Groceries Supply Code of Practice

Mark Spencer Excerpts

Monday 22nd January 2024 Westminster Hall

[The Minister for Food, Farming and Fisheries (Mark Spencer)]

It is a pleasure to serve under your chairmanship, Mrs Murray, and I start by drawing Members’ attention to my entry in the Register of Member’s Financial Interests. I congratulate the hon. Member for Neath (Christina Rees) on leading this important debate and, of course, the petitioners on reaching the threshold for it. The number of people who signed the petition demonstrates how highly the people of the United Kingdom value their farmers, and they want to see them getting a fair deal. It is also telling that the debate has been well attended and there has been quite a lot of cross-party consensus. The contributions have been well informed and a spectrum of information has come from Members, which also demonstrates how important farming is to their constituents.

The petition asks the Government to amend the groceries supply code of practice to better protect farmers from “unfair behaviour”. The Government want all farmers to receive a fair price for their products, and we are committed to tackling contractual unfairnesses in the agrifood supply chain. We recognise that some poor practices affect producers across several agricultural sectors. We are taking action to address them, but we do not believe that amending the code is the most appropriate way to do so. The key issue is that relatively few farmers sell directly to supermarkets. Far more often, they sell their produce through intermediaries and processors, and the Government are therefore committed to using powers in the Agriculture Act to introduce statutory codes that apply across the whole supply chain to deliver fair prices to all farmers.

I should declare that I was a member of the Bill Committee for the Groceries Code Adjudicator Bill, and the groceries code was put in place following a detailed market investigation by the Competition Commission in 2008 that found that suppliers of groceries to large supermarkets faced unfair risk that adversely affected competition. For producers that supply directly to the 14 largest retailers designated by the Competition and Markets Authority, the code already covers the issues raised in the petition. For example, it prevents the unilateral variation of supply agreements, specifically covers issues such as wastage and forecasting errors, and requires retailers to pay invoices on time. The code is enforced by the Groceries Code Adjudicator, who is appointed by the Secretary of State for Business and Trade. The Secretary of State is required to undertake a review of the effectiveness of the GCA every three years. The most recent review was published in July 2023, and found that the Groceries Code Adjudicator continued to be an effective regulator.

The positive impact of the GCA is clear in the latest results of its annual survey. It now receives responses from over 2,000 suppliers from the UK and abroad. In 2014, just after the GCA was set up, four out of five direct suppliers said they had experienced an issue with the code. That figure has now fallen to fewer than one in three. It is, of course, concerning that suppliers are being let down in some cases, but those achievements have been delivered through the Groceries Code Adjudicator’s collaborative approach to regulation, which involves gathering insight from a range of sources and working closely with a small number of regulated businesses to quickly change their behaviour.

Of course, that does not mean that all unfair practices have been permanently stamped out, and we have heard examples today of farmers who have felt unfairly treated. Unfair practices can be exacerbated by external factors, such as the recent cost price pressures. The Government are aware that there are behaviours throughout the supply chain that are not covered by the GCA, and crucially the code does not always reflect the farmers’ indirect relationship with supermarkets. In 2016, in response to a call for evidence that explored the case for extending the GCA’s remit, we highlighted our intention to target further interventions on a sector-by-sector basis. As a result, we took powers in the Agriculture Act to enable the introduction of statutory codes of contractual practice to protect those farmers. The codes will apply to any business purchasing agricultural products directly from farmers. They will provide greater certainty for farmers by ensuring that clear terms and conditions are set out in contracts. We intend to tailor the powers to those sectors that need them, because we acknowledge that the problems experienced by each sector differ quite widely. We must avoid introducing broad regulation that places burdens on sectors that may not require intervention, but we must make ensure that we concentrate on those areas that do.

We carried out the first review, in the dairy sector, in 2020, and it was clear from the responses that a minimum framework of contractual standards was required to offer improved protections to those farmers. We have worked closely with industry to ensure that the regulations are tailored and proportionate, providing the flexibility required in a global commodity market.

[Daniel Zeichner]

Does the Minister agree that it has been a slow process? We still do not have the regulations. Could he give the House an indication of when we might expect to see them?

[Mark Spencer]

That is a fair question from the hon. Gentleman. We have been working closely with not only retailers but processors, Dairy UK and the NFU to ensure that the regulations we are about to introduce will work for the sector across the board. I cannot give him a date as I stand here, but I will go out on a limb and commit to him that we will table them before the Easter recess. I acknowledge that we should have done it quicker, but it was more important to get it right. I am confident that we have got it right in the end.

[Kirsty Blackman]

rose—

[Kerry McCarthy (Bristol East) (Lab)]

rose—

[Mark Spencer]

I will give way to the hon. Member for Aberdeen North (Kirsty Blackman) first, and I will come back to the hon. Member for Bristol East (Kerry McCarthy).

[Kirsty Blackman]

If it takes four years for each sector, the process is going to take quite a length of time. I will probably be dead by the time all the sectors are covered. Does the Minister understand that there is some urgency? Taking less than four years would be great, and doing more than one sector at a time would also be helpful.

[Mark Spencer]

We learned an awful lot from going through the process with the dairy sector. We reviewed the pork sector and some similarities are evident, so we can go through the process much quicker if we find that evidence. The hon. Lady will be aware that we have just concluded a review into the egg sector as well, and there is an ongoing investigation into the fresh produce sector. I encourage those who are working in farming within that sector to contribute to the call for evidence, and to inform the Government of any practices that they may be concerned about so we can consider them.

[Kerry McCarthy]

I was going to make exactly the same point, but since I am on my feet I will ask about scope 3 emissions within the supply chain. Increasingly, because supermarkets need to reduce their own emissions, they are looking to their suppliers. My concern is that smaller suppliers will be disadvantaged because they are less able to do things such as switch to electric vehicles or retrofit their buildings. There is a real danger that supermarkets will stop seeking supplies from them because of that. Is the Minister doing some work on that?

--- Later in debate ---

[Mark Spencer]

That is slightly off topic, but I can assure the hon. Lady that we are doing quite a lot of work. Again, we are working with major retailers and producers across the food production sector to ensure, first, that we understand the impact of any changes that we might make. Secondly, I am personally concerned about the burden of those changes falling on primary producers, and about major retailers and processors taking any advantage, because the primary producers should benefit from the environmental improvements that they make within their own businesses. It is important that we get that right. I am also concerned about the offshoring of carbon. We must take into account the equation between what is produced here in the UK and what might be imported from abroad, and the carbon footprint that that might have. We are giving a lot of thought to that at the moment. I know that the hon. Lady is committed to these issues, and I am sure that she will have an opportunity to contribute to the debate as we move forward.

We have worked closely with the industry to ensure that the regulations are tailored and proportionate, and provide the flexibility required in a global commodity market. They will create a new enforcement regime, and we will appoint an adjudicator to oversee compliance for our sector-specific codes. The regulations are undergoing final checks before their planned introduction to Parliament, as I say, hopefully before the Easter recess.

In 2022, we followed our dairy review with a review of the pig supply chain, and we published a summary of responses in 2023. We have committed to developing similar regulations to those being introduced in the dairy sector to introduce new rules for supply contracts and to improve market transparency through better market reporting data. We have developed a proposal that sets out the main features of the new regulations. We have been discussing them with industry and we expect to introduce them in summer this year.

[Helen Morgan]

I am sure the Minister understands as well as everyone else does that it is very important that the regulations take effect before farming businesses go out of business. The barriers to entry are high, there is a high cost of investment and we need to keep people in business, because getting them to come back into the sector will be incredibly difficult. Does he acknowledge that problem?

[Mark Spencer]

I wholly recognise that challenge. I am an ex-dairy farmer, and we left the dairy sector as a farming family in 2001. We did that because it was economically challenging; we could not make it pay. I think the milk price at the time was around 28p a litre at the farm gate. I can say to her that if I were offered £5 a litre tomorrow, there is no way that I would go back into the dairy sector. Once someone has left the industries, getting back into them is very difficult, and that is recognised throughout the supply chain. Major retailers do recognise it, and it is particularly true for dairy and pigs. It is also true in the fresh produce sector, because the skillsets and machinery that are required take a lot to procure. Going back into those sectors is very difficult. We need to make sure we protect it, but processors and retailers recognise that they must not kill the golden goose that is the UK farming sector.

Last year, we launched two further reviews into egg and fresh produce supply chains. The public consultation on the egg sector supply chain closed on 22 December, and we are in the process of analysing the responses. As I said, the review into fresh produce was published on 14 December and closes on 22 February. Anything that hon. and right hon. Members can do to promote that to their constituents, so that they can feed into it, would be very welcome. We will publish the responses for each review within 12 weeks of the closing dates, and we will provide a summary of the findings and our next steps for each sector. We can only decide what action is needed once we have analysed the responses, but I can assure Members that we will use the powers in the Agriculture Act to introduce legislation wherever it is necessary. I hope this debate will encourage anyone with relevant views in the fresh produce sector to engage in the public consultation.

[Anthony Mangnall]

The Minister probably knows what I am going to ask. I welcome the update and the announcements he has made, but could he say a few words about the Procurement Act 2023? The measures will take effect in October 2024, so perhaps he will help the House to understand the value of that for small suppliers and small farmers across the country, especially when it comes to spending £4.6 billion of taxpayers’ money, predominantly on food.

[Mark Spencer]

My hon. Friend has made the point himself, but I pay tribute to him and the Business and Trade Committee for the work that they have done to make that opportunity available to smaller producers up and down the country. I encourage those producers to engage not only with the national Government, but with local government, to try to supply local schools. Of course, the Government have a responsibility to make sure that our procurement assists and helps UK producers.

I hope the debate will encourage anyone with relevant views to feed into the consultations. I hope it will help us to understand the issues being faced by the sector and allow us to protect our farmers, who, in turn, protect our fantastic landscapes and produce beautiful, quality food. As a Government, we want to continue to tackle the unfair practices that still exist by working across the sector to see a thriving retail sector that keeps our supermarket shelves filled but also protects our fantastic farmers, the landscapes that they hold so dear, and the food that they produce.