The legislation will establish an adjudicator to monitor and enforce the Groceries Supply Code of Practice (GSCOP), which applies to the 10 UK retailers and British Retail Consortium (BRC) members that turn over more than £1bn per year, and will arbitrate in disputes between retailers and direct suppliers.
Housed within the Office of Fair Trading, the Groceries Code Adjudicator (GCA) will investigate when she/he has ‘reasonable grounds’ to suspect a code breach – where the GSCOP obliges retailers to deal fairly and lawfully with suppliers, not vary supply agreements retrospectively and pay them within a reasonable timeframe – based on supplier complaints and information in the public domain.
Consumer minister Ed Davey said: “Preventing unfair practices and increasing certainty for suppliers will safeguard consumer interests, as large retailers won’t be able to take advantage of their position of power, as set out in the code.
In its draft bill the government said that an adjudicator was needed to enforce the code “because many small suppliers are worried that raising disputes against retailers would jeopardise future commercial agreements with these companies”.
Estimated costs
The Department for Business, Innovation and Skills (BIS) estimates that the cost of establishing the adjudicator at around £200,000, with operational costs of around £800,000 per year (met via a levy on participating retailers), while the department estimates investigation costs at around £120,000 per large retailer per year.
However, BRC food director Andrew Opie warned that the “ill judged” legislation would achieve nothing new, while the cost to retailers of funding the body would make it “even harder to keep price rises away from shop shelves”.
"The bill says the adjudicator will cost only £800,000 a year to run, to be paid for by the ten biggest food retailers. If the government really believes a public body can be run that cheaply it should cap the charges imposed on them [the retailers] at that level and commit to funding any extra costs itself. “
Opie added that, since the GSCOP came into effect last February, no cases had proceeded to independent arbitration. “This begs the question – what will a grocery code adjudicator do all day?”
Asked why costs would have to be passed on, if the government's cheap estimate (in Opie's words) was accurate, a BRC spokesman asked rhetorically: "Name me a public body that's run on £800,000 a year?" Not only had BIS underestimated the costs involved he said, retailers would also have to divert resources to respond to, for instance, information requests.
He also said the adjudicator would result in a "skewing of relations between suppliers and retailers that makes it harder for the latter to negotiate with suppliers" , while the office was not necessary, as proven by the lack of cases moving to arbitration under the GSCOP. Queried whether this was because smaller retailers in particular were scared of losing contracts by complaining directly to retailers, rather than ombudsman, he added:
"We''ve heard this again and again over the years, and the GSCOP itself gives a whole bunch of rights to suppliers. Every time there's no evidence of complaints people say 'oh well, they're afraid of the retailers', but it simply shows that relations between suppliers and retailers are perfectly sound."
What will the adjudicator do?
The draft bill outlines three sanction an adjudicator can impose if he/she discovers a breach; the first and least serious involves issuing a compliance recommendation urging the retailer to adhere to the GSCOP.
A further step could involve the adjudicator requiring the retailer to publish information about its own internal investigation of the complaint under the GSCOP: “For example, the adjudicator could require publication through a press release…annual report or website or through a newspaper advertisement.”
Thirdly, in the “most severe” cases, the draft bill floats the idea of imposing financial penalties, although this is subject to the Secretary of State granting the necessary powers through Parliament.
The Food and Drink Federation (FDF) recently criticised delays in establishing the adjudicator, but today director of communications Terry Jones said the FDF welcomed the bill, although it did not go far enough in terms of protecting suppliers and the adjudicator's potential enforcement powers.
“The draft bill states that the Adjudicator can only consider information from suppliers and information that is publicly available when deciding whether to start an investigation, but FDF is calling for information provided by trade associations that represent suppliers also to be included," said Jones.
“Suppliers are understandably cautious about disclosing their identities to the adjudicator for fear of facing retaliatory treatment from the retailer involved. Hence the FDF would urge for trade associations to be able to represent their members to ensure that the food chain can operate fairly and in the best interests of consumers.
“Should any retailers fail to comply with the GSCOP, the Secretary of State should be able to authorise the Adjudicator to impose financial penalties from the start of its operation to ensure it is taken seriously."