Groceries Supply Code of Practice

Sheryll Murray Excerpts

Monday 22nd January 2024 Westminster Hall

[Fleur Anderson (Putney) (Lab)]

I welcome this debate not only for those constituencies with many farmers, but for urban constituencies such as mine. Many constituents have written to me about this important issue and have signed the petition, because it matters so much to have good fresh produce and fair terms and conditions for growers. We in Putney are shocked that half of British fruit and veg growers now fear that they will go out of business. We would like supermarkets to use their power to support small-scale farmers, not to undermine them. Does my hon. Friend agree?

[Mrs Sheryll Murray (in the Chair)]

Order. Interventions should be brief.

[Christina Rees]

I agree completely with the points made by my hon. Friend.

The first significant issue to explore is that of intermediaries within the food supply chain. The code has brought many positives, including the removal of back-door illegal practices. Although the code has overseen improved practices, it does not cover the relationships that intermediaries have with either farmers or retailers. Its explicit purpose is to regulate supermarket behaviour to bring value and choice for consumers; it is not, and was never, about producers. The use of intermediaries has the potential to allow retailers to circumvent the code.

When I was preparing for the debate, I heard directly from farmers and about how such practices create problems for them. They rarely have a written contract, so a request for 100,000 lettuces during the first week of September could turn into a downgrade to 70,000 lettuces if the sun suddenly disappears and salads become less favoured than soups. That leaves the farmer with 30,000 unpurchased lettuces and a considerable threat to their business. There are perfectly sensible reasons for intermediaries to exist—in particular in the meat supply chain, where a farmer would not sell a whole carcase to a single retailer, and therefore a processor or intermediary sells different parts to different customers—but the potential for unfair and unsustainable practice is significantly increased without regulation.

A second issue to consider is pricing. Much of the criticism of the code centres on the fact that it does not cover pricing in the food sector, and the issue is exacerbated by the frequent misconception that it does. However, pricing was never covered by the code and the legislation does not allow for its regulation. Coercion by retailers has also had an impact as the cost of a product is squeezed beyond break-even as retailers put pressure on farmers to reduce their prices to allow them to factor in costs such as packaging, marketing and overheads. Instances of such practices have declined, but still pose a problem in achieving a fair price.

We must also look into the imbalance of power and risk. Pricing can illustrate the problem of unequal power and risk within the food supply chain. In 2008, the Competition Commission inquiry found that grocery retailers were transferring excessive risks and unexpected costs to their suppliers. Furthermore, examples such as the one I mentioned previously—when the size of a produce order is suddenly scaled back—illustrate the inequitable distribution of risk, with the grower shouldering most of the burden while the retailer can quickly adapt an order according to market forces without the same risk.

The response to that was the creation of the code and enforcement by the GCA. Several mandatory reviews by Government, as well as supplier surveys, have shown significant improvements in supplier-retailer relations during the past decade or so. Despite that fact, fear remains in the industry. Many call on the GCA to make greater use of its powers to issue fines.

Some suggest that the GCA is hugely under-resourced. It is widely recognised that the cost of a single investigation is greater than its entire annual budget. The result is a perception that the GCA is toothless. The GCA’s opinion is that it is effective within the current parameters of the law, and it is not for it to say whether those parameters should be expanded. However, it is acknowledged that additional funding and powers would be needed to expand the remit of the GCA. The most common criticism of the code and the GCA is that they do not cover the whole supply chain, which means that they apply only to direct suppliers of the 14 biggest retailers, including Tesco, Morrisons, Sainsbury’s and Aldi. That leaves indirect suppliers unprotected, including many small farmers and primary producers. The Competition Commission predicted that problem back in 2008 and suggested two responses: to extend the code and the GCA to cover indirect suppliers or to introduce complementary codes to cover intermediaries and primary producers. Both options, though, ignore the issue of how such codes and regulators are funded so, finally, we must explore the issue of a regulator being both adjudicator and arbitrator.

The GCA is funded via a levy on 14 retailers. This is not uncommon for sector regulators, which are almost always funded via the organisations they oversee. However, that can leave them open to criticism of unfair practice and of not being hard enough on retailers. Although collaboration and arbitration are often useful ways of working, it can be argued that such circumstances pose a challenge if a situation requires the regulator to become an adjudicator and enforce fines. The GCA’s opinion is that the code is flexible enough to deal with a range of issues, including online sales, and that amending it might make it too rigid. When farmers are direct suppliers, the three issues raised by the petitioners are clearly covered and regulated.

What reforms are needed? It can be argued that the criticism levied at the code and the GCA is somewhat unfair as most issues, such as pricing and intermediaries, are simply not covered by the existing legislation and procedures. However, that does not preclude the fact that the issues exist and need to be dealt with. To that end, several reforms have been suggested and need exploring, including expanding the number of retailers covered by the code by lowering the threshold for compliance from £1 billion in turnover to £500 million, preventing retailers circumventing the code by purchasing through intermediaries, increasing the powers and remit of the GCA to cover issues such as pricing and processes, and setting up separate regulators with separate obligations.

The groceries supply code of practice is a vital tool that can either support or hinder the wellbeing of our farmers. It is our responsibility to advocate for reforms that ensure fairness, transparency and sustainability in the supply chain.

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[Sarah Dyke (Somerton and Frome) (LD)]

It is a pleasure to serve under your chairship, Mrs Murray, and I thank the hon. Member for Neath (Christina Rees) for opening this crucial debate.

We need to get fair about farming, because farmers are often disenfranchised in the agrifood supply chain. It requires a concerted effort to tackle the systemic issues, promote equitable relationships and ensure a sustainable and fair system so that British farmers can produce high-quality food for our tables. I rise on behalf of the many farmers in Somerton and Frome, who, like many others across the constituency, are key drivers of the rural economy. They are also the custodians of our natural environment. We must therefore ensure that they get a fair deal for the work that they do and the food that they supply.

The public agree. Polling from More in Common shows that 88% of the public think it is important that farmers are paid fairly for their work, and they would even pay a little more if they knew the money went to support British farming. However, food does not need to be expensive; just a bigger proportion needs to go back to the farmer. Tackling contractual unfairness in the agrifood supply chain is central to ensuring fairness. Farmers are operating in a marketplace where they have little control or say over who they sell their produce to.

Research from Sustain shows that producers receive less than one pence in the pound of the profit that they produce. Forty-nine per cent of British fruit and veg farmers fear that they will go out of business within the next 12 months, with three quarters of them stating that supermarket behaviour is a significant factor. To highlight the stark reality of the issue, Riverford Organic Farmers placed 49 scarecrows outside Parliament earlier today, representing those farmers. As well as farmers in my constituency, farmers in Totnes have said that the Government are not listening to them over subsidies, have let them down on the Australia trade deal and should do more to ensure fair pricing from supermarkets.

[Mrs Sheryll Murray (in the Chair)]

Order. Can the hon. Lady confirm that she spoke to the hon. Member for Totnes (Anthony Mangnall)?

[Sarah Dyke]

Yes, Mrs Murray. My office contacted the hon. Gentleman’s office an hour before the debate.

One farmer described the Government’s trade deal with Australia as a “disaster”, and another as “criminal”. Another said it would

“only benefit Australia, New Zealand and the UK supermarkets”.

It seems that the strong arm of the supermarkets is leaving farmers stranded at the bottom of the supply chain. The imbalance needs to be equalised if we are going to ensure food security in the UK. Many farmers are on the brink, but that is nothing new. The decline has been a long time coming, with 110,000 farms lost since 1990. Growing up in a farming community, I know how damaging that has been to my family, friends and neighbours. Our hard-working farmers know that quality food should not cost the earth, either for the consumer or our precious environment.

Our farmers are the guardians of the countryside. They know that farming and the environment are intrinsically linked. They are responsible for keeping our natural biodiversity flourishing. If we drive family farms out of business, they will be replaced with larger, industrial farms that will be less entrenched in our communities and care less about protecting biodiversity. A Guardian article from 2021 summed it up perfectly when it said that the alternative could be “factory farming with a” thin “green veneer.”

I cannot emphasise this point strongly enough: if we want to maintain our beautiful British countryside, we need to protect our farmers. Farmers need to be able to plan ahead. They need commitment from others in the supply chain, but all too often, that trust is broken as supermarkets vie for cheaper food, reject produce at short notice or simply change their minds, leaving farmers without a market, without an income or security, and so often without a future.

Some farmers are able to avoid selling to supermarkets, but many are left exploited on an industrial scale. Most often, the exploited farms will be small family farms struggling to produce food to suit the ever-changing demands of the supermarkets, whose focus is the pursuit of ever-cheaper food at any cost.

As I have said, the public want farmers to be paid fairly, and they want to be able to access healthy, quality food, but the current system does not allow that to happen. As Liberal Democrats, we want to give the Groceries Code Adjudicator more teeth to address unfairness in all supply chains, not just the transactions related to those who directly supply retailers. Alongside my Liberal Democrat colleagues, I am calling for the Competition and Markets Authority to investigate any profiteering that has taken place among the big supermarkets and food multinationals, and for tougher rules to prevent them from raising food prices more than they need to.

This disenfranchisement among farmers in the agrifood supply chain is complex, with significant social and economic implications, but so many of the Government’s decisions are made in silos, all the while leaving farmers facing financial hardship and food rotting in the fields. The Liberal Democrats listen to farmers, and we know they need a fair deal. We want to give an extra £1 billion boost to British farms to enable more sustainable family farming and to allow them to continue providing the public plate with high-quality, locally sourced, seasonal food at a fair price.

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[Richard Foord (Tiverton and Honiton) (LD)]

It is an honour to serve under your chairship, Mrs Murray. The front page of today’s Western Morning News reads: “‘Scarecrow’ protest goes to Parliament”. That was a reference to the 49 scarecrows that were just outside in Victoria Tower Gardens this afternoon. Each of those scarecrows represents 1% of those farmers who, when polled, say they consider that they might not be farming in the future. One of the reasons for that is the way the code of practice, which we have been hearing about this afternoon, operates.

I have been meeting with farmers across mid and east Devon villages in recent months. It is plain to me that, when we talk about farming, we are not just talking about a job—farming is a vocation; it is a way of life. It employs huge numbers of people, not just in farming but in the supply chains, both up and down. Simply, farmers are the beating heart of our countryside.

I pay tribute to the people who came up with this petition, which 112,780 individuals have signed. Of the 650 constituencies in the UK, mine was seventh in terms of the number of constituents who signed; the neighbouring constituency to my west has 840 signatories and is sixth on the list. Plainly, this is a real priority for constituents in my part of the world.

[Mrs Sheryll Murray (in the Chair)]

Order. Did the hon. Gentleman ensure that he informed the Member for that constituency that he would mention that?

[Richard Foord]

I did, before this debate.

In recent years, the British farming sector has come under enormous pressure. Uncertainty over the amount of support and the way the Government give the support have been central to that, but we have talked on other occasions about the deleterious effect of some of the trade deals that have been struck, such as those with Australia and New Zealand. The pressure has pushed many small farmers almost to the brink, and threatens the future of the countryside itself. I invite hon. Members to do what I did in December. I went to the top of Hembury fort, which is in the area I represent, and surveyed the countryside. It is very apparent that farmers do a whole lot more than produce food for our families: they tend to the land, provide public goods and provide solutions to climate change mitigation, which we all need. If we want to create thriving communities, we have to ensure that our farmers get a fair price for their produce. I am afraid that that it is often not the case: many struggle against the big supermarkets.

Some of the supermarkets operate a little like a cartel. I am not alleging that there is a cartel, but they are operating a little like a cartel. To give an example—again from December—Aldi stated just before Christmas that it would sell six vegetables for 15p: for example, people could buy a bag of carrots for 15p. That is way below the cost of production. That would be one thing, but then it was copied by the other supermarkets: Asda, Tesco, Lidl and Morrisons stated that they would sell their vegetables at these rock-bottom prices in the pre-Christmas period. That is less about veg as a loss leader than about a complete lack of leadership. I am afraid that that is a loss to this country. If our vegetable producers find that they cannot make ends meet, we will end up importing more and more food. That comes back to a lack of reliability on the part of the Groceries Code Adjudicator. We find that some producers are being paid not only insufficiently for the goods that they produce, but late or in a way that means their original contracts are not being honoured.

We often hear about retail being an industry with small profit margins, but not in this case. Tesco, for example, ahead of Christmas saw sales increases of 6.6%, which delivered £2.7 billion in profit. It simply cannot be right that the big supermarkets walk away with so much money, when the people who actually put in the work to produce the food are not seeing it. The majority of British producers run fragile businesses that are already subject to the vagaries of the weather, without being held hostage by the key players in the food supply chain.

I pay particular tribute to Guy Singh-Watson who created Riverford Organic. Arriving by train today, I saw a Riverford stall at Paddington station, selling that excellent produce. But how are such brilliant producers supposed to compete when our supermarkets are selling at silly prices? That does not apply just to vegetables. As we have heard, we saw fewer eggs last year—egg production fell to its lowest level in nine years. I heard about that directly from one of my constituents, Liz Warner, who serves on the National Farmers’ Union poultry board.

In recent months, I have travelled to meet In My Back Yard, an online farmers market selling local, ethical food sourced in Devon, Dorset and Somerset, and partnered with Good Food Loop. It has volunteer collection points in Honiton, Ottery St Mary, Seaton and Sidmouth. Such initiatives are great and it is fantastic that people support local produce, but if most people get their staple food from supermarkets, we have to look at the Groceries Code Adjudicator to sort things out.

This afternoon, we have heard reference already to the environmental land management scheme and specifically to the sustainable farming incentive. My Liberal Democrat colleagues and I are wholly supportive of the end that we want to get to with ELMS and SFI, but the implementation has been utterly botched. Recently, a farmer went past me, then he backed up his 4x4, wound down the window and said: “DEFRA: that stands”—in his mind and that of his colleagues—“for the Department for the Extinction of Farmers.”

One thing that Ministers and civil servants can do right away would be to ensure that the Groceries Code Adjudicator is empowered to take more effective action against unfair practices. That would make retailers honour the payment of the price that they agree to in the first place, and would ensure that they pay on time, so that our farmers do not have to wait months to be paid. While big companies can sit on their hands, those further down the supply chain are left to suffer, despite holding up their end of the bargain. We must ensure that fairness is imbued throughout the system, and we must ensure that our farmers get the fair deal that they deserve.

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[Kirsty Blackman (Aberdeen North) (SNP)]

Thank you for masterfully chairing this debate, Mrs Murray. I congratulate the hon. Member for Neath (Christina Rees) and thank her for taking this issue forward today. I also congratulate the petitioners, the Petitions Committee, and all those who signed the petition and allowed us the opportunity for this debate, which is incredibly important.

Hon. Members will realise that I am not my hon. Friend the Member for Coatbridge, Chryston and Bellshill (Steven Bonnar), who unfortunately has been caught up in the travel chaos as a result of the storms. I am super-subbing it today, so I hope that everybody will forgive me if I do not know the answers to any questions that may get thrown at me.

I declare an interest: my mum’s sister owns a small farm, and my mum’s sister and brother both own sheep and a handful of cows. The number of sheep varies throughout the year, but it is less than 500 at any time. The hon. Member for Rutland and Melton (Alicia Kearns) talked about somebody who was a fifth-generation farmer. I asked my mum about farming in our family, and she said that she does not know of any of her direct ancestors who were not farmers. My dad’s family do not know of any of their direct ancestors who were not fishermen, so we have food production running through our veins. However, I am firmly a toonser rather than a teuchter, and I visit the farm about once a year just to see the lambs. That is about as good as it gets when it comes to my farming, I am afraid.

However, farming is vital to Scotland. Some 67,000 people throughout Scotland are directly employed in agriculture, and throughout the UK about 400,000 people are employed in food manufacturing, as well as 500,000 people in farming and fishing. We are absolutely clear that farmers must be paid what they are owed because they provide a secure, fair and sustainable future for British family farms on these islands. I am sad that I missed the scarecrows today, but I thank you for all the work you have done in bringing this to the attention of people. I hope that it gets the attention it deserves from not just around the House—

[Mrs Sheryll Murray (in the Chair)]

Order. The hon. Lady is speaking through me—just a gentle reminder.

[Kirsty Blackman]

My apologies. I hope that it gets the attention it deserves from not just around the House—it is clear that all sides agree that there is a problem and it needs to be solved—but the wider public; although some of them have taken the opportunity to sign the petition, others may not have heard of it. Hopefully, this debate will bring a bit more attention to it and ensure that more people are aware of the problems facing farmers right now.

I have some points from the Scottish Government and from a Scottish perspective. We are looking for clarity and certainty on the future of rural funding. We are committed to maintaining direct payments, but it would be incredibly useful to know exactly what will happen in the future. We are also still looking for more information on the EU labelling rules—the labels that say, “Not for EU”. The Scottish Parliament has the right to make decisions on labelling because it is a devolved matter. However, the UK Government are making decisions and saying that they apply across the whole UK. We do not want that burden to be put on our farmers when we are not choosing for that to happen. Anything the Minister can do to ensure that there are communications with the Scottish Government so that they are kept as up to date as possible on the labelling issue would be useful.

On spending and how farmers are managing at the moment, there continues to be an issue around immigration, in relation to both seasonal workers and food manufacturing —in particular when it comes to abattoirs—despite the fact that the Government have introduced temporary, short-term visas to allow people to take on those roles.

There is a significant issue with vets. Food manufacturing ends up costing significantly more because if it is much more difficult to get vets, it is even more difficult for farmers to get what they need in terms of producing costs. Lastly, the issue around seed potatoes continues to be significant and, as far as I know, does not look like it is going to be solved. It would be helpful if we were able to export seed potatoes again. The Scottish Government have created an £180,000 pilot fund for abattoirs and small food producers. If the UK Government were willing to look at the results of our pilot, once we have them, they may be keen to take on that way of funding small producers and abattoirs to ensure that they continue to keep their heads above water into the future.

We cannot lose our farming industry. We also cannot allow consumers to be ripped off when they are buying food at the supermarket. I have very little sympathy for supermarkets that are making billions when my constituents cannot afford food and farmers are being paid pennies—if that—in every pound for the food they produce.

The UK Government’s food security targets are all well and good, but there needs to be more intervention to ensure that they are met: things like the trade deals, for example. During my time on the EFRA Committee, it seemed to me that nobody had thought about how those might impact farmers in these islands. It seemed that it was just, “We have decided that this is a good thing and therefore we are doing it”, and that farmers’ voices were not heard during those negotiations. I know that lots of things need to be taken into account when trade deals are signed—I absolutely get that. But the fact that farmers seemed to be so sidelined and not listened to in the process really concerned me.