A year ago the British government imposed a code of practice on four leading supermarkets, covering relationships with suppliers. Now it is up for review by the Office of Fair Trading. They can expect some pretty harsh words, writes Chris Lyddon.
Go deeper with GlobalData
“It doesn’t work. It was never going to work,” David Smith, chief executive of the National Association of Master Bakers, the body that represents craft bakers in the UK, told just-food.com. “Anyone with any practical experience of how supermarkets work would have known it was going to fail.”
Clare Cheney, director general of the Provision Trade Federation (PTF), felt that the code had done little to help the suppliers. “I’d be surprised if any suppliers are happy with it, except perhaps very big ones,” she told just-food.com.
The code, which covers Asda, Safeway, Tesco and Sainsbury, which have a market share above 8%, followed a Competition Commission recommendation that relationships between suppliers and supermarkets should be put on a clearer and more predictable basis.
“Big food companies can look after themselves”
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalDataThe focus has tended to be very much on farmers. Dominic Rush, spokesman for supermarket chain ASDA, told just-food.com that the big food companies could look after themselves. “Our customers would expect us to drive a hard bargain with the likes of Coca Cola,” he told just-food.com. “They can look after themselves in any negotiations with Tesco, Sainsbury, Safeway, us or anyone.
“It doesn’t work. It was never going to work. “
ASDA was building a very strong relationship with farmer suppliers. “There’s been a lot of interest recently in supermarkets’ relationships with farmers,” he said. “We’re building up very close relationships with farmers. Often it’s those who aren’t supplying us who have a dim view of us.”
Britain’s Office of Fair Trading has asked “a wide variety of suppliers organisations,” for their views on the code. “We’ve contacted over 60 trade associations,” the OFT’s Kate Wilcox told just-food.com. “We’re relying on them to represent their members.” But the OFT would not be saying exactly who it was talking to. “We don’t want them feeling inhibited,” she said.
David Smith of the Master Bakers certainly felt that some of his members were intimidated by the big supermarkets. “My members daren’t put their heads up on this or they’ll get chopped off.” Fear of delisting by supermarket buyers was deterring those who were angry at their treatment.
David Smith’s bakers are annoyed by the use of white sliced bread as a loss leader in supermarkets. There have been times in recent years when the price of a standard sliced loaf has gone to way under the cost of production, with tales circulating of farmers buying supermarket bread to feed livestock at less than the cost of conventional animal feed.
Outlaw predatory pricing
“It (the code) should outlaw predatory pricing,” Smith said. “It is difficult to make it work, but other countries have made it work.”
He felt harsh treatment of suppliers was built in to the way supermarkets work. “Take their buyers,” he said. “They are going to get promoted by screwing the suppliers.” That was their job. “Saying I’m going to sustain my suppliers isn’t going to play well with their bosses.”
“The code should outlaw predatory pricing. Other countries have made it work. “
Clare Cheney at the PTF felt that there would always be pressure on suppliers to do whatever the supermarkets wanted. “I don’t hold out much hope that the OFT will be able to help,” she said. “People will always be able to contract out of the code.” Once one gave way all the others would be obliged to as well.
“Suppliers are being asked more and more to cover costs that used to be covered by the supermarkets and should be covered by the supermarkets,” she said, quoting talk of suppliers being asked to cover the cost of transport problems, even when the transport was the supermarket’s job under “factory-gate,” pricing arrangements.
Costs that should be covered by the supermarkets are one of the key issues for the National Farmers’ Union as it prepares its response, according to Head of Marketing Robin Tapper. The Union wants the whole issue of “overriding,” payments, where retailers ask for promotional funds, to be investigated.
Whose fault is it if supermarkets over-order?
Another key issue for farmers under “reasonableness,” is the question of who carries the cost when supermarkets have overestimated demand. The NFU wants the chance to discuss the question, rather than a unilateral decision to return produce leaving the farmer to sell it at a knock down price.
Robin Maynard of FARM, a farmers group which represents “independent and family farms,” echoed some of the NFU’s complaints, in stronger words. “Basically it hasn’t changed anything,” he told just-food.com. “It’s still not a mandatory code and it doesn’t apply to all supermarkets.”
At the Food and Drink Federation, the umbrella body to which many of Britain’s food trade associations belong, Christine Fisk was non-committal, but did say that her organisation had been contacted by the OFT. “We do welcome the review,” she said. But the FDF was not ready to respond. “We’ve got to consult our members. We’re working to the deadline,” she said.
Penny Hawley of the Biscuit, Cake, Chocolate and Confectionery Alliance hid behind the FDF. “It’s no different for us than for any other manufacturers,” she said.
“Economic sustainability is of just as much interest as environmental sustainability. “
Economic and environmental sustainability
Friends of the Earth has led criticism of the code’s working. “It’s a sustainability question,” campaigner Pete Riley told just-food.com. “Economic sustainability is of just as much interest to us as environmental sustainability,” he explained.
“Because of the power of the big multiples a lot of UK farmers and growers are going to be pushed out of business by competition from overseas,” he said. Losing the farmers meant losing biodiversity and spoiling the scenery, hitting tourism. “The government doesn’t recognise the non-food benefits of having a group of small farmers managing the land,” he said.
Even the most radical reform of the CAP would not deliver the results needed; the only answer was for more money from the sale of produce to get back into the hands of farmers.
According to a survey of farmers done by Friends of the Earth, just 44% of farmers were aware of the code of practice. More than half, 58%, did not think it had made any difference to the way supermarkets dealt with them.
Fear of delisting
And he, too, complained that suppliers were too intimidated to speak out over the supermarkets’ treatment. “Nobody will name names in terms of who they deal with,” he said. “People fear delisting or retribution if they’re seen to be complaining.
Responses had to be in to the Office of Fair Trading by last Friday (28 March). When it has seen them all it will review the code and report on whether it is working effectively and whether it needs to be changed.
It has not been holding secret meetings with suppliers, OFT Head of News Mark Kram told just-food.com, despite farming press ire at the OFT’s withdrawal from a long-planned discussion under “Chatham House,” rules, which ban all parties from reporting what was said, at the Country Land and Business Association. “As we are still accepting submissions we felt our attendance at this type of meeting was not appropriate he said.
