply chains. Ministers in the Department for Environment, Food and Rural Affairs are exercising the powers under the 2020 Act in a sector-specific approach, acknowledging that the problems experienced by each sector differ widely and avoiding broad regulation that places burdens on sectors that may not require intervention.

The first sector-specific regulations for the dairy sector were laid in draft in February 2024 and regulations for the pig sector are expected to be introduced later this year. Work is also progressing on regulations for the egg sector, and DEFRA carried out a fresh produce review, which the right hon. Gentleman referred to, in December 2023, and the response to that will be published shortly. I cannot give a more definitive timescale than that, I regret—if it was all in my gift, perhaps I could, but it is not. He is probably pretty familiar with the term “shortly”. Crucially, the recruitment is under way for an agricultural supply chain adjudicator, who will be responsible for enforcing the new regulations.

As I touched on earlier, it may be that the GCA’s effectiveness is the reason why some think we should extend its role to ensure the better protection of primary producers in the grocery supply chain, such as farmers. Requiring the GCA to regulate the many thousands of transactions throughout diverse supply chains would risk diluting the adjudicator’s tight focus on the 14 largest supermarkets and could undermine its record as a highly effective regulator. In terms of what it does, if something is not broken, don’t try and fix it. However, we do understand that parts of the system are broken, and that is why we are bringing in the sector-specific supply chain remedies.

It is important to safeguard the GCA’s ability to remain vigilant on the compliance of the 14 designated retailers. The Government therefore have no plans to extend the adjudicator’s remit, but instead seek to learn from and emulate the GCA’s approach and effectiveness, so that it can be replicated for the sector-specific codes.

Question put and agreed to.