Groceries Code Adjudicator a Step Closer

Small Business News

12^th May 2012

A new watchdog with the power to ensure that big supermarkets treat suppliers fairly and lawfully, has moved a step closer to reallity after the Groceries Code Adjudicator bill had its first reading in the House of Lords.

The Groceries Code was set up in 2010 following a major investigation from the Competition Commission which found that, whilst big grocery retailers on the whole delivered good deals for consumers, action was needed to improve the situation for farmers and suppliers. Suppliers were, the Comission deemed, being treated unfairly and were often scared to "face up" to the big chains for fear of losing the business.

The Groceries Code is legally binding and the new Adjudicator will have a number of powers including being able to:

• arbitrate disputes between retailers and suppliers
• investigate confidential complaints from direct and indirect suppliers, whether in the UK or overseas, and from third parties, to end the ‘climate of fear’
• hold to account retailers who break the rules by ‘naming and shaming’ or, if Ministers agree it is necessary, fining supermarkets.

Retailers found to have broken the Code will be subject to remedial action by the new Adjudicator ranging from:

• issuing recommendations to solve the dispute; 
• naming and shaming the offenders by publishing information or
• imposing fines (if the Secretary of State considers that the other solutions aren’t working and grants the Adjudicator this power)

It is thought that in such a highly competitive marketplace the power to name & shame big supermarkets will be a particular deterrent to those that have in the past been unfair to much smaller businesses who have had, for example, contracts dropped without warning.

Other issues with the big retailers have included them varying agreements retrospectively and failing to pay within a reasonable time scale. All these points have been addressed in the Groceries Code and now the Adjudicator will be able to enforce them.

Business Minister Norman Lamb said:

“The large supermarkets have a lot of buyer power, and with power come responsibilities. Supermarkets will still be able to secure the best deals and to pass the benefits on to consumers, but they should also treat farmers and suppliers fairly and lawfully. This means paying them on time or not being able to scrap arrangements with farmers and suppliers at the drop of a hat.”

“Free and fair competition is the key to a healthy market and by preventing retailers from transferring excessive risk to their suppliers we will support investment and innovation in the supply chain. In the long-term, that’s in the best interests of everyone, especially the consumer.”

“I have also responded to concerns from the Select Committee and others that trade associations should be able to complain to the Adjudicator and have amended the draft Bill to provide for this.”

Agriculture Minister Jim Paice added:

“The Grocery Code Adjudicator will ensure fair play in the food supply chain to make all terms fair and balanced.”

“The food industry is vital to our economy and this Government is committed to ensuring that all sectors of it are able to thrive while providing the best value and quality for consumers.”

Food and Drink Federation Director General Melanie Leech, said:

“We need an effective Groceries Code Adjudicator to enforce the Groceries Supply Code of Practice and ensure suppliers have the confidence to come forward directly or through their trade associations.”

“The Competition Commission findings were clear that unless the abuse of market power is addressed then businesses especially small and medium sized manufacturers will be less inclined to innovate and invest. We believe an Adjudicator will help to ensure that the food chain operates fairly and in the best interests of consumers in terms of choice and availability.”

Chief Executive of the Association of Convenience Stores, James Lowman, said:

“We welcome this important step towards a fairer market. When big stores bully suppliers everyone suffers.”

“In the case of small retailers the effect can be the supplier transferring the costs of unsustainable agreements with big customers onto smaller ones. This could be through increased prices, reduced promotional support or simply worsening service standards.”

“In 2008 the Competition Commission recognised that unfair practices in the Grocery market ultimately harmed the consumer. Bringing in this law is well overdue.”

In 2011 farmers condemned supermarkets for reducing the price of milk so drastcially that it was cheaper to consumers than (around half the price of) bottled water. The wholesale milk market became so competitive that dairy farmers were often producing milk at a cost greater than that which they received for their products.

The other important powers in the code include:

• limiting large retailers’ power to make suppliers change their supply chain procedures;
• limiting large retailers’ power to make suppliers pay marketing costs and compensation for wastage;
• requiringlarge retailers to pay compensation for forecasting errors in certain circumstances;
• limiting large retailers’ power to make suppliers obtain goods or services from third parties who pay the retailer for that arrangement;
• limiting large retailers’ power to make suppliers pay them for stocking their products; 
• limiting large retailers’ power to make suppliers pay for promotions;
• requiring large retailers to take due care when ordering for promotions;
• limiting large retailers’ power to make suppliers pay for resolving customer complaints; and
• limitinglarge retailers’ power to ‘de-list’ suppliers in other words, to stop dealing with a supplier or make significant reductions to the volume of purchases from a supplier.

You can follow the progress of the Groceries Code Adjudicator Bill as it goes through Parliament.