Groceries Code Adjudicator Bill [HL]

Lord Grantchester Excerpts

Monday 16th July 2012 Lords Chamber

Moved by

[Lord Grantchester]

2: After Clause 1, insert the following new Clause—
“The Groceries Supply Order
(1) The Secretary of State must make an order to establish the Groceries Supply Order by statutory instrument.
(2) The Secretary of State shall commission a review by the Office of Fair Trading, in consultation with the Adjudicator, into the effectiveness and scope of the Groceries Code to report no later than two years following the commencement of this Act.
(3) An order may not be made under subsection (1) until a review under subsection (2) is completed.
(4) An order made under subsection (1) is subject to the approval of both Houses of Parliament.”

[Lord Grantchester]

My Lords, I declare my farming interests on the register. In moving Amendment 2, I am also speaking to Amendment 26. Having investigated the grocery market on two separate occasions, the Competition Commission found that abuses of market power by retailers damage suppliers’ confidence and their ability to innovate and invest. In turn, this can lead to a reduction in choice and availability and increased costs to consumers. The Competition Commission in 2010 set up a strengthened code of practice and the Bill sets up the adjudicator to enforce the code. We wish to see it enacted as soon as possible.

In Committee, we debated the anomaly that the Bill creates the office of an adjudicator to hear and rule on complaints brought under the groceries supply code of practice, which itself is not on a statutory footing. It was also brought to the House’s attention by the Delegated Powers Committee that the code may be altered or revoked without any parliamentary involvement. This amendment seeks to clarify that Parliament will be able to scrutinise the code’s workings.

Notwithstanding the strengthening of the code in 2010, my noble friend Lord Knight of Weymouth gave further examples of the complaints not covered under the code. The Food and Drink Federation has also given examples of further abuse, such as the unilateral deduction of invoices without sound business reasons or prior agreement. The amendment requires that the Office of Fair Trading, which has competence for the code, must set up a review in consultation with the adjudicator into the effectiveness and scope of the code, to report no later than two years after the Bill becomes enacted. It is vital that the workings of the code are updated and are relevant and responsive in an organic sense to changing market conditions.

Last Wednesday, more than 2,500 dairy farmers came to Parliament to make public the cuts and their concerns about a drop in prices of more than 10% on short notice this spring. At present, this situation is not covered by the code, which only covers the relationship between the top retailers and their immediate suppliers. The code does not cover the whole supply chain. The downward pressure from supermarkets is simply transferred from suppliers to their suppliers. The response of supermarkets to seeing their suppliers reduce prices down the supply chain is to immediately demand a share of the margin created—that is to say, a further reduction to their prices.

This is not the first or an isolated example in the dairy industry. In response to a similar situation in 2002, my noble friend Lord Whitty, when he was Minister of Agriculture, set up the Dairy Industry Supply Chain Forum to encourage relationships through the supply chain. That was 10 years ago. It is disappointing that the dairy industry has not improved over that time. The problems persist.

In response to the EU dairy package, the Minister of State in another place seeks a voluntary code, through Dairy UK, between processors and their suppliers. Indeed, in reply last Wednesday to a question from the noble Baroness, Lady Parminter, the Minister—the noble Lord, Lord Taylor of Holbeach—confirmed the situation. My understanding is that the issues covered are rather limited and unlikely to solve the problems. The Minister says that, without voluntary agreement, he will legislate, but my understanding is that that is not believed. He should legislate. This amendment gives him two years to make it work. If after a review we find that the situation has not improved—and we have seen no evidence over many years of any improvement—the OFT will be able to take effective action, highlighted by the experiences of the adjudicator.

I have highlighted the situation in the dairy industry. I am told that similar problems occur in other sectors. The amendment seeks to give the adjudicator and the OFT wide scope to make an effective code of practice work throughout the supply chain. I beg to move.

[Lord Cameron of Dillington]

My Lords, I first declare my interest as a farmer. I put my name to the amendment because it is important that we remain as flexible and light on our feet as possible in changing circumstances in this area. The effectiveness of the groceries code adjudicator is dependent on the effectiveness of the code. Both are equally important. It is surprising that while the adjudicator and his role are continually under review in Clauses 15 and 16, the review of the code is not given such emphasis.

Clause 13 in its simplicity is not sufficient. It sets out what the adjudicator could do but does not give me any confidence that anything will happen. It is important that as the adjudicator gains more experience, and as all the players inevitably try to push the rules to the limit, we should be able to review their roles and the rules involved. Circumstances change. The rules of rugby change from year to year and from time to time. The rules of Parliament relating to MPs’ and Peers’ expenses change. There are always new problems to be dealt with and overcome. We need to ensure that we can overcome the shortcomings in a structural way—hence subsection (2) of the proposed new clause.

The noble Lord, Lord Grantchester, mentioned the problems of the dairy industry. I do not know whether any review of the dairy code in the light of these recent developments would necessitate change, but the matter would certainly be worth looking at. It is vital that the groceries supply code of practice is not set in concrete. The amendment represents the necessary Kango hammer to free it.

--- Later in debate ---

[Baroness Wilcox]

I am always nervous arguing with the noble Lord, Lord Whitty, given his experience as a Minister and the fact that he was head of the National Consumer Council, a role that I also held. I know the breadth of his knowledge on this subject, which is why I took such a long time to give my answer. This is as far as I can go. I hope that when the noble Lord reads in Hansard that the Bill already requires the adjudicator to recommend changes to the OFT, he will see that I have covered most of his worries and that he will withdraw his amendment.

[Lord Grantchester]

My Lords, we agree that the code is a responsibility for the OFT—that is not in dispute—but we believe that the Minister is getting involved in the EU dairy package between the processors and the dairy farmers. We think that makes her reasons for not accepting the amendment slightly disingenuous. It may be that at Third Reading we can further refine this amendment so that her officials are as happy with it as we are, but we wish to enshrine in the Bill a review, and one that looks into the possibility of an extension of the code throughout the supply chain. I thank the noble Lord, Lord Cameron, and my noble friend Lord Whitty for their support. I do not hear a large volume of support behind the Minister so I beg leave to test the opinion of the House.