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‘(1) In advance of each annual report prepared under section 14, the Adjudicator shall consider any information received in the preceding year concerning supply relations between suppliers and third parties (intermediaries) who on onward suppliers to large retailers;
(2) If under subsection (1), the Adjudicator has information of incidents that, were they to have occurred between a supplier and a large retailer, would have constituted a breach of the Groceries Code, the Adjudicator shall consider and make recommendations on whether the pattern of such incidents merits an extension of the Groceries Code to such intermediaries and therefore a redefinition of “direct supplier” in the Groceries Code;
(3) In advance of every third annual report prepared under section 14, the Adjudicator shall consider any information received in the preceding three-year period concerning supply relations between suppliers and third party onward suppliers not covered by subsection (2);
(4) If under subsection (3) the Adjudicator has information of incidents that, were they to have occurred between a supplier and a large retailer, would have constituted a breach of the Groceries Code, the Adjudicator shall consider and make recommendations on whether the pattern of such incidents merits an extension of the Groceries Code to such intermediaries.’.—(Ian Murray.)
I beg to move, That the clause be read a Second time.
We are now rattling through the Bill, and the Whips will be pleased to hear that we will not spend too much longer on it. The new clause would provide the underpinning for the phrase that we have been using: turning this into a fantastic Bill.
There is a nagging doubt within our consideration over ensuring that the adjudicator can referee abuses of the code as the Bill will not allow the adjudicator to look at issues that are not covered by the groceries code. That is why we have tabled new clause 2, which would require the adjudicator to give due consideration—that is the key phraseology—to any information received regarding supply relations between the supplier and third parties or intermediaries. Should such information suggest that, had those relationships occurred under the code, the code would have been breached, the adjudicator would be allowed to make recommendations on whether the code should be extended to consider those third parties and intermediaries.
The new clause would not make the Bill any wider, but merely suggests that the adjudicator, in the course of their investigations, should on occasion look at the whole supply chain. Currently, they can referee only within the rules of the code. Therefore, a third party, trade association or direct supplier might be found to have been wronged by a large retailer, but have no redress either under the code or through the adjudicator. Central to the new clause is the fact that the code is limited for that purpose. An issue has been raised by a number of voices across various sectors that much of the bad practice occurs at the level of the intermediaries below the first-level supplier—the regional wholesalers and processors that are competing to offer the best price to retailers.
An example that has been brought to our attention highlights some of the issues that we are trying to deal with through the new clause. Let us look at supermarket A—we will not name any supermarkets—which buys from a food processor a ready meal product that contains 25% carrots; let us use the carrot example, as we have used that before. The code governs the relationship between the large retailer and the food processor that produces the ready meal. If the supermarket wants to change any of the terms of the contractual relationship with the ready meal supplier, it must do so within the context of the code. A proper notice period will have to be given to the food processor to say, “Reduce the percentage of carrots in that ready meal to 15% from 25%.” There will be no breach of the code. The supplier may not like it, but the process will have been done completely transparently, but there is nothing then to prevent that food processor from doing to the carrot supplier or carrot farmer exactly what the code is protecting it from with respect to the retailer. In a time shorter than the three-month period that the code states that information and notice have to be given to the first-level supplier, the processor can say to the carrot supplier, “We no longer need you because we no longer need that number of carrots.”
In that albeit simplistic example, there is a real issue regarding the grass roots of the supply chain. The hon. Member for Sherwood has already raised concerns in Committee about the lower level supply chain. There is a view among the public, and certainly in the House, that the groceries code covers the whole supply chain, but it does not; it covers only the first levels of the relationship between a large supermarket or retailer and its supply chains.
Equally—we discussed this briefly last week—there is a binary view of the marketplace regarding the adjudicator. Essentially, we are protecting relationships between large suppliers and large retailers. Those large suppliers might have turnovers well in excess of many multiples of those of the retailers. We are talking about branded goods manufacturers such as Unilever, Kraft, Nestle and Coca-Cola, whose turnovers are incredibly large; they are worldwide, multinational brands. There seems to be a little contradiction between the Bill protecting the relationship between Tesco and Coca-Cola, but not that between supermarket A and the carrot farmer.
The adjudicator will be required to recommend changes to the code to the Office of Fair Trading, yet the British Retail Consortium claims that in the case of annual reports its members have submitted under the Groceries (Supply Chain Practices) Market Investigation Order 2009 on the implementation of the code, the OFT has taken no action to offer feedback, or even published reports. That came directly from the BRC to us. That kind of two-way dialogue has to happen. The thrust behind one of our earlier amendments was to allow that dialogue in terms of being able to publish reports back. If those reports are not going back and forward from the adjudicator to the OFT, recommending changes to the code or any further implementation, we are not going to have a transparent situation whereby those changes can be made within the code.
This matter goes right down to the grass roots to the farmers and the growers who are not covered by the code. They are often the ultimate victims of some of the supply-chain issues raised in the code.
The hon. Gentleman is making a valid point about the need for an open-minded review of the effectiveness of the code and the role of the adjudicator. In previous debates on the subject, I urged that the Bill be drafted in a manner that does not imply that it is all a one-way street. Perhaps some decades ahead, farmers might have retailers under the cosh—an entirely different relationship from the one we currently experience. We have to keep our minds open to that possibility, and a lot of us might dream of such days to come, but what needs to underlie this matter is ensuring that fair dealing is observed. To that extent, will hon. Gentleman reflect on whether the new clause would enable such an adjustment to the legislation to be made?
I thank the hon. Gentleman for that crucial intervention. We have attempted to draft the new clause so as to create a two-way street—the point is to keep the code live to deal with those very issues. He imagined a situation in 10 or 20 years’ time when farmers might be holding large retailers to account; they might be more powerful and able to withhold their goods, and some other issues might occur. That is why I was keen to mention that the Bill will regulate the relationship between the large retailers and Coca-Cola, but not that between the carrot grower and the large retailer. It is important to keep the code live in that sense.
If we looked to protect large retailers, our new clause would give no reason why the adjudicator could not realise there was a problem between the large retailers and some of the larger suppliers, who hold large retailers to account through supply chains. The new clause could not be used in that instance. The adjudicator, who will look at those supply chains and relationships day to day, is in the best place to consider those issues. That is why I am keen to emphasise that the adjudicator should give due consideration. We propose that the adjudicator should immediately refer information to the OFT to have it change the code to include intermediaries or other parts of the supply chain. The adjudicator should certainly have the power in the Bill to give due consideration to information that might need to go back to the OFT to be looked at.
Despite the adjudicator’s best efforts such problems may persist. The purpose and spirit in which the adjudicator is being put in place might be undermined, because what would have been deemed breaches of the code had the suppliers been involved in the code cannot be dealt with under the code by the adjudicator. Thinking about it in those terms, we see quite clearly that the adjudicator is unable to promote that fairness, which is the very word that the hon. Gentleman has just used.
Does my hon. Friend agree that it would be a tragedy were the improvements to the Bill so far to be undermined two or three years down the line by the very examples that he cites? The supply chain’s trust and confidence in the adjudicator would be undermined. In trying to keep the code and the adjudicator live to any necessary changes, new clause 2 would not only empower the adjudicator, but give greater confidence in their ability to do the job.
I am grateful for that intervention, because that has been the spirit of all the Opposition’s amendments: we want to instil the adjudicator with that confidence. The adjudicator will probably become the UK’s leading expert on the relationship between suppliers and large retailers, and we want them to take that knowledge and be able to say to the OFT that the code is working in areas x, y and z, but that changes to the code are necessary to keep it live and relevant, and to address breaches elsewhere.
I am sorry to upset the hon. Member for Tiverton and Honiton again by defending large retailers, but they also deserve protection from not only larger suppliers, but the carrot farmer’s claims—as in the example I gave earlier—that they may have wronged through the process. The unnamed, faceless food processor Y, who makes branded products for supermarket A, could quite easily breach the code with regard to the carrot supplier, but the large retailer could be named and shamed. We need to protect that relationship. To be fair to large retailers, they deserve protection from the carrot supplier at the bottom of the supply chain jeopardising their relationship with either suppliers or customers because the code is not live or the adjudicator might not be able to make recommendations or give consideration to changing the code to look at intermediaries.
What consideration has the Minister given to the concerns around the supply chain? Government policy, and indeed Opposition policy, on the Department for Business, Innovation and Skills is to help to foster the supply chains in all industries, whether that be the car industry or the energy sector. We should therefore be protecting the supply chain in this sector, which will give us the food innovation that we desire and, we hope, increase the number of products and drive down costs, and for consumers as well. If the Minister is unwilling to accept new clause 2, will she bring back on Report a measure that is drafted in such a way as to allow the proposal to go forward? If she is not minded to do so, will she discuss the issue of intermediaries with the Competition Commission or the OFT? Is there a mechanism that might allow the adjudicator to look at intermediaries and keep the code live?
It is a pleasure to serve under your stewardship, Mr Williams, and to speak briefly to the new clause.
I want to stress to the Minister that there is a positive and a negative behind the new clause; my hon. Friend the Member for Edinburgh South has given much consideration to its wording and to its spirit. The positive is that we still very much want to keep this as a live code. We do not want to tie the adjudicator’s hands behind their back from the word go. I see Government Members nodding; we have discussed the issue previously in Committee and in Westminster Hall. We know that the problems in the supply chain are often not purely confined to the relationship between the largest suppliers and the individual producer. We often see myriad complex relationships along the supply chain that can sometimes be used by retailers to mask their true intentions. To pick up on the point made by the hon. Member for St Ives, should there be an occasion in the future—I cannot think of a current example—where an extremely powerful consortium of East Anglian vegetable producers or a large, powerful farm co-operative had a major retailer over a barrel, I would make exactly the same argument.
We are arguing for keeping the code live, so that the adjudicator—who will, as my hon. Friend the Member for Edinburgh South said, become over time the absolute expert in understanding the minutiae of the relationships along the supply chain—can come back to a Secretary of State, whether Conservative, Liberal or Labour, or some unknown future Secretary of State, and say, “Look, in the powers that you have given me, we have had some fair successes. We have managed to deal with the worst aberrations—misdemeanours—along the supply chain, but we have also seen areas where you have said that we cannot go, but I can now suggest to you, under the change made by the Committee, that I should revisit the code to extend my remit slightly, so that I can go further down the supply chain to deal with new exigencies that have come forward since we debated the matter.”
I will give an example of where that might be the case. When a manufacturer brings a new product to market, supermarkets cleverly require all the ingredient details, for health and safety reasons, and all the packaging details to meet the WRAP criteria. The second that product hits the market, they then say they have found another manufacturer that will make the product for 10% less and undercut from that moment. There is no way to control such intervention and double dealing. That is a good example of where flexibility is required.
I thank the hon. Gentleman for his intervention. He is absolutely right. As we sit here in Committee, we cannot foresee the full range of eventualities, but we can guess that the supply chain will change over time. There are existing examples, as he mentioned, and there will be examples that we cannot possibly foresee. There is a tradition in the House of introducing framework legislation that will allow some flexibility to deal with future changes. The new clause might not be perfectly formed or perfectly worded, but its spirit is crystal clear.
The hon. Member for Sherwood has a background in farming and food production, as do other Members. I say to Government Members, in a positive way, that I have spoken to farmers in Pembrokeshire, Lincolnshire and Northern Ireland, and they say that this is the type of amendment that they want to see. I am not talking about allowing the adjudicator to grow into some massive behemoth who builds a massive empire. In fact, the new clause would allow the Secretary of State to say to the adjudicator, even if they brought back recommendations, “Frankly, you can go whistle. I don’t agree with you. I think your remit is sufficient.” But they would have to do that in the full glare of open, transparent government. Should an adjudicator make a recommendation that the code needed to be adjusted, and the Secretary of State disagreed, we can bet our bottom dollar that the Chairmen of the Business, Innovation and Skills and the Environment, Food and Rural Affairs Committees would pull in the Secretary of State and say, “We would like to hear a fuller explanation.”
The new clause would not force the hand of the adjudicator or the Secretary of State. It says, “Let us keep the code live and look at the possibility of a future where we cannot see how the paradigm—the power shift—along the supply chain will change.” It may well be that, in a decade, we have extremely powerful farming consortiums. I hope that we do, because it may redress some of the imbalances in the supply chain. Many of us on the Committee support the idea of having more powerful farming co-operatives and collectives of farmers coming together to try to add more to the value within the supply chain. The new clause would allow that to happen, although I am sure that the Minister will set out a range of assurances.
The new clause is more than merely probing. It goes to the heart of what we see as a positive, proactive adjudicator role. We want an adjudicator who can not only use the powers provided in the Bill as it is, but could come back and have a frank and honest conversation with the Secretary of State, with the supply chain at large and with the country at large and say, “We might need to go a little further but I give you, Secretary of State, the option of making that decision for me. What I will do is bring forward the recommendations.” The new clause has been tabled in that spirit. It may not be perfect, but the spirit and intention behind it are.
I very much accept and understand the spirit of the new clause. I appreciate that the Opposition have a genuine desire for the adjudicator to have a wider remit than what is currently set out in the Bill. There is an issue here about expectations management. The hon. Member for Edinburgh South said that, at the moment, the adjudicator cannot look at issues not covered by the groceries code. The clue is in the name. This is the groceries code adjudicator. It is being set up for that very specific purpose. It is very tightly drawn, based on evidence, to look at how we can resolve the specific problems of competition, or the lack of proper competition that creates consumer detriment in the groceries market, and where the evidence that that was a problem was from the large retailers.
It is not intended to be a referee of all business relationships in the grocery sector. I know that some people would like that to be the case but the Government will have to disappoint them. It is not generally the Government’s role to intervene in contractual business-to-business relationships. It is right that the Government are careful and cautious about the occasions when we would do that.
I am a bit confused by the Minister’s point. Does she acknowledge that the new clause does not seek for the Government to intervene in the supply chain but rather for the adjudicator, who is at considerable arm’s length and will, we hope, operate independently, to do so? The status of that is entirely different.
I hear the hon. Gentleman’s intervention and I do not agree with it. It may not be the Government on a day-to-day basis making that intervention, but the very fact that it is not just up to businesses to have a contractual relationship, and that is it, is in itself a further intervention, which is unusual and not normal business practice.
I am still confused. I think that the Bill, for which the hon. Lady argues passionately, and which was strengthened during the last few sittings, is needed precisely because the relationships between the suppliers and the supermarkets do not always work in either their interests or those of consumers. We have made a judgment in principle to make an intervention—an intervention that is at arm’s length, and so, given that the Bill is being introduced, I do not see that her argument follows.
That is exactly my argument. The hon. Gentleman is right: we have made a judgment that the relationship between retailers and their suppliers does not work in the interests of the consumer. However, we have not made that judgment by looking out of the window and thinking, “Well, that’s happened”, or even on the basis of anecdotes about things that have happened that might seem unfair. We have based that judgment on a market investigation and recommendations from the Competition Commission. The Bill is very much focused and worded on the basis of that evidence and those recommendations, which did not refer, as the new clause would, to the relationships between suppliers and their suppliers. It is about the relationship between the retailers and their direct suppliers. That is the crucial difference, about which I hope I have now been clear.
The Minister has been very clear on that distinction, but does she not accept that some breakdowns in the supply chain are not purely because of the superficial relationship between the large retailer and the producer, but happen because intermediaries sometimes feel under pressure from a large retailer to take actions that seemingly have nothing to do with that large retailer?
We may be getting into a circular argument. If the new clause was agreed, there would effectively be a duty on the adjudicator to look for such evidence, which would dilute—
I will finish my reply to the hon. Member for Ogmore.
That would dilute the adjudicator’s focus on the enforcement of the code. I also suggest that the adjudicator will not be adequately resourced, as competition authorities are, to gather and analyse the type of evidence required to judge that there is a competition problem. The adjudicator will have a small team to look forensically at the specific issues relating to the current groceries code, and it will not have the resources to gather evidence on wider competition issues.
I am collecting and stacking up interventions. I want to make a bit of progress, but I will take the two interventions and then continue with my argument.
I thank the Minister for giving way. It may be the cold that I recently picked up—she may be able to hear it—that is causing me some confusion, but will she tell me from which lines of the new clause it follows that the adjudicator would have to look for such information? I agree with my hon. Friend the Member for Ogmore that if evidence presents itself during the adjudicator’s investigations, the new clause would mean that the adjudicator did not have to seek further primary legislation for a natural and well-supported extension of its role.
We are returning to our earlier debates in Committee about whether we should continually add on things—such as evidence of fraud or other criminality—about which the adjudicator would be forced to make recommendations. Putting something in the Bill would create an expectation that the adjudicator has to look for it, because otherwise why would that be done?
I understand the Minister’s reluctance to go down the route of broadening the adjudicator’s scope. However, Opposition Members have put their finger on the particular problem that the large co-operative representing a huge number of carrot growers has less of an incentive to register a complaint under the suppliers code than do those carrot growers. In many cases, the co-operative might find it easier to pass the pressure on it down to the carrot growers, rather than to stand its ground and argue its case under the code. Is there a way round this in that, if lots of carrot growers supplying a particular co-operative register a complaint about not being paid on time, and the adjudicator concludes that the co-operative—rather than the supermarket—is not paying them on time, that would be reflected in the adjudicator’s investigation report? That would go some way to addressing Opposition Members’ concerns.
Clearly, given that we have the third party right of complaint, it does not need to be the direct suppliers that put forward concerns. If individual carrot growers wanted to make a complaint, and it was found that they had not been paid because the retailer had not been acting in accordance with the code, that would absolutely be within the remit of the groceries code adjudicator.
We come down to a fundamental issue of principle here, which is whether the Bill is about regulating an entire industry or dealing with a specific problem. In the grocery sector as a whole there is not a natural monopoly, such as in energy or rail, so I do not think that general Government regulation is appropriate, nor is it backed up by the evidence. I would be very reluctant for there to be regulatory creep, where, instead of dealing with a specific problem for which there is evidence, the scope of the measures becomes much wider.
Huw Irranca-Davies rose—
I will give way, but not immediately. I want to make a little progress in outlining the case.
As I was saying, the Government should be cautious and careful about intervening in contractual relationships between businesses. In this specific case there is a reason to intervene on the grounds of competition. Where competition is not functioning as it should, the Government have a role to try to ensure that that is rectified, because competition is good for consumers and the economy. That has not been done lightly, but on the basis of a market investigation by our well-respected competition authorities, which found evidence of detriment from the way that large retailers were treating their suppliers.
Clause 13 allows for the adjudicator to make recommendations for changes to the code if they are in the right area—for example, if large retailers are finding new wheezes for getting round their obligations to suppliers that also create competition issues. On that narrow basis, the adjudicator can suggest changes, and it can therefore be a live code.
There is an issue, over which there may well be a difference of opinion, about whether there are competition problems elsewhere in the groceries industry supply chain. That was not found to be the case when the Competition Commission undertook its investigation. However, if anyone, including the groceries code adjudicator, thinks that there are competition problems in any sector, they can of course make their views known and the information they have available to the OFT, which can then decide whether there are sufficient grounds to conduct a market investigation.
Andy Sawford rose—
I will give way shortly.
That would be the proper way in which the code could be extended—not in an ad hoc way, where we just decide what will be the case, but on the basis of proper evidence. I will give way first to the hon. Member for Ogmore, who tried to intervene earlier.
May I suggest to the Minister that, outside the groceries code, a parallel has been drawn with the dairy crisis over the summer? In that case, the naming and shaming of supermarkets frankly had limited effectiveness because the problem lay not, ostensibly, they would say, with them, but with the major distributors—Arla, Müller and so on—who cared little about being pigeonholed because most of the public do not buy their milk from them.
The new clause would simply enable the adjudicator to come back to the Minister at some point and say, “We have a problem somewhere along the supply chain that is to do with the relationship between the largest retailers and the producers, but it is a part of the supply chain that we are not allowed to touch.” That is what we are trying to achieve. If the Minister is really concerned about there being some sort of obligation, in the light of the discussion of amendment 27, she could happily introduce a similar measure that removes “shall” from the new clause and replaces it with “may”.
Oh dear, Mr Williams. I thought that we might have got away from the semantics of “may” and “must,” but we are now getting into “may” and “shall.”
The hon. Gentleman raises the issue of the dairy industry, about which a lot of discussion has taken place. There was, of course, a real problem this summer in the dairy industry, where many farmers face significant hardship. Indeed, that was mentioned and discussed a little on Second Reading. My hon. Friend the Minister of State, Department for Environment, Food and Rural Affairs has also been involved in the action that the Government have taken to resolve that issue, so we are not saying that that was not a problem, but it is not the same as the problem that the groceries code is set up to deal with.
There was not necessarily a problem directly between retailers and their producers. In some cases, the retailers were quite helpful. Various retailers made a virtue of the fact that they were paying a decent price for their milk. The hon. Gentleman was right to point out that there are companies that are not household names and therefore the value of their brand is nowhere near as high as that of major retailers, so there is not the same effect.
The Government are taking a range of different actions to help the dairy sector: facilitating the development of a voluntary dairy code and implementing the EU dairy package so that producer organisations can negotiate contracts, including the prices paid. We are also investing £5 million to improve competitiveness and efficiency in the dairy sector.
The Government are trying to improve matters in the dairy industry. However, there are two different sets of issues. To suggest that they have the same remedy and the same solution is not necessarily accurate.
The Minister makes a strong point about the ability of the adjudicator to refer matters to the Office of Fair Trading. However, does she not accept that that would be a much stronger and frankly more valid argument had we strengthened the relationship between the adjudicator and the OFT in an earlier clause? Having left it so that the only relationship is for the adjudicator to ring the public hotline, it is not a strong argument or reassurance to say that the relationship would satisfy the concerns that people rightly have about unintended consequences for, for example, dairy farmers or carrot farmers. The risk is being transferred from the major supermarkets to the large suppliers, but the people who are made perhaps more vulnerable, unless she accepts the new clause, are the small farmers in the chain: the little man.
I appreciate that there is genuine concern about small suppliers and small farmers, but I do not think that such concerns are always backed up by evidence. The difficulty with putting additional duties on the adjudicator in the Bill, when there is no evidence that such detriment is occurring, is that it suggests that that detriment is there, but it is not based on evidence and is therefore superfluous. We do not have evidence that there are problems lower down the supply chain. There is no more evidence for that than, for example, that the major supermarkets are breaching minimum wage legislation.
We are not suggesting that we write it into the Bill that, if the adjudicator came across evidence that retailers were breaching minimum wage legislation, they should make a recommendation that that should be dealt with. If we came across evidence that minimum wage legislation, or any other legislation, was being breached, any reasonable individual—particularly anyone who was a public authority with responsibilities to act in a proper way—would make sure that such information was provided to the proper authorities. I do not think that we need to write it into the Bill.
On the issue of difference, my point is that, because the Competition Commission market investigation did not find evidence lower down the supply chain of competition detriment between suppliers, there is no more likelihood that that is going to be found in the adjudicator’s daily duties than any other breaches of criminal law. Putting it in the Bill would suggest that we thought that that was the case. I know that some hon. Members might believe that to be the case, but we need to proceed on the basis of evidence.
The Minister provides a vivid example, but the amendment focuses on the efficiency of the supply chain, not on trafficking, gang masters, minimum wage or anything else. It is very much related to the ethos and principle underpinning the whole Bill. That is the difference. We could extend the provision to report back on a wide range of issues. We would expect the adjudicator to inform if they saw examples of x, y and z, but this provision is specifically on the supply chain and it seems to fit well within the Bill.
I hear the hon. Gentleman’s point, but I disagree because the groceries code adjudicator’s focus should be on the groceries code as it is set out. I suspect that the general harmony that we have had in this Committee may not last through this new clause—[ Interruption. ]. The hon. Member for Edinburgh South, from a sedentary position, says that the code is the problem, but I do not think that it is. The code is based on what has been found to be the issue; it is based on the order, which was put into force by the competition authorities, and it has a great degree of cross-party support. In fact, one of the reasons why the Bill has such cross-party support is because it has proceeded on an evidence basis; it is a proportionate, light-touch regulatory response to a specific point where there is evidence of detriment.
I congratulate the Minister on her commitment to evidence-based decision making. I hope that she will have words with her colleague who, yesterday, was defending the employee share scheme—or whatever it is now called—which is clearly not based on any evidence whatsoever.
Order. I think that that leads us astray from the point.
Absolutely; the Minister knows me well enough. May I follow up on the evidence-based issue raised by my hon. Friend the Member for Edinburgh East? Our amendment would do just that; if the evidence base points the adjudicator to a part of the code that is deficient, which does not allow them to do their job properly, surely the adjudicator should suggest in the triennial reports to the OFT that the code should be changed, based on evidence built up over that period of time?
Without getting too much into the semantics, I would say that if the adjudicator finds that the code is insufficient, and there is evidence that points to that, in order to deal with the detriment outlined in the initial market investigation properly, clause 13 absolutely provides the ability to make recommendations on changes to the code. If there is an issue where it is not just the code that is questioned, but the order, and the initial market investigation is found to be not sufficient—perhaps new evidence is found of further competition detriment at other points in the supply chain—that information should rightly be passed to the competition authorities. However, as I said earlier, the groceries code adjudicator will not have the resources—nor, necessarily, the expertise—to be able to make that judgment. Earlier, the hon. Member for Ogmore mentioned that the adjudicator will become an expert in the groceries supply chain. That is possible, but they will not be an expert in competition law such as our competition authorities are, and that is why the competition authorities are the right place to conduct those investigations.
One issue raised earlier was also on the relationship in terms of large suppliers and small suppliers. Some suppliers to supermarkets are powerful—Unilever was mentioned—but there is a range of different companies. It is right that the code does not deliberately distinguish between large and small suppliers; to do that would be incredibly complex and fair dealings should apply to everyone in any case. We expect, however, that the adjudicator will prioritise small suppliers as larger suppliers have legal departments and are more ready and able to bring their own private claims or to go through arbitration procedures.
Even if, for a second, we put aside the issues I mentioned about proceeding with the groceries code adjudicator on the basis of the order on which it is based as being the foundation for the Bill—the code was written to deal with the relationships between the big retailers and their direct suppliers—and also that extending regulation into an area that it was not intended to cover may bring negative unintended consequences, and we just look at the specific issue of the burden on business, there is significant reason to reject the new clause.
The cost of complying with the code is significant. The 10 large retailers will be spending approximately £170,000 each on it, and that does not include any additional costs of complying with investigations by the adjudicator. That kind of sum is a significant one, but these are very large businesses. Large retailers have a big turnover, so we have taken the view that they can afford the cost and the Competition Commissioner has recommended—on the evidence—that regulation is needed.
However, let us as a Committee imagine for a moment that burden being extended to literally thousands of direct suppliers to supermarkets, all of whom would then have to begin appointing compliance officers, training their buyers in the code and meeting all of the related expenses. I think that the food and drink manufacturers across the country, many of whom this Bill is intended to help, and the small farmers who were prayed in aid earlier would not welcome this amendment. Organisations such as the Food and Drink Federation would not be keen to see extra burdens being placed on their member businesses, particularly in a period when the food and drink manufacturing sector is not experiencing fantastic times. The sector has decreased by 2.4% compared with last year. So, that burden on business is another significant reason why we should not be blasé about just saying that we could extend the code to cover intermediaries.
That also underlines again why the only way in which the code should be extended, if it were to be extended, is through a proper market investigation finding evidence of real competition detriment that would justify additional burdens and costs being placed on business.
The Minister is making a compelling case about the burdens on business, and of course no Government would wish to increase burdens on business that were indeed unnecessary. However, on that point about burdens, I just refer members of the Committee to the explanatory notes on clause 13 of the Bill, which say:
“If the Adjudicator considers it appropriate for any changes to be made to the Groceries Code, he or she must make a recommendation to the Office of Fair Trading.”
So, under clause 13 there is surely an opportunity for the adjudicator to say to the OFT, “There is a problem with intermediaries and the rest of the supply chain, and I am making that recommendation to the OFT to change its code.” New clause 2 would strengthen that by putting the power for the adjudicator to do so on the face of the Bill .
As I have outlined earlier, the specific requirement in clause 13 relates to changes to the code that would be required in order for the detriment outlined and found in the market investigation to be rectified. Indeed, in the explanatory notes on clause 13 of the Bill, which the hon. Gentleman has just read out the beginning of, it points out later in the same paragraph:
That makes it clear that the power in clause 13 is specifically about whether or not the code is sufficient to ensure that the order is properly complied with.
The Opposition can suggest amendments that relate sufficiently closely to the material adverse effect that was identified back when the Competition Commission investigated this issue, including passing on excessive risk and unexpected costs. However, that is about whether or not the retailers have found some kind of new trick, or some kind of new way, to do those things. It is not about bigger changes, such as extension to intermediaries.
A moment ago, my hon. Friend prayed in aid the Food and Drink Federation, which of course supplied us with its own notes in advance of the Committee stage of the Bill. Of course, the FDF is a very strong supporter of the Government’s policy, with all-party support. However, in its briefing, it went on to say that having identified significant areas where there was a climate of fear and where there were dealings that were unfair with regard to de-listing and other factors, from its own anecdotal evidence—particularly that acquired by talking to members of small and medium-sized enterprises—it is clear that these practices continue to happen. It was highlighting that it was not the large members but the smaller members, which in many cases are intermediaries, not the ultimate suppliers to supermarkets. So the Food and Drink Federation has concern for the intermediaries as well.
Obviously, as my hon. Friend clarified, some small businesses are direct suppliers to supermarkets. I think it is helpful and positive when supermarkets, through local initiatives in particular, take on products from small, local suppliers. If those are the types of anecdotes that the Food and Drink Federation has, clearly the code and the order should give that protection. When the adjudicator is up and running, making sure that that is enforced will be a further boost.
If the Food and Drink Federation has examples of smaller suppliers having competition problems with intermediaries, I would encourage it to send that information to the OFT. However, some problems with parts of the supply chain or with intermediaries are not competition problems. It is then a matter of looking at the contractual relationships to see whether remedy can be sought through the courts and those contracts enforced.
The Food and Drink Federation recognises that its small members want to make sure that they do not have significant problems with their contracts but also do not want additional regulatory burdens to be placed on them. I think that is accurate. I suspect that there may just be disagreement about whether there is evidence of harm already happening.
The Bill will introduce a measure that is proportionate, light-touch and based on evidence from the Competition Commission. The new clause would allow significant regulatory creep. It would place new obligations on suppliers to other suppliers and potentially to retailers. Such a major extension should not be based just on anecdotal experiences and created on a whim by a ministerial decision that says, “Well, we should do this.” It should be based on proper market investigation by our well-respected competition authorities. To include the new clause suggests that there are problems, which are not backed up by evidence.
I recognise that there may still be a difference of opinion on this matter, but I hope that I have been able to set out clearly why the Government believe that to proceed on the basis of the initial market investigation is the right approach. I hope that we will maintain strong cross-party support. I therefore urge the hon. Member for Edinburgh South to withdraw the new clause.
We have had a lengthy and detailed debate on the new clause. It was important to have the debate. We could end up in a situation, as the hon. Member for St Ives said, where we have a code that is not fit for purpose. I hope that the OFT, under clause 13, would realise that that may be the case, and amend the code.
A number of organisations told us that the problems are further down the supply chain. The hon. Member for Camborne and Redruth suggested a solution to that problem, which I welcome. The recommendations of the investigation report could include problems further down the supply chain, which the adjudicator is not able to deal with. An investigation might conclude that there is detriment somewhere, but the code does not allow it to be dealt with. It may recommend that the code reflects that.
This is a relationship between the large retailers and the first-level supplier, which could be some of the major companies in the world. We are not protecting the carrot grower in the example given by the hon. Member for Camborne and Redruth. The dairy example is key here, and the hon. Member for Sherwood was correct to say last week that the groceries code would not have covered that example. My hon. Friend the Member for Ogmore has also highlighted that point. The question is whether the code should cover a situation such as the dairy crisis. Would it have made that situation easier to deal with? Would the issue have been identified earlier? If an adjudicator is dealing with an investigation involving the relationship between a large milk supplier such as Müller-Wiseman and a supermarket, and they identify a problem lower down the dairy supply chain, should they be able to say to the Office of Fair Trading “There is a problem with some of the intermediaries, and the code should be changed to reflect that.”? We do not want the adjudicator to go on fishing expeditions, but it seems sensible that someone who looks at the supply chain on a day-to-day basis should be able to identify other problems in the supply chain. I hope that in future we might encounter the opposite problem, and if that happens new clause 2 would allow the necessary changes to be made to the code.
I will not press the new clause to a vote, although I am tempted to do so. Given the interventions from Government Members on the matter, perhaps the Minister will reflect on whether she might introduce a measure on Report to deal with some of the issues that have been raised, after which we can consider whether we want to press the matter further in the House. I beg to ask leave to withdraw the motion.