FARMERS AND THE SUPERMARKET CODE OF PRACTICE

The Code of Practice was introduced following the recommendation of the Competition Commission, whose investigation into the supermarkets found evidence that the biggest supermarkets (Asda, Safeway, Sainsbury, Somerfield and Tesco) adversely affected the competitiveness of some of their suppliers. Suppliers were therefore likely to invest less and spend less on new product development and innovation, leading to lower quality and less consumer choice. The Competition Commission report listed specific measures which should be included in a Code of Practice, which it stressed must be binding on the larger supermarkets. The Code was introduced in March 2002 and the biggest four supermarkets [1] (Asda, Safeway, Sainsbury and Tesco) gave undertakings to be bound by it. The Code was immediately criticised for being vaguely worded and weaker than the recommendations of the Competition Commission. The Code was produced in close liaison with the supermarkets, which then agreed to be bound by it. Supplier groups such as the NFU who had been consulted over the draft, were quick to criticise the final version.

Since then, anecdotal evidence has suggested that the Code has made no difference to the way in which supermarkets treat their suppliers. For example, a Safeway supplier wrote to the Grocer in February 2003 alleging that Safeway made “demands for six figure payments” which, according to the supplier, would breach the Code of Practice. But the letter went on to say that the supplier felt they could not go to the Office of Fair Trading (OFT) about this as doing so “would damage their business even more” [2]. Other suppliers have echoed this fear about complaining, one supplier commenting that “I would get blacklisted instantly” [3]. It is not surprising then that only one official complaint, from Express Dairies, has been received by the OFT. Others have pointed to the vagueness of the Code, in particular to the references to “reasonable” practices. As one supplier pointed out, “If you are a small supplier negotiating with a retailer who has more than 15% of the market, you can bet it’s not you who defines what is ‘reasonable’… if you don’t like it you can lump it.” [4]. The arrangements for dispute resolution under the Code require that the supplier negotiates with the supermarket in the first instance and that in the case of the dispute not being resolved a mediator is appointed by the supermarket.

The Code applies to all suppliers, although the Competition Commission was particularly concerned with the impacts on smaller suppliers, and it is clear that farmers are meant to be protected by it. The Government’s Strategy for Sustainable Farming and Food, produced in response to the Curry report, notes that: “the major disparity between many very small producer businesses at one end and very large supermarkets at the other has led to tensions within the chain with concern that the smaller players are unable to secure a fair return.” It goes on to say that the Code “defines the principles and practices that apply in order to achieve a fair and balanced trading relationship between the largest supermarkets and their suppliers” [5]. The Department of Trade and Industry has recently confirmed that the Code does apply directly to farmers, even if they supply supermarkets via an agent [6]. However, it does not apply to farmers who sell their produce to an intermediary who then sells on to the supermarket. This appears to be a significant gap in terms of protecting farmers.

THE SURVEY

Some 2,000 forms were sent out to farmers. The majority were selected from commercial databases. Others were distributed by farming organisations.

The Respondents
There were 161 responses by the deadline. The respondents included a range of farmers and growers, including 65 fruit and vegetable growers, 44 dairy farmers, 26 livestock farmers and 15 arable farmers. The farms covered ranged in size from 0.5 to 3000 acres, about a third (29%) were between 125-250 acres (50 – 100 ha)

As noted above, the Code of Practice applies to farmers who supply supermarkets directly or who use an agent. It does not apply to those who sell their produce to an intermediary (eg a dairy) which then sells to the supermarket. Based on the information given to us by the respondents, it is estimated that the Code applies directly to 56 of the 161 respondents (35%).

Some of the respondents supply supermarkets through intermediaries such as milk co-operatives and dairies. But the majority of respondents (65%) whether they supply direct or not considered that it is supermarkets that have the most influence on the food chain.